ii view: is Tesla share slump a buying opportunity?

Second-quarter results to 30 June

• Total revenue up 2% $25.5 billion
• Auto revenue down 7% to $19.9 billion
• Energy generation and storage revenue up 100% to $3.01 billion
• Services and other revenue up 21% to $2.6 billion
• Adjusted earnings per share down 43% to $0.52
• Cash and investments held up 33% to $30.7 billion

ii round-up:

Tesla Inc (NASDAQ:TSLA) has detailed a decline in electric vehicle revenue, with adjusted earnings coming in below Wall Street forecasts. 

Auto sales fell 7% year-over-year to $19.9 billion which, combined with restructuring charges in relation to recent staff cuts, took earnings down 43% from a year ago to $0.52 per share. Analysts had forecast $0.62 per share. Overall group revenue rose 2% to $25.5 billion, aided by growth in other services such as super charging point usage and home energy generation and storage products. 

Shares in the Nasdaq 100 company fell 6% in afterhours US trading having come into this latest news down by close to a tenth over the last year. That’s similar to German luxury car maker Mercedes-Benz Group AG (XETRA:MBG), although in contrast to a 28% gain for the tech-heavy Nasdaq 100 index. 

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Accompanying management comments flagged Tesla's focus on company-wide cost reductions, including cutting the cost of making each vehicle as well as accelerating the development of its artificial intelligence-enabled products and services.

An expected update on its self-driving Robotaxi was postponed from 8 August to 10 October, but with CEO Elon Musk still confident about some form of product launch during 2025. 

Discounts and incentives to aid vehicle sales during the quarter helped reduce operating profit margin to 14.4% from 18.7% in the year-ago quarter. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, with a fair value target of $310 per share.  

ii view:

US headquartered Tesla only makes electric powered vehicles, with such sales accounting for 94% of revenues in 2023. Geographically, the US accounts for close to half of all sales, with China responsible for just over a fifth, and other markets including the UK making up the balance. Tesla’s technological developments include self-driving software, a Robotaxi and even the development of humanoid robots which it hopes to use in its factories next year. Tesla’s stock market value of over $700 billion compares to Ford Motor Co (NYSE:F), Volkswagen AG (XETRA:VOW), Rivian Automotive Inc Class A (NASDAQ:RIVN) and General Motors Co (NYSE:GM) all at under $100 billion. 

For investors, competition from rivals like China’s BYD and Saic Motor and its MG brand cannot be overlooked. Required infrastructure, such as charging points, and the pace of their rollout is arguably slow. Consumer concerns over battery life persists, borrowing costs to finance a vehicle purchase remain elevated, while an estimated price-to-net asset value of around 12 times compares to estimates for rivals at under two times, suggesting the shares are not obviously cheap.

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To the upside, climate change concerns are not going away. Other product developments such as self-driving software and a Robotaxi might generate significant profits in the future. A doubling in energy generation and storage product sales this latest quarter is not to be overlooked, while innovative manufacturing and the geographical spread of its factories, including a relatively new plant in Germany, are all aimed at cutting production and shipping costs. 

For now, and while a sizeable portion of Telsa’s valuation looks to be pricing in future products, existing fans of this automotive and technology leader are likely to stay onboard for the ride. 

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