Jul 1, 2019 - Energy & Climate

Tesla's stock rebound may not last

Dion Rabouin

Photo: Justin Sullivan/Getty Images

Tesla's stock is beginning to recover after a brutal start to the year, rebounding about 25% from its June nadir as optimism about second-quarter vehicle deliveries has picked up steam.

The state of play: CEO Elon Musk's message to shareholders that there is "not a demand problem," and June 25 email to employees saying Tesla is "on track to set an all-time record" for deliveries have also helped stabilize the stock. But investors would be wise to sit out any celebration, Charley Grant at WSJ writes.

"For starters, record deliveries would hardly guarantee a profit. Tesla managed a net profit margin of less than 2% in the fourth quarter of 2018.... [T]here is reason to believe margins have shrunk since then."
"We believe that Tesla has an incentive … to 'move the metal;' in other words, prioritize deliveries over margins and pricing, which it appears to have done this quarter," Barclays analysts wrote last week.

Tesla also now faces more competition on its higher-end Model S and Model X cars, which have much higher profit margins than the mass market Model 3, from Jaguar and Audi.

Further, Grant notes, U.S. federal tax credits for Tesla buyers will be reduced again in the U.S. starting today to just $1,875, compared with $7,500 last year.

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Tesla's stock rebound may not last

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