'The elephant in the room for Tesla,' according to WedBush's Dan Ives

After a respectable second quarter, there are some storm clouds on the horizon for the Tesla bulls.
“The elephant in the room for Tesla (and the broader market) is with dark economic storm clouds on the horizon and Musk himself thinks recession risk is imminent. What does this mean for Tesla's future demand story?” Dan Ives, Wedbush's senior equity research analyst, explained in a new note to clients. "In short, while the June delivery numbers were ugly and unremarkable, The Street will focus on trajectory for the second half... and the overall demand picture remains solid."
The electric vehicle maker announced over the weekend that it made 254,695 deliveries in the second quarter. While that represented growth of about 27% year over year, it fell short of analysts' estimates at 256,520. In a note, Citi Itay Michaeli drew attention to the failure to backorder Tesla's Model 3 and Model Y.
Tesla Inc CEO Elon Musk walks next to a screen showing an image of the Tesla Model 3 during a launch ceremony for Tesla's China-made Model Y program in Shanghai, China, 7 January 2020. REUTERS/Aly Song
The electric vehicle company's performance was hampered by a slew of issues affecting the auto industry, ranging from semiconductor shortages to COVID restrictions in China.
Tesla's second quarter suggests that demand hasn't started to reflect consumer concerns about a recession. In fact, it's reasonable to say that Tesla's results would have been better had supply chain challenges not constrained demand.
However, analysts generally agree that a noticeable slowdown in demand in the second half of the year during a period of high costs could put pressure on Tesla's bottom line. That would likely hit the stock, which is down 35% so far in 2022.
Tesla, Inc. (TSLA)
681.79 + 8.37 (1.24%)
Closing: 4:00 p.m. EDT
669.40 -12.39 (-1.82%)
Premarket: 8:36 a.m. EDT
"We suspect that the interaction of price and cost may be the most important driver of Tesla's earnings this year," JP Morgan analyst Ryan Brinkman said in a note to clients. “This combination poses downside risk for Q2, in our view, as Tesla experienced strong battery metals inflation (as well as higher costs for other commodities and non-commodities) in the supply chain, but the announced price increases of over $10,000 for its overall Product ranges generally only apply to new orders and not to existing reservations (as Rivian tried unsuccessfully earlier this year); however, as the year progresses, if these pricing tailwinds continue, they could have a positive impact on more recently declining battery metals costs.
Brinkman lowered his earnings estimates for Tesla's second quarter and full year.
Brian Sozzi is a freelance writer and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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