By Hyunjoo Jin, Akash Sriram

(Reuters) -Tesla on Tuesday reported a smaller-than-expected 5% drop in vehicle deliveries in the second quarter, as the electric carmaker’s price cuts and incentives helped mitigate cooling demand.

Shares of the world’s most valuable automaker rallied more than 10% on Tuesday, hitting the highest level in nearly six months.

The higher-than-expected deliveries data “greatly assuages concerns regarding softening EV demand,” CFRA Research analyst Garrett Nelson said. “The stock continues to ride a wave of positive momentum following its annual meeting in mid-June in which shareholders re-approved Musk’s 2018 compensation plan,” he said, referring to CEO Elon Musk.

While the stock rebound and delivery figures were viewed by some analysts and investors as a sign of possible improvement for Tesla ahead of its robotaxi reveal on Aug. 8, others worried that the EV maker is exhausting its “bag of tricks,” according to research firm Edmunds, with its price cuts and higher incentives.

Tesla handed over 443,956 vehicles in the three months to June 30, 4.8% lower than a year earlier and up 14.8% from the preceding quarter.

Wall Street on average had expected the company to deliver 438,019 vehicles, according to 12 analysts polled by LSEG. Tesla delivered 422,405 Model 3 and Model Ys, and 21,551 units of other models, which include the Model S sedan, Cybertruck and Model X premium SUV. It produced 410,831 vehicles during the April-June period.   

Tesla has been slow to refresh its car lineup at a time when rivals, especially in China, have come up with new affordable models, and as high interest rates dampen demand.

Despite headwinds for its mainstay car business, investors overwhelmingly voted in favor of Musk’s record $56 billion pay package at the meeting. Board chair Robyn Denholm said prior to the vote that reinstating the pay package was necessary for “retaining Elon’s attention and motivating him.” 

Musk said in a social media posting that Tuesday’s rally of Tesla stock is “small relative to vehicle autonomy and Optimus,” referring to his company’s self-driving cars and humanoid robots that he has said will significantly boost the EV maker’s market value once they become reality.

CHINA

Tesla does not provide regional breakdown of sales, but some analysts said better-than-expected sales in China and the United States may have helped Tesla deliver stronger-than-expected results. In April, Tesla made another around of price cuts in key markets such as the United States, China and Europe.

Tesla offered loans with interest rates of zero or near zero percent on car purchases in China and the United States. In the U.S. it heavily promoted its leasing plans, which make its vehicles eligible for $7,500 federal credits.

Chinese automakers said their sales grew by double-percentage points during the second quarter. BYD said its second-quarter sales of battery electric vehicles jumped 21% to 426,039.

Tesla’s China sales, which include domestic sales and exports to Europe and other countries, fell 17% in the second quarter from a year earlier. The company gave no breakdown on its China sales. 

Tesla sales were weak in Europe, with sales down 36% in May alone, due to waning EV subsidies and poor demand from fleet operators, who accounted for nearly half its sales in the region last year.

Meanwhile, Rivian’s vehicle deliveries rose about 9% from a year earlier in the second quarter ended June 30, beating analysts’ average estimates. GM said its EV sales jumped 40% in the second quarter from a year earlier, while Hyundai  and Kia also posted sales gains during the period. 

HEADWINDS

This marks the first time Tesla posted a year-on-year sales fall for a second consecutive quarter.  

Musk has said he expects the company to increase deliveries in 2024 from a year earlier. However, Wall Street largely expects a drop due to poor sentiment around EVs. 

Tesla said in January that it expected “notably lower” growth in deliveries this year and dropped its goal of delivering 20 million vehicles a year by 2030 in its latest annual impact report published in May, a drastic change in tone from its long-term annual growth target of 50%.  

Musk has responded to the headwinds with rounds of aggressive cost-cutting, including mass layoffs, and a retreat from major strategic plans including those for a long-awaited affordable model that had been expected to cost $25,000 and take on Chinese rivals. 

Musk said the company would introduce “new models” including affordable ones possibly by late this year. He said the models would be based on its current platforms and production lines, which marked a retreat from earlier plans. 

Musk has promised to focus Tesla instead on self-driving cars, but some investors and experts remain skeptical that Tesla can perfect it anytime soon.  

Tesla shares were up 7.7% at $226.11 on Tuesday afternoon. The shares have declined about 9% so far this year. 

(Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru; Additinoal reporting by Jaspreet Singh and Ben Klayman;Editing by Shounak Dasgupta, Anil D’Silva, Louise Heavens and Matthew Lewis)

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