Tesla’s (NASDAQ: TSLA) shares fell more than 8% in premarket trading today following the company’s release of second-quarter earnings that missed analysts’ expectations. The earnings report highlights ongoing challenges in Tesla’s automotive business, including declining sales, intensified competition, and operational setbacks.
The carmaker reported automotive revenue of $19.9 billion for the June quarter, a 7% decline year-over-year. The company’s GAAP net income for the quarter dropped to $1.5 billion, a significant decrease from $2.7 billion in the same period last year. Non-GAAP net income also fell to $1.8 billion, down 42% year-over-year.
Adjusted earnings margins decreased, with Tesla citing price cuts and increased competition as key factors. The company’s operating income for the quarter was $1.6 billion, resulting in a 6.3% operating margin, down from previous periods.
“Our operating income decreased year-over-year to $1.6 billion in Q2, primarily impacted by reduced vehicle average selling prices (ASP) and increased operating expenses driven by our AI projects,” Tesla noted in its quarterly update.
Tesla has been forced to slash prices globally and offer discounts and incentives amid slowing sales and rising competition, particularly in China, a crucial market for the company. This has contributed to a decrease in the average selling price of its vehicles and a consequent reduction in revenue.
Despite being the leading seller of electric vehicles in the United States, Tesla is losing market share to competitors. The company’s lineup of sedans and SUVs is aging, and CEO Elon Musk’s controversial public statements and political commentary have also been factors in this market share erosion.
Tesla’s stock has declined roughly 10% year-to-date, a stark contrast to the S&P 500’s rise of over 16% during the same period. Following the disappointing earnings report, Tesla shares plummeted more than 8% in premarket trading, contributing to a broader market downturn.
During the earnings call, Musk highlighted several strategic initiatives aimed at bolstering Tesla’s future growth. These include the development of a new affordable car model expected to be delivered in the first half of next year, and advancements in autonomous driving technologies and robotaxis.
“We are on track to deliver a new affordable car in the first half of next year,” Musk announced. He also emphasized the potential of autonomous driving and robotaxis, envisioning a world where Tesla vehicles could operate as part of an Uber-style ride-hailing service autonomously.
However, Musk’s ambitious timelines have historically been met with skepticism. On the earnings call, he delayed the company’s robotaxi event to October, having previously promised it for August. “This is because I wanted to make some important changes that I think would improve the vehicle,” Musk explained, though he did not specify what these changes would be.
Tesla’s profit for the second quarter plunged over 40% from the previous year. The company experienced its second consecutive quarter of year-over-year sales declines, a first in its history, aside from a brief period during the early pandemic when factory closures impacted sales.
The April through June period saw Tesla grappling with both increased competition from established automakers entering the EV market and a general slowdown in EV sales growth. This has pressured Tesla’s margins, particularly as the company has had to offer more competitive pricing to maintain sales volumes.
Despite the challenges, Tesla reported several operational milestones. The company achieved a record in energy storage deployments, with 9.4 GWh of energy storage products deployed in Q2, contributing to record revenues and gross profits for this segment. This indicates Tesla’s efforts to diversify its revenue streams beyond automotive sales.
In addition, Tesla reported a sequential rebound in vehicle deliveries in Q2, driven by improved consumer sentiment and new financing options to offset high interest rates. The Cybertruck became the best-selling EV pickup in the U.S. during this period.
Tesla also made significant strides in its AI initiatives, including reducing the price of its Full Self Driving (FSD) feature in North America and launching free trials. “These programs have demonstrated success and are laying the foundation for more meaningful FSD monetization,” the company noted.
Looking ahead, Tesla did not provide a new sales target for the full year but cautioned that its vehicle volume growth rate in 2024 might be notably lower than in 2023. This is attributed to the company’s focus on launching new products and advancing technological capabilities.
“In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next generation vehicle and other products,” Tesla stated in its outlook.
Tesla continues to face regulatory scrutiny regarding its Full Self Driving capabilities. The company must overcome both regulatory and technical hurdles before it can offer fully autonomous robotaxis. “My predictions on this have been overly optimistic in the past,” Musk admitted during the earnings call.
Additionally, plans for a new assembly plant in Mexico have been put on hold due to political uncertainties and potential tariff threats from former President Donald Trump. Musk, a known supporter of Trump, indicated that the plans are paused until after the presidential election.
Related to future plans, Musk launched a poll on the social media platform X, asking users whether Tesla should invest $5 billion in his artificial intelligence startup, xAI. As of the time of writing, over 322,000 users had participated in the poll, with 70.2% voting in favor of the investment. The poll is set to close within a day.
“Board approval and shareholder votes are needed,” Musk stated, adding that the poll is intended to “test the waters” for the potential deal.
Information for this briefing was found via CNBC, CNN, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
