What happened

Tesla (NASDAQ: TSLA) gave investors more insight into its second quarter over the holiday weekend, and shares are dropping today as a result. The stock dropped as much as 5% in early trading. Shares have since recovered some, but remained down 1.1% as of noon ET.

So what

Heading into the second quarter, analysts were optimistic that Tesla would continue to grow its rate of vehicle deliveries. But supply chain struggles are affecting automakers globally, and Tesla has been no exception. That has affected the pace of production growth at its two new factories. But pandemic-related production delays at its Shanghai facility had the most impact on the second quarter. It resulted in a shortfall of deliveries compared with already reduced analyst expectations.

Tesla delivered just 254,695 vehicles in the second quarter, down from more than 310,000 in the prior quarter. Analysts had been lowering estimates for second-quarter deliveries, but still expected about 264,000 vehicles, according to FactSet Research. The shortfall has some analysts concerned about Tesla's recent valuation in relation to upcoming financial results. Analysts from J.P. Morgan cut the firm's price target to $385 today, representing about a 40% drop from recent levels, reports CNBC.

Now what

It's not just the second-quarter shortfall that has investors concerned. Shanghai is believed to be Tesla's most profitable plant, so profit margin could show a decline when Tesla reports its full second-quarter financial update on July 20. CEO Elon Musk also caused some angst when he recently said that the two new plants in Germany and Texas were burning through cash as supply chain issues throttled production volume.

The good news for investors was that Tesla noted production was recovering in Shanghai and elsewhere. The company said the month of June was the highest vehicle delivery month in its history. Investors may have to weather some further downside to the stock, but as the comment about June shows, the longer-term outlook remains strong.

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