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Tesla (TSLA) releases Q2 earnings: Hero or zero？
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Why Is Tesla Stock Down After Earnings?

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To the Moo joined discussion · Jul 21, 2023 02:29
On July 20, EST, $Tesla(TSLA.US)$ Stock Falls 9.7% Again After Second-Quarter Earnings Beat Estimates.
The market's main concerns about Tesla ahead of earnings season include:
1, After many rounds of price cuts, Q2 auto gross margin can bottom out?
2, The market needs more details of the new model. Including Cybertruck pricing, other specification information, when to start the first delivery and when to start mass production and other issues; and when Model 2 can be launched?
3. What about Tesla's overseas expansion plans, new AI developments, and more information on the Supercharger network?
What kind of answers did Tesla give to these questions?
1. Gross margin may continue to fall
According to the financial report, Tesla's total revenue in the second quarter of this year exceeded the expected growth of nearly 50%, refreshing the highest single-quarter record set in the fourth quarter of last year, and the growth rate of performance still maintains a high growth rate. Especially considering the current global macro-environment, this result is not easy to come by.
source：moomoo
source：moomoo
In the financial report, Tesla summarized some of the factors that impacted revenue and profitability in the second quarter, and those that had a positive impact included:
Growth in automotive deliveries (466,000 sales in Q2 and $21.3 billion in revenue from automotive sales and leasing, which contributed the majority of revenue);
Revenue and gross profit growth in the company's other businesses outside of automotive (energy storage revenues of $1,509 million, up 74%, and services revenues of $2,150 million, up 47%; both grew at high rates but at too small a volume);
Lower average cost per vehicle, including lower raw material costs and IRA carbon credits ($282 million in revenue from the sale of carbon credits in the second quarter, a sharp decline of 45.9% from $521 million in the first quarter and to a low since the third quarter of 2021).
Negative impact factors included:
Year-over-year decline in average selling price (ASP) of vehicles, excluding the impact of foreign exchange;
Costs of the 4680 battery production ramp-up and other related expenses;
Higher operating expenses for the electric pickup truck Cybertruck, AI and other large projects;
Negative foreign exchange impact on revenue of $0.6 billion (down 25% from $0.8 billion in the first quarter and well below $1.4 billion in last year's fourth quarter).
As a result of these negative factors, gross margin, the market's most closely watched metric, fell to 18.2%, below the market's general expectation of 18.7% and at a four-year low. In his Q2 financial conference call, Musk revealed that if the economy continues to falter on the downside, Tesla will have to continue to cut prices in order to maintain its edge in the market.
2, AI new progress for the time being no more information can be revealed
However, on this financial report conference call, Musk did not reveal much further information on the new models and AI progress that the market is concerned about.
Cybertruck is seen as the key to Tesla's future growth. Tesla previously announced that it plans to start deliveries around the end of the third quarter of this year. In Wednesday's report, Tesla said it was installing equipment to produce the Cybertruck at its Texas mega-factory, which is still on track to achieve initial production this year.
There's also very little information about the upcoming Model 3 upgrade, and no real hints about future next-generation models.
The humanoid robot business is considered one of the most important landing scenarios for AI technology, and one that is extremely tempting to imagine. Asked about the demand for Tesla's humanoid robot Optimus, Musk said that Optimus production will be huge, however, there are still many challenges to the mass production of Optimus, for example, there is no supplier to produce the actuators required for Optimus, which must be customized.
He also mentioned that now that Tesla has produced 10 units of Optimus, it is expected that Optimus will be used in the Tesla factory for some production activities next year.
In terms of artificial intelligence, Tesla disclosed in its latest financial report that it has begun production of the Dojo training computer. Musk told investors on Wednesday that "we're going to spend over $1 billion on Dojo" over the next year.
The disclosure of this massive expenditure seemed to scare investors, and Tesla CFO Zachary Kirkhorn was quick to clarify on a conference call that the investment was for research and development and capital expenditures respectively, and was in line with the previously announced three-year spending outlook.
What does Wall Street think?
In fact, even if the gross profit of automobile continues to decline, it may not be a big problem for Tesla.
Tesla's poor financial data in the first quarter had already disappointed investors, and the stock price fell nearly 10% the next day. However, Tesla's stock price has continued to rise sharply since then, up 138% year-to-date. This is because with the development of AI technology, the market has more imagination about the future growth of its self-driving business.
source：moomoo
source：moomoo
Musk has previously said that he is willing to sacrifice Tesla's profits in the short term to actively compete for market share, the purpose is to make more money when the realization of "fully autonomous driving", and through the operation of "unmanned driving cabs" (robotaxis) to earn additional income, he even boasted "the realization of autonomous driving, and can even buy a car at zero profit later".
Tesla's strategy is to exchange profits for volume and then focus on realizing the cost of FSD software, completing the valuation switch from a traditional car manufacturer to an AI technology software company, which is similar to the user flow business of Internet companies.
This seems to be gradually recognized by the market.
While Tesla doesn't have the "shovel-ready" influence on the AI industry as a whole that $NVIDIA(NVDA.US)$ does, it uses AI to train its Autopilot technology, and with hundreds of thousands of Tesla owners having bought Tesla's most expensive Autopilot kit, it could benefit from the optimism that comes with NVIDIA's strong results.
Jefferies analyst Philippe Houchois recently released a report pointing out that the second quarter will be the trough of Tesla's gross margins, which is the current consensus on Wall Street. And, for now, Tesla's valuation drivers seem to have changed, as the market seems to have begun to believe that Tesla is an artificial intelligence company and to anticipate the huge revenue potential of its self-driving technology.
Goldman Sachs and Morgan Stanley have also released reports stating that the bottoming out of automotive gross margins and the AI technology advantage are the main factors driving Tesla's recent binge rally.
However, the failure of the results to bring more incremental information to the market about the progress of autopilot technology, coupled with a disappointing gross margin performance, may be the main reason for Tesla's after-hours share price decline.
Nicholas Colas, co-founder of DataTrek Research, believes that of Tesla's current market capitalization of more than $900 billion, only about $200 billion to $300 billion comes from the electric car business, while the remaining $600 billion to $700 billion are "self-driving call options".
If investors buy Tesla stock at its current valuation level and expect the stock price to rise further, they need to believe that it will be able to realize true full-autonomous driving soon. This means that if Tesla fails to achieve fully autonomous driving, its stock price could plummet by about 70%, according to Colas' valuation model.
Of course, FSD faces a lot of problems in the short term, including safety and regulatory issues, in addition to bottlenecks in the technology itself. But as long as FSD can't be disproved in the long run, Tesla's valuation is still imaginative.
What do Mooers think?
Is Tesla's stock price expensive today? The answer depends on whether it can realize the pie it has painted.
Musk emphasized in the earnings meeting that Tesla is a long-term value investment company, its stock price is expected to rise 5 times to 10 times in the next few years, and it has to make value investment like Warren Buffett.
"We believe that Tesla has a lot of room for growth, and we are developing many innovative products and services, such as autonomous driving, battery technology, humanoid robots, and solar roofs. We believe these products and services will bring us huge revenues and profits," Musk said.
Each of the businesses here undoubtedly has unlimited growth potential. But the short-term help to Tesla's performance will remain limited.
Of course, as Kim Forrest, chief investment officer of Bokeh Capital Partners, has said, many investors are not investing in Tesla, but in Elon Musk. So for Musk and Tesla's true believers, their faith will remain intact even if they don't launch the FSD, Cybertruck or a new, more affordable electric car this year.
All in all, the market may be penalizing Tesla stock in the short term with a less-than-expected earnings update, but for those who have been investing for a longer period of time or have faith in Tesla, this becomes an opportunity to buy shares now.
After all, Tesla's stock has historically doubled in more than one "maddening" way, and Musk, for one, never runs out of pies to paint.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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