Tesla, Inc. (TSLA) stock tanked 12% yesterday after its Q2 earnings report failed to impress investors. The company reported revenue of $25.5 billion for the quarter, up just 2.3% YoY but more than $760 million higher than analyst expectations. The reported EPS of 52 cents, however, was well below the consensus estimate of 62 cents. The company’s financial performance deteriorated on several fronts, which led to the market rout yesterday. Total automotive revenue declined 7% YoY in Q2 while gross margin contracted by 23 basis points. The operating margin also declined by 333 basis points, leading to a 426-basis point reduction in EBITDA margins. In addition to this, total vehicle production also slumped 14% while total vehicle deliveries declined a more modest 5%. The company also highlighted the probability of lower vehicle volume growth in 2024 compared to the previous year, deteriorating investor sentiment further. 

Tesla's Wild Ride

With government subsidies for EVs being phased out in several key target markets and inflationary pressures denting discretionary spending, Tesla suffered from lackluster demand for EVs in the first couple of months this year. The company also faced production and delivery challenges for its Cybertruck and Semi, forcing investors to reconsider their bullish stance on Tesla stock. Making matters worse, the Autopilot feature developed by the company came under regulatory scrutiny with the National Highway Traffic Safety Administration in the U.S. taking a closer look at the safety of this feature.

Despite these challenges, Tesla made a strong comeback in Q2, selling 443,956 EVs, surpassing the EV sales of 386,810 registered in Q1. This success came on the back of several strategic moves such as aggressive price cuts in key markets such as the U.S., Germany, and China, implementation of cost-control measures, expansion into new markets in Europe and Asia, and investments in expanding the manufacturing capacity in new gigafactories in Berlin and Texas.

What The Analysts Are Saying

Wedbush Securities analyst Dan Ives, after digesting the Q2 earnings reports of a few major tech companies and Tesla, claimed that the market sell-off will be short-lived. Morgan Stanley analyst Adam Jones also shared a similar view with clients yesterday, noting that there is no need to change the long-term outlook for Tesla while it muddles through an EV recession. Cantor Fitzgerald analysts, however, took a different stance and downgraded Tesla while slashing the price target from $245 to $230. According to Cantor analysts, investors need to be more conservative about Tesla’s valuation in the short run. Goldman Sachs analysts also lowered their Tesla price target to $230 from $248 while Citigroup followed suit by cutting the price target from $274 to $258. Commenting on the outlook for Tesla, Wells Fargo analysts wrote in a note that the EV maker will not be well-positioned to prosper if Donald Trump secures a second term.

Dilantha DeSilva does not have positions in this company. Stocks.News has positions in Tesla.