/Tesla%20Charging%20Station%20Plugged%20In.jpg)
Tesla (TSLA) reported on July 2 that its total deliveries of EVs gained 10.2% and production rose 8.8% in Q2 over Q1. This implies its free cash flow (FCF) could surge in its upcoming July 19 release of Q2 financials - a major bullish signal for TSLA stock.
The company said that deliveries reached 466,100 for Q2, compared to 422,875 in Q1. This was 2.2% higher than the 445,924 in deliveries that Wall Street was expecting for Q2, according to CNBC.
The markets love upside surprises like this, and it implies that TSLA stock could move higher. One reason is that deliveries are the closest approximation of sales for the quarter according to CNBC.
In early trading on Monday, July 3, TSLA stock is up 6.19% to $277.97, according to Barchart.
Free Cash Flow Could Surge
This was discussed in our previous Barchart article on June 20, “Tesla Stock Surges But Could Still Rise From Here - Best To Short OTM Put Options.” For example, last quarter Tesla had operating cash flow of $2.5 billion and FCF of $0.44 billion.
The difference is the company's capital expenditures (capex). Q1 FCF was down significantly from $1.42 billion of FCF in Q4 and $3.297 billion in FCF for Q3.
As a result of Tesla's 10% higher deliveries this quarter over Q1, it is possible that FCF could have moved even higher than that if capex spending stayed relatively flat or did not rise by 10%.
The reason is that analysts believe that the average pricing of EVs delivered during the quarter stayed relatively flat, according to CNBC. The site refers to a Pipe Sander analyst report on June 26 that that according to the firm’s analysis, “Prices have been stable,” for Tesla during the second quarter on balance.
Therefore, with level price, 10% higher deliveries QoQ, and less than 10% higher capex spending, FCF could move significantly higher than 10%.
This is what is feeding into the market's belief that TSLA stock could move significantly higher.
What This Means for TSLA Stock
TSLA stock is still trading well below its 5-year average of 122x earnings, according to Seeking Alpha. For example, analysts forecast earnings per share (EPS) of $3.51 for 2023 and $5.07 for 2024. These numbers could move significantly higher if Tesla's earnings surprise on the upside. That puts TSLA stock on a forward P/E multiple of just 55x 2024 earnings.
We discussed this in our last article, and the idea of shorting out-of-the-money puts in order to buy TSLA stock cheaper if it reverses and also gain extra income. For example, we discussed shorting the $250 strike price puts for $8.20 in premium for the July 7 expiration period.
As of Friday, June 30, those puts are now trading at $3.60 per put, and will likely move much lower today. As a result, investors may want to keep holding their long TSLA shares and look for ways to buy in cheaper if the stock takes a dip.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
