With Tesla Shares up Nearly 10 Percent Over the Past 5 Days, Q2 2022 Earnings Disclosure Is Likely To Be a Risk-on Event [Updated With Earnings]

Tesla

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Tesla just endured one of its most brutal fiscal quarters on record, hammered by COVID-induced factory closures in China and the residual production bottlenecks emanating from supply chain issues as well as the ongoing activity ramp-up in Giga Berlin.

As a testament to Tesla’s production woes during the period, consider the fact that the company missed consensus delivery expectations of 256,520 units, disclosing actual deliveries of 254,695 EVs during the second quarter of 2022. In the prevailing environment, where the market is predisposed to punish even a slight deviation from expectations, this delivery report could have ended in utter carnage for Tesla shareholders were it not for the company’s record production during June.

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While Q2 2022 deliveries marked a year-over-year increase of 26.5 percent, they represent a sequential decline of 17.9 percent relative to Q1 2022.

This brings us to the crux of the matter. Tesla shares are up nearly 10 percent over the past 5 trading days. Moreover, the demand for put options on Tesla, as measured by the 30-day implied volatility skew between 25-delta puts and calls, is currently at the lowest level since early May.

Source: https://marketchameleon.com/Overview/TSLA/VolatilitySkew/

This suggests that the market appears ready to discount the recent production woes and is looking ahead to upcoming bullish catalysts. Bear in mind that Tesla has repeatedly stated that it expects to increase its annual deliveries by 50 percent for the foreseeable future.

Of course, with Tesla shares down nearly 40 percent since the start of the year, the stock might well have bottomed for now, particularly as the broader market is experiencing a capitulation of sorts amid extremely bearish sentiment. Consider Bank of America’s latest Fund Manager Survey (FMS). The percentage of fund managers expecting a stronger economy has crashed below the level of the Great Financial Crisis (GFC) of 2008! This is despite the fact that US equities are still higher than their 2020 levels.

Moreover, the cash levels – an indication of de-grossing – are now at the highest level since 2001.

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It is for these reasons that bank of America’s Michael Hartnett just turned tactically bullish on US stocks.

Accordingly, today’s earnings disclosure by Tesla might well prove to be a risk-on event that unlocks further gains in the absence of an exogenous shock – acceleration in the inflationary impulse or the advent of a recession.

Analysts expect Tesla to report $16.9 billion in revenue and EPS of $1.80. Analysts are also sure to hone in on the company’s vehicle margins. Bear in mind that Tesla has increased the prices of its vehicles by between 25 and 30 percent on an annual basis. Finally, analysts are also expected to note the company’s free cash flow (FCF) that was generated during the quarter. While FCF estimates were at $2 billion at the beginning of Q2, these have now declined to around $500 million.

Also, Tesla Energy reportedly had its best quarter in quite some time, with 71.5 MW of residential solar capacity added in Q2 2022. Today’s earnings report is expected to validate this development.

Update: Tesla Q2 2022 Earnings

Source: https://tesla-cdn.thron.com/static/EIUQEC_2022_Q2_Quarterly_Update_Deck_J8VLIK.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D"_022-Q2-Quarterly-Update-Deck.pdf"

Tesla has announced $16.934 billion in revenue for the quarter, matching consensus expectations. The company has also announced non-GAAP EPS of $2.27, substantially exceeding expectations. The company earned FCF of $621 million. Automotive gross margin computed at 27.9 percent.

The following para has seemingly energized Tesla investors:

"With each of the Fremont and Shanghai factories achieving their highest-ever production months and new factory growth, we are focused on a record-breaking second half of 2022."

Moreover, Tesla has sold around 75 percent of its Bitcoin stash. The following snippet summarizes Tesla's operations during the quarter:

Tesla Operations

The stock is up around 3 percent in after-hours trading.

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