Tesla shares jump as record deliveries ease demand concerns

Tesla Inc (TSLA.O) shares opened nearly 7% higher on Wednesday after Chief Executive Officer Elon Musk made good on his promise of delivering record number of electric cars in the second quarter, quelling fears about demand for its sedans and SUVs.

Wall Street analysts and investors have raised doubts about demand and the Silicon Valley automaker’s ability to sort out recent delivery issues, particularly after a disastrous first quarter when deliveries slumped 31%.

“We are increasingly comfortable that they should reflect an even better in the third quarter, and probably their first hundred thousand in a quarter,” Roth Capital analyst Craig Irwin said.

Tesla delivered 95,200 vehicles in the second quarter, beating analysts’ average estimates, but did not comment on when it would return to profitability.

Shares of the company were up 6.4% at $238.92, their highest in nearly two months. Up to Tuesday close, the stock had lost nearly one-third of its value so far this year.

Tesla’s first quarter was hurt by logistics issues at international ports and a drop-off in U.S. orders after a tax credit was halved, which spurred concerns that demand for Tesla’s electric cars may have peaked.

While Musk has been trying to convince investors that demand remains high for Tesla cars and delivery could be made efficiently, some analysts remained skeptical about Tesla’s ability to deliver on its promise and maintain margins.

Needham analysts said they remain cautious about Tesla’s ability to remain profitable and maintain healthy margins, with Credit Suisse analysts also echoing a similar view.

In the quarter, Tesla delivered 77,550 Model 3s – seen as linchpin for its growth into a mass-market company. That compared with analysts’ average estimate of 73,144, according to IBES data from Refinitiv.

Bernstein analyst Toni Sacconaghi said Tesla “has a shot at being profitable this quarter on a non-GAAP (adjusted) basis, even with materially pressured automotive gross margins”.

Tesla still faces multiple challenges, including starting production in China in the backdrop of U.S.-China trade tensions and overhauling its production process at a time when several of its top executives are leaving the company.

“These are undeniably strong numbers, but given Tesla’s recent history of significant swings in performance from quarter-to-quarter we remain cautious for now,” Hargreaves Lansdown analyst Nicholas Hyett said.