Table of Contents
Tesla (TSLA) stock has taken a significant hit, with a downgrade and multiple target price cuts following a less-than-stellar second-quarter earnings report. The EV giant announced that its earnings plummeted by more than 40%, falling short of expectations, though revenue surpassed projections, bolstered by surging regulatory credits. This has left investors and analysts scrambling to reassess their positions.
Earnings Report Fallout
Downgrade and Target Price Cuts
Tesla shares dropped 10% to $221.57 during market action on Wednesday, following the earnings report and the company’s conference call. On Tuesday, Tesla had already seen a 2% decline to $246.38.
Adam Jonas, a prominent auto analyst at Morgan Stanley and a known Tesla bull, remarked late Tuesday that there is “no big change in outlook” and that Tesla is “muddling through the EV recession.” He noted that the 2024 outlook is essentially a reiteration of previous projections, suggesting little change in consensus expectations.
Cantor Fitzgerald and Other Analysts’ Responses
Cantor Fitzgerald downgraded Tesla from overweight to neutral, although they increased the price target to $245 from $230. They cited the significant rise in Tesla’s stock over the last three months, suggesting a more conservative valuation in the near term. Goldman Sachs and Citigroup also adjusted their price targets, with Goldman reducing theirs to $230 from $248 and maintaining a neutral rating, while Citi’s Itay Michaeli lowered his target to $258 from $274.
Tesla Stock Earnings At A Glance
Tesla (TSLA)
Real-time quote and/or trade prices are not sourced from all markets.
Tesla reported a 43% drop in earnings, down to 52 cents per share. Despite this, quarterly revenue rose to $25.5 billion, a 2% increase from the same quarter last year. Tesla highlighted that it “achieved record quarterly revenues despite a difficult operating environment.”
Gross Margins and Regulatory Credits
Tesla’s gross margins saw a slight decline of 23 basis points to 18%. Excluding regulatory credits and leases, auto gross margins were 14.6%, falling short of the 15.1% expected by analysts according to FactSet. The EV giant’s revenue from regulatory credits reached a record $890 million in Q2, a 216% increase from the $282 million reported in Q2 2023.
Tesla Stock Future Growth Projections
Tesla cautioned that its vehicle volume growth rate in 2024 might be significantly lower than last year. However, the company expects growth in its energy storage business to outpace its automotive segment. During the earnings call, CEO Elon Musk did not provide many new insights, maintaining optimism about self-driving technology, the Optimus robot, and the upcoming robotaxi. Musk confirmed that the robotaxi reveal event has been postponed to October 10, from the previously planned August 8.
Tesla Stock: Not A ‘Trump Trade’
Wells Fargo analysts stated that Tesla stock does not seem to be a ‘Trump trade,’ pointing out that weak fundamentals were evident in Q2. They added that a potential win by former President Donald Trump in the 2024 election and the possible removal of Inflation Reduction Act EV tax credits could negatively impact Tesla’s near-term profits.
UBS Analysis and Vehicle Lineup Concerns
UBS analyst Joseph Spak highlighted stress on Tesla’s automotive business, describing the current vehicle lineup as “limited.” He noted that while unit sales could increase, this might require ongoing promotions. UBS maintained a sell rating with a $197 price target, suggesting that the robotaxi day on October 10 could be a “sell-the-news” event.
Robotaxi Excitement
Wedbush Securities analyst Dan Ives, another longtime Tesla Stock supporter, expressed enthusiasm about the robotaxi event, predicting it would “unleash the beginning of the AI story at Tesla,” which he values at $1 trillion over the next few years. Ives pointed out that while bears focus on auto gross margins and regulatory credit revenue, these factors are “table stakes in the broader Tesla story.” He emphasized that Tesla Stock is increasingly becoming a robotics and AI play, with potential investments in Musk’s xAI company enhancing this strategy.
Musk’s xAI Investment Poll
Following the earnings call, Musk posted a poll on X asking if Tesla should invest $5 billion into his AI company, xAI. He noted that such an investment would require approval from the board and shareholders.
Tesla Stock Performance and Future Prospects
Tesla Stock has a 271 handle buy point on a consolidation pattern dating back several months to a year, according to MarketSurge chart analysis. Shares are set to drop below their fast-rising 21-day moving average.
Investor Sentiment and Recent Developments
Prior to the earnings report, investor sentiment was positive, with Tesla Stock surging over 25% in July following a surprising second-quarter beat in vehicle deliveries earlier in the month. Shareholders recently approved Musk’s $56 billion pay package from 2018 and the company’s reincorporation in Texas from Delaware.
Tesla’s Industry Position
Tesla ranks third in the 35-member IBD Auto Manufacturers industry group, with an 85 Composite Rating out of a possible 99. The stock boasts an 89 Relative Strength Rating and a 61 EPS Rating.
Read More: Netflix’s Wyatt Earp and the Cowboy War Netflix Docudrama Release
Conclusion
Tesla’s recent earnings report has led to a significant reevaluation by analysts and investors alike. While the company’s revenue continues to grow, the drop in earnings and concerns about future growth have prompted a more conservative outlook. As Tesla Stock navigates through these challenges, the focus on AI and robotics, as well as upcoming events like the robotaxi reveal, will be crucial in shaping its future trajectory.
Read More: Remembering Dickey Betts: Allman Brothers Co-Founder and Southern Rock
FAQs
Q1: Why did Tesla’s earnings drop in Q2?
A1: Tesla’s earnings dropped due to a combination of factors, including weaker-than-expected auto gross margins and increased operational challenges.
Q2: What impact did the earnings report have on Tesla’s stock price?
A2: Following the earnings report, Tesla’s stock price dropped significantly, with a 10% decline noted during market action on Wednesday.
Q3: How did analysts react to Tesla’s Q2 earnings?
A3: Analysts reacted by downgrading the stock and adjusting price targets, citing concerns about valuation and future growth prospects.
Q4: What are the future growth prospects for Tesla’s energy storage business?
A4: Tesla expects its energy storage business to grow at a faster rate than its automotive segment in the coming years.
Q5: What is the significance of the robotaxi reveal event?
A5: The robotaxi reveal event is significant as it marks the beginning of Tesla’s broader AI and robotics strategy, which analysts believe could add substantial value to the company in the future.
[…] Read More: Tesla Stock Q2 Performance: Insights from Top Financial Analysts […]