Can Tesla still deliver more than 500,000 vehicles this year?

After the market closes on Thursday, You’re here (NASDAQ: TSLA) announced first-quarter deliveries well ahead of analyst estimates. This impressive achievement has helped allay concerns about the extent of the negative effects of the COVID-19 pandemic on the business.

But one important piece of information was missing from the report: an update on whether management still plans to meet its full-year delivery target in these uncertain times. As the list of companies that have reduced or suspended their annual forecasts continues to grow each day, Tesla remains reluctant.

Does management still think that electric car company can deliver over half a million vehicles in 2020?

Production of Tesla vehicles. Image source: The Motley Fool.

Record deliveries in the first quarter

Tesla’s first quarter shipments were 88,400, a record high for the first quarter, but down from around 112,000 in the previous quarter. Compared to the first quarter of 2019, however, deliveries increased by 40%.

Management said the combined Model 3 and Y units made up 86% of total shipments in the quarter, with its more expensive Models S and X making up the remaining sales. Since model Y deliveries only started in March, and as car production of new models is slow to ramp up, the Model Y likely accounted for a very small percentage of deliveries for the quarter.

On average, analysts expected shipments of 79,900 in the first quarter. But that consensus forecast was based on revised estimates in the weeks leading up to this quarterly update. Analysts expected COVID-19 headwinds in China early in the year and other markets towards the end of the quarter to weigh on shipments. But analysts’ downward forecasts were apparently overly cautious.

Reach 500,000 units

While it should be noted that Tesla beat its guidance for the quarter, the company has its work cut out for it when it comes to meeting its annual target of over 500,000 deliveries, up from around 368,000 in 2019. To meet these forecasts, it will need 137,200 deliveries on average during each of the next three quarters.

The company’s recent launch of the Model Y, which Tesla says will eventually achieve higher annual sales volume than the Model 3, will likely help the automaker in its efforts to increase deliveries. In addition, Tesla’s new factory in Shanghai, where it builds vehicles for Chinese customers, will likely also act as a catalyst this year. But for now, there’s one major obstacle in Tesla’s path: Its plant in California, where it builds most of its vehicles, is closed.

To exceed its forecast of 500,000 vehicles in 2020, Tesla will need this factory to get back online – and soon. Whether or not Tesla hits its forecast, therefore, depends primarily on California’s ability to curb the spread of COVID-19.

Progress in Shanghai

Tesla highlighted the progress made at its Shanghai plant in its update of first quarter deliveries, noting that it “continued to achieve record production levels, despite significant setbacks.”

Additionally, the automaker said in its fourth quarter update that it has installed enough capacity in Shanghai to achieve an annualized production rate of 150,000 units. But since the plant did not start producing vehicles until the end of 2019, it will take time for the automaker to reach a production rate of 150,000. Incremental production at the Tesla plant in Shanghai may fail. not enough to make up for a stop in California.

While management hasn’t lowered its full year delivery outlook with its first quarter update, investors shouldn’t be hopeful. The longer the automaker’s California plant remains closed, the lower Tesla’s chances of meeting its targets.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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