The recent rally in Tesla (NASDAQ:TSLA) shares seems to have ended. After a period of gains that helped offset the year’s earlier losses, Tesla stock fell by 11% on Wednesday following the release of its Q2 earnings report.
On the plus side, the company delivered record quarterly revenue of $25.5 billion, representing a 2.3% year-over-year increase and beating the forecast by $760 million. That, though, doesn’t tell the full story as $890 million of that haul was generated via the sale of regulatory credits which more than tripled compared to the same period a year ago. Meanwhile, the main breadwinner, automotive revenue, fell by 7% from $21.27 billion a year ago to $19.9 billion.
While the top-line got a boost from that extra source of income, there was nothing added to paper over Tesla’s deteriorating margin profile. More to the point, the automotive non-GAAP gross margin (including SBC and excluding the revenue from regulatory credits) came in at 14.6%, lower than the consensus estimate of 16.3%. That also represented a drop from the 16.4% margin seen in 1Q24 and 18.1% seen during the same period last year. The end result for the bottom-line was adj. EPS of $0.52, $0.10 under the forecast.
CEO Elon Musk gave some positive chat on the prospect of a more affordable model, self-driving cars, and the Optimus robot driving the business forward, but for Goldman Sachs’ Mark Delaney, an analyst ranked in the top 4% of Wall Street stock experts, the problematic margin profile is set to remain under the microscope for the time being.
“The underlying gross margin in Tesla’s auto business was weaker than we had expected and below consensus, with headwinds from both price/incentives and cost qoq,” notes the 5-star analyst. “Until Tesla is able to begin production of new lower cost models, which the company expects in 1H25, we believe pricing/incentives could remain a key demand lever and weigh on margins. We believe a key debate from here will be around the extent that new models are differentiated enough on price and/or features compared to current offerings to drive improved volume growth.”
As such, Delaney stays on the sidelines for now with a Neutral rating and $230 price target, suggesting shares will fall by 6.5% over the coming months. (To watch Delaney’s track record, click here)
Delaney is joined on the fence by 12 other analysts and with the addition of 13 Buy recommendations and 9 Sells, the stock claims a Hold consensus rating. The average target makes Delaney’s one seems optimistic; at $193.18, the figure factors in a 12-month drop of 21.5%. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
