ii view: Tesla readies for a bumpy ride

Second-quarter results to 30 June

• Total revenue down 12% $22.5 billion
• Auto revenue down 16% to $16.7 billion
• Energy generation and storage revenue down 7% to $2.8 billion
• Services and other revenue up 17% to $3 billion
• Adjusted earnings down 23% to $0.40 per share
• Cash and investments held up 20% to $36.8 billion

ii round-up:

Tesla Inc (NASDAQ:TSLA) detailed sales and earnings that missed Wall Street forecasts, with the electric vehicle (EV) maker warning that the next few quarters could be ‘tough’.

Second-quarter revenue fell 12% $22.5 billion, hindered by increased auto competition and CEO Elon Musk’s move into politics, with earnings down 23% to $0.40 per share. Analysts had expected outcomes of $22.7 billion and $0.43 respectively. A US government move to end an EV tax credit of $7,500 per sold vehicle from September, as well as new US trade tariffs heightening the cost of vehicle components, now overshadow the sector. 

Shares in the Nasdaq 100 company fell 8% following the results, leaving them down by a quarter so far in 2025. The Nasdaq 100 is up 10% year-to-date. EV maker Ford Motor Co (NYSE:F) is up 14% over that time, while owner of the self-drive Waymo business Alphabet Inc Class A (NASDAQ:GOOGL) has gained 2%.

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Tesla flagged its first builds of a cheaper ‘model 2’ vehicle with volume production planned for the second half of 2025. Competitors such as China's BYD are now offering cheaper alternatives to Tesla.

In June, Tesla began testing a robotaxi service across the city of Austin in Texas. Rival Waymo already has services running across several US cities including Austin. 

Production of its Optimus humanoid robot, which Tesla believes could become factory workers or babysit for parents, may now begin early next year. Tesla reiterated its target to produce one million units annually within five years. 

Sales of the group's energy generation and storage systems fell 7% during the quarter to $2.8 billion. Service-related revenues including its growing supercharger network, rose 17% to $3 billion.

Broker Morgan Stanley reiterated its ‘overweight’ stance on Tesla shares post the results, with a fair value price of $410 per share. 

ii view:

Founded in 2003, Tesla today employs around 125,000 people. Geographically, the US dominated in 2024 with close to half of all sales. That was followed by China at just over a fifth, with other markets and including the UK accounting for the balance of close to a third.   

For investors, rivals such as VW, Ford, Mercedes and BMW are all now actively pushing their own EV models, with rivals from China particularly competitive on price. Elon Musk’s venture into politics may have deterred many potential customers with his time spent at Tesla also reduced. US imposed trade tariffs now potentially raise costs, while a forecast price-to-net asset value (NAV) of around 11 times compares to estimates for rivals at under two times, suggesting the shares are not obviously cheap.

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To the upside, developments in products such as self-driving software, a robotaxi, and robots, could all potentially generate significant profits in the future. Innovation in manufacturing techniques including casting one major bodywork item instead of welding together many are reducing costs and therefore potential vehicle sale prices. The number of its supercharger stations rose 14% year-over-year to 7,377, while concerns for global climate change are not going away. 

For now, risks have clearly increased with Elon Musk’s involvement in politics adding to uncertainties. That said, Tesla’s ability to innovate cannot be overlooked, with self-drive and robots likely helping maintain investor interest.

Positives: 

• Climate change concerns persist
• Expanding network of superfast charging stations

Negatives:

• Rising competition from other manufacturers
• Potential regulatory hurdles for self-driving vehicles

The average rating of stock market analysts:

Strong hold