Key Takeaways From Tesla’s Earnings Call on July 23, 2024

On Tuesday Tesla Inc. (TSLA) released its second-quarter earnings report, revealing a mixed performance that has significant implications for investors, analysts, and the broader electric vehicle (EV) market. While the company reported a revenue increase, it fell short of earnings expectations, leading to a notable decline in stock price. This report synthesizes key insights from the earnings call, evaluates the implications of the results, and discusses the potential future trajectory of Tesla amidst increasing competition and evolving market dynamics.

Financial Performance Overview

Earnings and Revenue

Tesla’s adjusted earnings per share (EPS) for Q2 2024 was reported at 52 cents, significantly below the expected 62 cents. This represents a 43% decline year-over-year, highlighting a concerning trend in profitability. In contrast, total revenue reached $25.5 billion, slightly exceeding analyst expectations of $24.77 billion and marking a modest 2% increase from $24.93 billion in the same quarter of the previous year. This revenue growth was primarily driven by the energy generation and storage segment, which nearly doubled to over $3 billion, reflecting strong demand for Tesla’s Megapack and Powerwall products.

Automotive Revenue and Deliveries

Despite the overall revenue increase, automotive revenue fell by 7% to $19.9 billion, down from $21.27 billion a year earlier. This decline was accompanied by a decrease in vehicle deliveries, which totaled 443,956, a 5% year-over-year drop. Notably, Tesla produced approximately 410,831 vehicles during the quarter, which also represented a 14% decline compared to the previous year. The disappointing automotive performance raises questions about demand and pricing strategies, particularly in light of increased competition in the EV market.

Profitability Challenges

Tesla’s net income plummeted by 45% to $1.48 billion, down from $2.7 billion a year earlier. The adjusted earnings margin fell to 14.4% from 18.7% in Q2 2023, primarily due to aggressive discounting and incentives aimed at boosting demand in key markets like China and the U.S. The decline in profitability underscores the challenges Tesla faces in maintaining its market position amidst rising competition and the need for strategic pricing adjustments.

Strategic Initiatives and Future Outlook

Robotaxi and Autonomous Driving

During the earnings call, CEO Elon Musk announced the postponement of the highly anticipated robotaxi event from August to October 10, 2024, citing significant design changes. This delay raises concerns about the timeline for Tesla’s self-driving technology, which is critical for the company’s long-term growth strategy. Investors are eager for clarity on the operational status of robotaxis, as the autonomous driving segment is seen as a potential game-changer for Tesla’s business model.

Affordable Vehicle Production

Musk also revealed plans for a new, more affordable vehicle model expected to begin production in the first half of

1. This model aims to target the significant market segment of vehicles priced below $30,000, which could enhance Tesla’s competitiveness against lower-priced offerings from Chinese manufacturers. The introduction of a budget-friendly model could be pivotal in expanding Tesla’s market share and appealing to a broader customer base.

Optimus Robot Development

Tesla’s ambitions extend beyond vehicles, with plans to deploy its “Optimus” robots in factories by 2025 and potentially sell them to other manufacturers by 2026. Musk believes these robots could become one of Tesla’s most valuable products, indicating a diversification strategy that could mitigate risks associated with the automotive sector.

Licensing Full-Self Driving Technology

Musk mentioned that several legacy automakers have expressed interest in licensing Tesla’s self-driving technology. However, he cautioned that it could take several years for these agreements to materialize into significant revenue streams, as traditional automakers would need time to integrate Tesla’s advanced software and technology. This potential revenue stream could provide a buffer against the challenges faced in the automotive market.

Market Reaction and Investor Sentiment

Following the earnings report, Tesla’s stock fell over 8% in extended trading, reflecting investor disappointment with the earnings miss and concerns about future growth prospects. Analysts have expressed skepticism regarding Tesla’s ability to maintain volume growth in the face of increasing competition, particularly in the Chinese market, where rivals have reported a 33% year-over-year increase in sales. The perception that Tesla’s growth may be stalling has led to a cautious outlook among investors.

Analyst Perspectives

Analysts have varied opinions on Tesla’s future. Some, like Guggenheim’s Ronald Jewsikow, have reiterated a “Sell” rating with a price target of $134, citing concerns about near-term prospects. Others remain optimistic about Tesla’s long-term potential, particularly with its focus on innovation and expansion into new markets. The divergence in analyst sentiment underscores the uncertainty surrounding Tesla’s trajectory in a rapidly evolving industry.

Conclusion

Tesla’s Q2 2024 earnings call highlighted a complex landscape for the company, characterized by mixed financial results, strategic initiatives, and a challenging competitive environment. While the revenue growth in the energy segment and plans for affordable vehicles and autonomous technology signal potential avenues for future success, the significant decline in profitability and vehicle deliveries raises critical questions about Tesla’s market position.

As the company navigates these challenges, stakeholders must closely monitor developments in product launches, competition, and regulatory approvals. The upcoming robotaxi event and the introduction of a more affordable vehicle will be pivotal in shaping investor sentiment and determining Tesla’s ability to sustain its growth trajectory. In a market increasingly defined by competition and innovation, Tesla’s strategic decisions in the coming months will be crucial in defining its future as a leader in the electric vehicle space.