Earlier this month, Tesla released production and delivery numbers well ahead of expectations and reiterated its target for 360k-400k deliveries in 2019, ahead of analysts expecting 345k. That good news was tempered with today’s Q2 results, which revealed a greater than expected loss, a slight miss on automotive gross margin, and the departure of CTO JB Straubel. While the quarter had both gives and takes, we remain confident that the company is turning the corner in its ability to capitalize on the trends of electric vehicles and autonomy.

• Negative – A net loss of $408M was well ahead of expectations, primarily due to spending on Gigafactory Shanghai and Model Y production preparations. The loss was extended by a one-time restructuring charge of $117M.
• Negative – Tesla CTO JB Straubel announced that he is transitioning to an advisory role and will be replaced by VP of Engineering, Drew Baglino. On a long list of executive departures, this is the worst one yet. JB has been at Tesla for 16 years, predating Musk, and was largely credited for recruiting Elon in his early days. This is a different caliber than many of the previous departures we have seen, and will undoubtedly be felt throughout the company.
• Neutral – Most will view the slight miss on automotive gross margins as a negative. However, 18.9% vs expectations of 20%-21% is a small miss, especially considering the headwind of selling lower-optioned vehicles. We anticipate rising margins to come from more revenue recognition as Autopilot features expand, tailwinds from selling higher-optioned vehicles in new markets, and the theoretically more profitable Model Y (once at scale).
• Positive – Tesla produced and delivered a record amount of vehicles this quarter. This points to healthy demand and the absence of manufacturing issues. The company also reiterated its guidance for 360k-400k deliveries in 2019, implying an average of just over 100k deliveries in both of the next two quarters.
• Positive – At $5B, Tesla’s cash position is stronger than ever at a critical time ahead of bringing Gigafactory Shanghai online and tooling Fremont for Model Y production, which will begin next year.

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