Tesla's quarterly deliveries beat estimates on incentives; shares rally

(Reuters) -Tesla on Tuesday reported a smaller-than-expected 5% drop in vehicle deliveries in the second quarter, as the electric-vehicle maker's price cuts and incentives helped stimulate demand.

Shares of the world's most valuable automaker rallied more than 10% on Tuesday, hitting the highest level in over five months.

The EV maker handed over 443,956 vehicles in the three months to June 30, 4.8% lower than a year earlier and up 14.8% from the preceding quarter.

Wall Street on average had expected Tesla to deliver 438,019 vehicles, according to 12 analysts polled by LSEG.

Tesla, which ignited an EV price war more than a year earlier, has also offered discounts and incentives such as low-interest loans and cheaper leasing plans in the U.S., China and Europe, which have weighed on its margins.

Tesla has been slow to refresh its car lineup at a time when rivals, especially in China, have come up with new affordable models, and as high interest rates dampen demand.

The higher than expected deliveries "greatly assuages concerns regarding softening EV demand," said Garrett Nelson, VP and senior equity analyst at CFRA Research.

"The stock continues to ride a wave of positive momentum following its annual meeting in mid-June in which shareholders re-approved Musk’s 2018 compensation plan," he said.

Despite headwinds for its mainstay car business, investors overwhelmingly voted in favor of his record $56 billion pay package at the meeting. Board chair Robyn Denholm said prior to the vote that reinstating the pay package was necessary for "retaining Elon's attention and motivating him."

CHINA

Tesla does not provide regional breakdown of sales, but analysts said better than expected sales in China and the United States helped Tesla delivered stronger-than-expected results.

"It is nice to see kind of a turnaround in US sales domestic sales as well as China compared to when they were struggling so much the first quarter of this year." said Ken Mahoney, CEO of Tesla shareholder Mahoney Asset Management.

Chinese automakers said their sales grew by double-percentage points during the period. BYD said its second-quarter sales of battery electric vehicles jumped 21% to 426,039.

Tesla's China sales, which includes domestic sales and exports to Europe and other areas, fell 17% in the second quarter from a year earlier. Tesla did not give a breakdown on its domestic sales in China.

Tesla sales have been especially weak in Europe, with sales down 36% in May alone, due to waning EV subsidies and poor demand from fleet operators, who accounted for nearly half its sales in the region last year.

Meanwhile, Rivian Automotive's vehicle deliveries rose about 9% from a year earlier in the second-quarter ended June 30, beating analysts' average estimates.

HEADWINDS

This marks the first time Tesla posted a year-on-year sales fall for a second consecutive quarter.

Tesla CEO Elon Musk has said that he expects the company to increase its deliveries in 2024 from a year earlier. However, Wall Street largely expects a drop due to poor sentiment around electric vehicles and high interest rates.

Tesla said in January that it expected "notably lower" growth in deliveries this year and dropped its goal of delivering 20 million vehicles a year by 2030 in its latest annual impact report published in May, a drastic change in tone from its long-term annual growth target of 50%.

Tesla delivered 422,405 Model 3 and Model Y, and 21,551 units of other models, which include the Model S sedan, Cybertruck and Model X premium SUV. It produced 410,831 vehicles during the April-June period.

Musk has responded to the headwinds with rounds of aggressive cost-cutting, including mass layoffs, and a retreat from major strategic plans including those for a long-awaited affordable model that had been expected to cost $25,000 and take on Chinese rivals.

As investors' growth hopes wane, Musk has promised to focus Tesla instead on self-driving cars, including robotaxis which will be unveiled on Aug.8. But some investors and experts in autonomous driving technology remain skeptical that Tesla can perfect it anytime soon, given the immense engineering and regulatory challenges.

(Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru; Editing by Shounak Dasgupta, Anil D'Silva and Louise Heavens)

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