Musk: Tesla Q2 Profitability is "Looking Super Tight"

Rob Maurer

Electrek today obtained a new leaked email from Tesla CEO Elon Musk as Tesla enters the final two days of their second quarter. While Tesla (TSLA) -Get Report won't report earnings until late July, they will report production and delivery numbers for the quarter later this week.

Despite significant COVID-19 related production suspensions during the quarter, Musk now reportedly says Tesla has a shot at being profitable in Q2.

“Breaking even is looking super tight. Really makes a difference for every car you build and deliver. Please go all out to ensure victory!” - Elon Musk

Last quarter, Tesla delivered 88,496 vehicles and managed to post their third consecutive profitable quarter with a GAAP profit of $16M. 

Screen Shot 2020-06-29 at 3.05.49 PM

The market is especially focused on Tesla's profitability this quarter, because if Tesla is able to post even $1 of GAAP profit, the company becomes eligible for inclusion in the massive S&P 500 index.

"The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter." - S&P U.S. Indices

A profit for Tesla would fulfill both of these requirements. At Tesla's current $187B market cap, the company would be poised to debut in the top-30 most valuable companies in the S&P 500 index if it were selected by the index's selection committee. 

Leaked emails from Musk in the past may give us some insight into the likelihood of profitability this quarter. The second and third quarters of 2019 had similar leaks in the final days of the quarter.

First we'll examine Q2-2019. On Wednesday, May 22, 2019, Musk wrote the following:

"Based on current trends, we have a good chance of exceeding the record 90,700 deliveries of [Q4-2018] and making this the highest deliveries/sales quarter in Tesla's history!" - Elon Musk, 05/22/19

Following the email, Tesla achieved record deliveries in Q2-2019, reporting 95,356 deliveries and easily exceeding the target in Musk's email. Given the overachievement, Musk likely viewed the milestone as highly-likely at the time he sent the email. Perhaps today's email could be viewed in the same light, suggesting profitability is likely.

However, Tesla's third quarter of 2019 suggests differently. Late in Q3-2019, Electrek reported on another leaked email from Musk.

"We have a shot at achieving our first 100,000 vehicle delivery quarter, which is an incredibly exciting milestone for our company!" - Elon Musk, 09/26/19

A few days later, Tesla reported 97,186 deliveries for the quarter, falling short of the 100,000 delivery target in Musk's email.

In both cases, Musk used milestones to provide motivation to Tesla employees at quarter-end. Based on the Q3-2019 email, though, utilization of such milestones is no guarantee they will be achieved by Tesla. The upcoming delivery and production report will give analysts a better idea of the feasibility of a Q2-2020 profit, and Tesla will report final numbers in late July.

Comments (6)
No. 1-3
DJJeffty
DJJeffty

I can't agree more... the very fact that "breakeven" is on the table is HUGE. Breakeven during a global pandemic is victory, but close to breakeven is still really great. Apart from the handful of stay at home stocks that weathered fairly well (ZM, NFLX, SHOP to name a few), I think that Q2 earnings across the market will be ugly due to COVID-19. I'll take breakeven with half the production time!

josevirella
josevirella

Thank you Rob. Great info as always!

BETA1019
BETA1019

Great to see this up and running. Reminds me of Philip Elmer Dewitt running an Apple microsite on (IIRC) Fortune. I think it was called Apple 2.0

Anyway, congrats!


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