Stock investment – Will Tesla Motors, Inc. Reduce Its Full-Year Guidance? — The Motley Fool



Stock investment

Model S. Image source: Tesla Motors.

Electric-car maker Tesla Motors (NASDAQ:TSLA) went into 2016 with an ambitious target for delivery growth. It planned to deliver 80,000 to 90,000 vehicles — up 58% to 78% from its 50,635 deliveries in 2015.

But after a slower-than expected first half of 2016, it’s unlikely Tesla can deliver this many vehicles. Indeed, there’s a good chance Tesla will reduce its outlook for full-year deliveries when it announces second-quarter results on August 3. 

Falling behind

While Tesla has clearly indicated from the beginning that it anticipates the back half of the year to represent a larger portion of deliveries than the first half, it also expected the first half of the year to go better than it has. Missing its own guidance for vehicle deliveries in both Q1 and Q2, Tesla has delivered just 29,190 vehicles during 2016, so far.


In Q1, Tesla expected to deliver about 16,000 vehicles, but actual deliveries were 14,820, or about 7% lower than guidance. In Q2, Tesla’s 14,370 deliveries fell 14% short of its guidance for 17,000 units. After a worse-than-expected first half of 2016, Tesla has about 55,800 deliveries left in order to hit the middle of its guidance range — well over the 50,635 vehicles Tesla delivered during the entire year of 2015.

Interestingly, the last update from Tesla, which came on July 3 when the company announced second-quarter vehicle deliveries, already indicated Tesla is reducing its guidance for the full year. The company said it now “expects to produce and deliver about 50,000 vehicles during the second half of 2016.” Fifty-thousand deliveries in the second half of 2016 would put total deliveries in 2016 at 79,190 — below the low-end of Tesla’s guidance range for the year.

Therefore, unless Tesla’s production ramp between July 3 and August 3 goes better than expected, Tesla is likely to reduce its guidance for 80,000 to 90,000 vehicles in 2016 when it releases its second-quarter shareholder letter.

Why it matters

In some ways, it may be tempting for investors to give little weight to reduced guidance for full-year deliveries. After all, 79,190 deliveries in 2016 would still represent a significant 56% year-over-year increase. Further, a slight shift to the right or left on an exponential production ramp has a significant impact on deliveries recorded in a given period, so volatility should be expected.

Tesla’s factory in Fremont, California. Image source: Tesla Motors.

But when investors put this worse-than-expected production ramp into perspective regarding where the company is headed, this underwhelming start to the year becomes more concerning. In the company’s first-quarter shareholder letter, Tesla surprised investors by announcing it is now planning to reach a 500,000 unit build rate by 2018 — two years earlier than planned. With a target so significant just over two years away, Tesla’s underperformance on much-smaller targets in 2016 makes its longer-term target less believable.

Of further concern is Tesla’s recent pattern of missing its own production and delivery targets. Not only were Tesla’s first- and second-quarter deliveries lower than expected, but the company was forced to lower its full-year guidance in 2014 and 2015.

When Tesla releases its second-quarter shareholder letter on August 3, don’t be surprised if the automaker opts to reduce its full-year guidance for a third year in a row.

– Stock investment

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