Thursday, 25 July 2024
by BD Banks
Despite the slow sales growth of electric vehicles (EV) and what some analysts are calling an “EV recession,” Tesla‘s (NASDAQ: TSLA) stock is still up more than 50% over the past three months. It was higher on Tuesday, but the stock pulled back more than 10% this morning after a disappointing second-quarter earnings report that showed deteriorating profits.
Let’s dive into the details and uncover whether Tesla’s second quarter was as bad as the initial headlines would seem.
Tesla reported second-quarter earnings of $0.52 per share, short of Wall Street’s estimates of $0.61 and 43% below the same quarter last year, when Tesla earned $0.91 per share.
But that isn’t the full story. Investors would be wise to consider that the second quarter included a $622 million restructuring charge for employee layoffs. It’s fair to note the charge was larger than anticipated. But if you back out what investors hope is a rare charge, that would add roughly $0.14 to earnings per share during the second quarter.
While revenue managed to climb 2% over the prior year to $25.5 billion, pricing competition and macroeconomic headwinds weighed on its gross margin, which fell 23 basis points to 18%. Automotive gross margin, which excludes regulatory credits and leases, checked in at 14.6%, lower than analysts’ expectations of 15.1%.
Despite mixed top- and bottom-line results, however, there are plenty of reasons for investors to look forward when considering their long-term investing thesis.
There are three major things for investors to focus on when it comes to Tesla, making it easier to take quarterly results with a grain of salt.
First, CEO Elon Musk announced during the second-quarter conference call that Tesla would postpone its unveiling of a dedicated robotaxi model to Oct. 10, after its original date of Aug. 8. While a robotaxi and self-driving vehicles might still seem like science fiction, this unveiling is a big deal for Musk’s artificial intelligence (AI) aspirations. Dan Ives, a Wedbush Securities analyst and longtime Tesla bull, said the unveiling will “unleash the beginning of the AI story at Tesla which we value at $1 trillion alone over the next few years.”
Second, it’s been clear to investors for months now that the high-end EV market is saturated and consumers are pleading for more affordable options. While at one point rumored to have been pushed back to focus on the robotaxi, Tesla is now back on track to deliver a more affordable model during the first half of 2025 — and potentially sooner.
Few details were released, but the plan will combine some elements of its current vehicle platforms and elements of a new platform that will be used for the robotaxi. If Tesla can indeed produce a $25,000 model, and perhaps early in 2025, it will open the doors to a currently untapped mainstream consumer.
Third, while Musk has endorsed former President Donald Trump in this year’s election, it doesn’t automatically mean the company stands to benefit in the near term should Trump win. There are a couple of examples why. Tesla’s plans for a future factory in Mexico are in limbo, as Trump could impose tariffs on Mexican goods, which would negatively impact Tesla vehicles produced in the country. Further, if Trump wins the election and does away with, or greatly reduces, Inflation Reduction Act EV tax credits, it could certainly impact Tesla’s near-term profits (although Musk claims it would be far more devastating to Tesla’s competitors).
While Tesla’s second-quarter earnings disappointed on the bottom line, savvy investors would be wise to look at the big picture. This is merely a speed bump in the broader, and likely unstoppable, transition to EVs worldwide. 2025 is coming fast, and with it brings major reasons for Tesla investors to be optimistic, including a more affordable model and the unveiling of its robotaxi. Those two developments will be pivotal for the groundbreaking EV maker. There was much more to Tesla’s story during the second quarter than just its earnings per share, and the story is really just beginning.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.