Tesla Deliveries Might Surge in Q2

If an email from Tesla (NASDAQ: TSLA) CEO Elon Musk to employees this week is any indication of how vehicle deliveries for the electric-car company may fare this quarter, they'll jump both sequentially and year over year. The news is reaffirming, as a growing number of analysts and investors are worried about demand for the vehicles.

Will Tesla report record deliveries?

"Based on current trends, we have a good chance of exceeding the record 90,700 deliveries of Q4 last year and making this the highest deliveries/sales quarter in Tesla history!" said Musk in an email to employees Wednesday night, according to the website Electrek.

If Tesla can deliver 91,000 vehicles in its second quarter, this would represent a 44% and 123% sequential and year-over-year increase, respectively. In addition, this would put trailing-12-month vehicle deliveries up nearly 160% year over year.

Notably, management guided for 90,000 to 100,000 deliveries in the company's first-quarter shareholder letter. But there have been concerns that Tesla was overly optimistic about its guidance for the period. Wednesday night's email from Musk suggests Tesla's guidance may be within reach after all.

The record quarter would follow Tesla's worse-than-expected deliveries in Q1. Deliveries during the period suffered from a sharp drop in Model S and X orders following a pull-forward of demand for the two vehicles in Q4 as U.S. customers aimed to take delivery before the U.S. electric vehicle tax credit was cut in half. In addition, troubles with shipping the Model 3 overseas hurt the quarter's delivery tally.

Can Tesla build enough vehicles?

The wording of Musk's email suggests supply is the primary constraint for deliveries during the quarter. To surpass its record-high deliveries achieved in Q4, Tesla needs "sustained output of 1,000 Model 3's per day," Musk said.

He continued: "Almost all parts of the Model 3 production system have exceeded 1,000 units on multiple days (congratulations!!) and we've averaged about 900/day this week, so we're only about 10% away from 7,000/week."

If Tesla "rallies hard," the company can achieve this, Musk said in the email.

Growth is a key for profitability

Execution on its growth plans is crucial for Tesla since higher deliveries lead to improved economies of scale and -- ultimately -- profitability. The automaker demonstrated this in Q4 when record deliveries helped Tesla achieve positive free cash flow of $910 million and earnings per share of $0.78.

While Tesla isn't expecting to be profitable in its second quarter on a GAAP basis, management did guide for positive free cash flow during the period. To become profitable on a GAAP basis as well, deliveries will need to continue to rise throughout the year. "As the impact of higher deliveries and cost reduction take full effect, we expect to return to profitability in Q3 and significantly reduce our loss in Q2," management said in Tesla's first-quarter shareholder letter.

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