Tesla slides as Q2 profit falls 45% on weak EV demand

Shares of Tesla (TSLA) are under pressure on Wednesday following the company’s mixed second quarter results, with the EV maker reporting a 45% drop in profit amid sluggish sales. Following the results, both Cantor Fitzgerald and New Street downgraded the stock to Neutral-equivalent ratings. On the flip side, Piper Sandler raised its price target on the shares to $300, saying that despite an “unexpectedly” large quarter-over-quarter decline in automotive gross margin, the firm is “with Elon (Musk): in the grand scheme, this topic matters little.”

RESULTS: Tesla reports Q2 adjusted EPS of 52c, which was worse than the expected 62c, and revenue for the quarter of $25.5B, beating a consensus estimate of $24.77B. The company also said it still sees “notably lower” volume growth rate for 2024. “Our focus remains on company-wide cost reduction, including reducing COGS per vehicle, growing our traditional hardware business and accelerating development of our AI-enabled products and services. Though the timing of Robotaxi deployment depends on technological advancement and regulatory approval, we are working vigorously on this opportunity given the outsized potential value. Concurrently, we are managing our product portfolio with a long-term orientation and focusing on growing sales, maximizing our installed base and generating sufficient cash flow to invest in future growth.”

“Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025. These vehicles will utilize aspects of the next generation platform as well as aspects of our current platforms and will be able to be produced on the same manufacturing lines as our current vehicle line-up. This approach will result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times. This should help us fully utilize our current expected maximum capacity of close to three million vehicles, enabling more than 50% growth over 2023 production before investing in new manufacturing lines,” Tesla said.

MOVING TO THE SIDELINES: New Street downgraded Tesla to Neutral from Buy with a $225 price target following the Q2 report. The company’s deliveries recovered “at a cost,” increasing by 15% quarter-over-quarter, but with gross margins, excluding credits and leasing, down 1.7 points. The firm says that while Tesla’s auto margins will eventually recover, for now demand will remain challenging, “making little room for price stabilization.” With the stock at the target price, and trading 50-times its 2026 estimate, New Street sees limited valuation upside, and limited material positive estimate revisions. The firm cites margins taking time to recover and a lack of near-term share catalysts for the downgrade.

Cantor Fitzgerald also downgraded Tesla to Neutral from Overweight with a price target of $245, up from $230. The firm cites valuation for the downgrade following the Q2 report. The shares are up over 70% in the last three months, and Cantor is “becoming a bit more conservative on valuation in the near-term.” The firm notes Tesla’s results were in-line with the RoboTaxi unveil coming on October 10 and affordable models remaining on track for the first half of 2025.

Still bearish on the name, Bernstein says that Tesla’s Q2 results underscore ongoing challenges. Auto gross margins ex-regulatory credits were 14.6% vs. consensus at 16.2%, and below U.S. and European peers, as auto ASPs fell over $1,000 per car sequentially amid further price promotions. Auto revenues declined 7% year-over-year, and total company revenue grew 2%, buoyed by strong performance in energy storage and very high regulatory credits. Bernstein also notes that executives’ tone on the call was subdued, and Tesla did not reiterate its previous commentary that it would grow automotive units this year. The firm does not believe Tesla will not grow units in FY 2024 and thinks free cash flow could potentially be negative, depending on working capital. Bernstein struggles with why Tesla needs a discrete Robotaxi offering, and believes Tesla is not necessarily leading in autonomy. The firm keeps an Underperform rating on the shares with a price target of $120.

‘TOPIC MATTERS LITTLE’: Piper Sandler raised the firm’s price target on Tesla to $300 from $205 and keeps an Overweight rating on the shares following quarterly results. The firm believes Tesla’s weakness likely reflects an unexpectedly large quarter-over-quarter decline in automotive gross margin, and indeed, few metrics have more impact on near-term results. But Piper says it is “with Elon (Musk): in the grand scheme, this topic matters little.” Comments on full self-driving software were unabashedly positive, the firm says, and as demonstrated by its 50% price target increase, bullish tweaks to the FSD forecast can easily overwhelm all other considerations.

Truist also raised the firm’s price target on Tesla to $215 from $162, keeping a Hold rating on the shares after its Q2 results. The firm is adjusting its auto unit forecasts lower, but also taking its energy generation/storage and Optimus expectations higher. While there is no “clear catalyst” for Tesla until the October 10th Robotaxi day, its new product announcements – Roadster and other less expensive cars – could be another catalyst in the future, Truist tells investors in a research note.

NOT A TRUMP TRADE: Wells Fargo notes Tesla is trading down as weak fundamentals proved out in Q2 despite about 2-times quarter-over-quarter EV credits sales. While some view Tesla to benefit from a potential Trump victory in the upcoming presidential election, Elon Musk admitted a pullback on IRA help would hurt near-term profits. Also tariffs pose a threat in the second half of the year, says Wells. The firm remains Underweight on the name with a price target of $120 on the shares.

PRICE ACTION: In Wednesday morning trading, shares of Tesla have dropped about 12% to $216.86.