After a shockingly weak first quarter, Tesla (NASDAQ:TSLA) faced a lot of pressure to get things moving in the right direction again in the second quarter.

On Tuesday afternoon, it followed through, reporting a quarterly record for deliveries. It increased its order backlog during the quarter as well, indicating that order activity has bounced back from a weak start to 2019. That should help restore some investor confidence in Elon Musk's company. Still, it is likely to report a sizable loss for the quarter -- and it's not clear yet if the uptick in orders is sustainable.

A much stronger quarter for Tesla

In the first quarter of this year, Tesla's orders, production, and deliveries plummeted relative to the final quarter of 2018. Most notably, it delivered just 63,000 vehicles, down by 31% from the previous quarter. That included a horrendous drop exceeding 50% for the more-lucrative Model S and Model X.

As expected, Tesla turned things around in the second quarter. And the improvement in its order and delivery numbers was even greater than what most Wall Street analysts had expected.

It says that it delivered approximately 95,200 vehicles last quarter, topping the record of 90,700 set two quarters earlier. Furthermore, orders exceeded deliveries, leading the company to conclude, "We believe we are well positioned to continue growing total production and deliveries in Q3."

A Tesla Model 3

Tesla posted a new record for vehicle deliveries in the second quarter, and its Model 3 was a big contributor. Image source: Tesla.

Production significantly lagged deliveries during the quarter, as it built 87,048 vehicles. That's great news from a cash-flow perspective, as it meant that it exited the quarter with less inventory and fewer vehicles in transit to customers. However, it does raise the question of whether the company still faces supply constraints that could prevent it from meeting its growth targets.

The news wasn't all good

While the delivery update had plenty of good news for investors, there were still a couple of red flags.

First, the Model S and Model X combined for 17,650 deliveries last quarter. That represents an improvement over the first quarter, when Tesla delivered just 12,100 Model S and Model X vehicles, but it's still far below the 22,300 delivered in Q2 2018. Competition from the lower-priced Model 3 appears to be sapping demand for the Model S and Model X, which is bad news because those models produce far more profit than the Model 3.

And while the company surpassed analysts' estimates by delivering 95,200 vehicles last quarter, this performance was right in the middle of its own guidance range for 90,000 to 100,000 deliveries. That gives Tesla 158,200 deliveries for the first half of 2019. It will need to deliver more than 200,000 cars in the second half of the year just to meet the low end of its full-year guidance for 360,000 to 400,000 deliveries. So it needs to ramp up orders, production, and deliveries even beyond Q2 levels to achieve its full-year targets.

Will performance get better or worse?

While Tesla was profitable in the second half of 2018, it's doubtful that the company turned a profit last quarter, despite achieving a record delivery total. Not only did it deliver about 10,000 fewer Model S and Model X units than it did in the third and fourth quarters of 2018, but the company is also delivering a much less favorable mix of the Model 3. Last year, Model 3 deliveries tilted toward heavily optioned versions priced at nearly $60,000 on average. By contrast, Tesla began delivering the $35,000 base model a few months ago.

Thus, it needs to grow even more or lower its costs to reach breakeven. Yet just repeating the Q2 delivery performance could be challenging. The surge in demand last quarter may have been driven partly by the launch of the Model 3 outside North America, as well as the initial availability of the $35,000 version in the U.S. The reduction of the federal tax credit for Tesla purchases from $3,750 to $1,875 that took effect on July 1 also likely spurred demand.

A silver Tesla Model S driving on a road

Tesla probably lost money last quarter despite achieving record deliveries. Image source: Tesla.

Those tailwinds won't exist this quarter. There's a risk that the tax credit reduction pulled some demand forward into the second quarter, in parallel with what happened six months earlier.

On the other hand, it's possible that the rebound in order activity last quarter reflects increasing interest in electric cars -- and Teslas in particular. Additionally, Tesla hopes to open a new factory in China before the end of 2019, which will allow it to dramatically lower its prices in the world's largest electric vehicle market. That could pave the way for massive sales growth there.

In short, while the strong Q2 delivery report is a step in the right direction, bulls shouldn't take a victory lap quite yet. Tesla seemed to have turned the corner toward profitability in the second half of 2018 before falling deep into the red again to begin 2019. It still needs to show that the uptick in order activity seen during Q2 will last, even as electric vehicle subsidies continue to fall, enabling the company to reach sustainable profitability.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.