Tesla (TSLA) is facing a downturn after missing EPS expectations for the fourth consecutive quarter due to ongoing price cuts impacting margins and earnings. Despite reporting better-than-expected Q2 deliveries of 443,956 on July 2, deliveries were down by 5% year-over-year, even with aggressive price cuts. Rising competition in China has also dampened demand, shifting focus to the company's future growth drivers. Unfortunately, there was disappointing news for TSLA shareholders.
- CEO Elon Musk confirmed that TSLA won't unveil its robotaxi until October, after initially targeting August. Delays are not new for TSLA, as seen with the Cybertruck initially planned for 2021. However, investors are growing impatient for new growth catalysts.
- TSLA's EPS plunged by 43% year-over-year to $0.52, with automotive gross margin dropping by 180 basis points to 14.6%. For comparison, the automotive gross margin in Q2 2022 was 27.9% on a GAAP basis.
- Musk believes in sacrificing margins for volume growth, seeing future success in deploying software like full self-driving technology to a larger fleet.
- This strategy will continue to pressure margins until software revenue increases or market share losses stabilize.
- The Energy Generation and Storage business was a bright spot, doubling revenue year-over-year to $3.0 billion with record energy storage deployment of 9.4 GWh. This growth helped TSLA avoid back-to-back quarterly revenue declines, with total revenue increasing by 2.3% to $25.5 billion.
- TSLA also registered $890 million in sales of regulatory credits to other automakers, aiding competitors in meeting emissions requirements.
- TSLA is losing ground to Chinese competitors like BYD Company (BYDDY), NIO (NIO), Li Auto (LI), and XPeng (XPEV). Additionally, TSLA acknowledged that its vehicle growth rate in 2024 might be significantly lower than the 38% delivery growth seen in 2023.
The company reaffirmed its plan to start production of the new mass-market Model 2 vehicle in the first half of 2025 and to ramp up investments in AI initiatives. However, the outlook for the next few quarters appears challenging. Complicating matters further is the upcoming presidential election in November, which prompted Musk to pause plans for a new factory in Mexico due to Donald Trump's potential tariffs on Mexican-made products if he wins.
