It is expected that deliveries in the second quarter will decline for two consecutive quarters, but Tesla's stock surged nearly 7% due to the increase in deliveries by its peers

Tesla will announce its second-quarter delivery volume on Tuesday. Currently, Wall Street analysts generally expect Tesla's second-quarter delivery volume to decline for two consecutive quarters. The last time this happened was in 2012 when the company was gradually phasing out its first model, Roadster. However, driven by the rise in stock prices of Li Auto and Nio, Tesla's stock price rose nearly 7% on Monday.

Aging Models and Cooling Market Lead to Delivery Decline

According to analysts' estimates, Tesla is expected to announce a delivery volume of 441,019 vehicles for the second quarter on Tuesday, a 5.4% decrease from the same period last year. This will be the second consecutive quarter of decline. Analysts say that although Tesla has resolved some of the difficulties it faced earlier this year, including suspected arson attacks near the Berlin factory and transportation diversions caused by the Red Sea conflict, the consecutive decline in delivery volume for two quarters leaves the company with almost no excuse for slowing sales, likely due to a relatively simple issue: Tesla's older models are struggling to keep up with the competition's new electric vehicle models.

"When you face more competition and your current model lineup is somewhat outdated, growth becomes more challenging," said Tom Narayan, global automotive analyst at RBC Capital Markets, who rates Tesla stock as a buy.

Tesla CEO Musk has tried various methods to stimulate demand for Tesla vehicles, including significant price cuts and offering low-cost leasing deals. However, these discounts did not prevent a slowdown in Tesla sales in the second half of last year, as the entire electric vehicle market cooled down, leading to eventual sales decline.

Musk also announced significant layoffs in April, affecting over 10% of Tesla employees, including sales staff. Analysts believe that while this may have helped the company save cash, it may have also had an impact on its second-quarter delivery numbers.

Moreover, first-time electric vehicle buyers often have many questions about battery life, charging stations, and software-based features. However, Musk is increasingly betting on a primarily online sales process, encouraging consumers to order Tesla without showrooms.

At the same time, as the best-selling model globally last year, Tesla seems to be struggling to build on the success of the Model Y. The Model Y was launched as early as 2020, while the Model 3 sedan was introduced back in 2017. As Tesla's only new product, the company's first pickup truck, Cybertruck, has been progressing slowly since the end of last year and has faced multiple recalls, including issues with the accelerator pedal and windshield wipers.

Peer-driven Expectations for Robotaxi Boost Tesla's Stock on Monday

However, investors reacted indifferently to several analysts' recent downward revisions of Tesla's vehicle delivery expectations in the past few weeks. On Monday, in response to reports from Chinese electric vehicle peers Nio and Li Auto showing year-on-year growth in vehicle deliveries for June, the stocks of both companies rose by 6% and 5.5% respectively in the US market Boosted by the rise in the industry, Tesla's stock price rose as much as 6.9% on Monday, marking the fifth consecutive day of gains, the longest streak in nearly a year.

In addition, Musk promised to launch a new model by the end of this year, which boosted the stock price. He also discussed the prospects of the company's humanoid robots at last month's shareholder meeting and plans to release a dedicated robotaxi in August.

Analysts say that more and more investors are now focusing on Tesla's Robotaxi event in August. Robert W. Baird analyst Ben Kallo said, "While second-quarter deliveries are particularly important for annual data and whether 2024 will be a growth year is worth noting, the focus is expected to be on the long term, looking at the release of Robotaxi."

Kallo expects Tesla to deliver 435,200 vehicles in the third quarter and approximately 1.83 million vehicles for the year, slightly higher than the total for 2023. While Tesla promised to launch a new model no later than early next year in April, no details have been provided about these vehicles, and the growth in 2024 is expected to be "significantly lower" than this year.

Wells Fargo: Still Down 40%

Meanwhile, Wells Fargo on Monday included Tesla in its "strategic recommendation list," with analysts at the bank saying that Tesla's stock price may be hit in the third quarter as the strategy of boosting sales through price cuts has lost momentum. The bank predicts that Tesla will deliver 1.55 million vehicles this year, a 14% decrease year-on-year, and below the market's general expectation of 13%.

Wells Fargo has a underweight investment opinion on Tesla and has set a target price of $120 per share, implying nearly a 40% downside from Friday's closing price of $197.88. As of Monday morning's U.S. market opening, Tesla's stock price has fallen by about 17% year-to-date.

Analysts at Wells Fargo stated that the ownership rates of electric vehicles in the United States and the European Union have stabilized, and Tesla faces fierce competition in China from companies like BYD, with "almost no immediate means to increase sales."

Wells Fargo also expressed concerns about the demand and profit margins of Tesla's small mass-market Model 2. The bank predicts that lower delivery volumes and price cuts could lead to a 44% year-on-year decline in Tesla's earnings per share.

"We are cautious about profit margins, as there is a high likelihood of price cuts and declining sales," said a Wells Fargo analyst. "In addition, we are concerned about the launch of its next-generation models and their demand and profit margins."