Tesla’s shares fell on Wednesday following the announcement of second-quarter earnings that did not meet forecasts. Automotive revenue decreased by 7% year-over-year to $19.9 billion, and profit margins also declined. The company’s core automotive segment has faced challenges this year, particularly due to increasing competition in China.
Tesla’s shares experienced their steepest drop since 2020 after the company reported weaker-than-expected quarterly earnings and another decline in automotive revenue.
The stock closed down 12% on Wednesday, finishing at $215.99. For the year, Tesla is now down 13%, while the Nasdaq has risen by 16% over the same period.
On Tuesday, Tesla revealed that automotive revenue fell 7% year-over-year to $19.9 billion, with margins also decreasing. Overall revenue increased by 2% to $25.5 billion.
Impact of Slowing Sales and Competition on Tesla’s Shares
The company has had to reduce prices worldwide and offer various discounts and incentives due to slowing sales and intensified competition, particularly in China.
While Tesla remains the leading electric vehicle seller in the U.S., it is losing market share to an increasing number of competitors. This is partly due to its aging lineup of sedans and SUVs, as well as the impact of Elon Musk’s controversial statements and political comments.
For the second quarter, adjusted earnings were 52 cents per share, falling short of the average analyst estimate of 62 cents, according to LSEG. Additionally, Tesla’s adjusted operating margin decreased to 14.4% from 18.7% a year earlier, marking the fourth consecutive quarter of decline.
Investors are closely watching when Tesla will launch a new mass-market vehicle to refresh its lineup. Musk mentioned during the earnings call that the company is on track to introduce a new “affordable” car in the first half of next year.
The earnings call also focused on the concept of robotaxis. Musk envisions a future where Tesla vehicles could be used for an Uber-style autonomous ride-hailing service.
When asked about the anticipated debut of the first robotaxi ride, Musk stated, “I would be surprised if we can’t achieve it next year.”
Musk has a track record of setting ambitious timelines that often slip. On Tuesday, he delayed Tesla’s robotaxi event to October, having previously promised it would occur in August.
“This delay is because I wanted to implement some significant changes that I believe will enhance the vehicle,” Musk explained. He also mentioned that Tesla plans to reveal a few additional updates but did not provide further details.
Wall Street Decline
The S&P 500 and Nasdaq Composite experienced their worst day since 2022, driven by disappointing earnings from two major tech companies. The S&P 500 fell by 2.3%, the Nasdaq dropped 3.6%, and the Dow Jones Industrial Average lost 504 points. Alphabet, Google’s parent company, saw its largest single-day drop since January 31, with shares falling 5% after YouTube’s ad revenue missed expectations. Tesla’s shares plummeted over 12%, while Nvidia, Meta Platforms, and Microsoft saw declines of 6.8%, 5.6%, and 3.6%, respectively. The yield on the 10-year Treasury increased, and U.S. oil prices recovered from a three-day slump.
Ford Earnings Miss
Ford Motor’s shares dropped 11% in after-hours trading following a second-quarter earnings miss due to higher warranty costs. While the company exceeded revenue expectations and raised its free cash flow target, it maintained its 2024 earnings guidance, disappointing investors. Ford reported adjusted earnings per share of 47 cents, below the expected 68 cents, although automotive revenue was $44.81 billion, surpassing the anticipated $44.02 billion.
Tesla Shares Tumble
Tesla’s shares fell more than 12% on Wednesday, marking their biggest drop since 2020. This decline followed the company’s weaker-than-expected quarterly earnings and a further decrease in automotive revenue. The revenue drop, driven by price cuts and incentives amid slowing sales and increased competition, particularly in China, has led to a 13% drop in the stock price so far this year, compared to a 16% rise in the Nasdaq.
NBA Media Rights Deal
The NBA has rejected Warner Bros. Discovery’s bid to match Amazon’s $1.8 billion annual offer for media rights, choosing instead to finalize a deal with Amazon. This move ends a long-standing partnership with Warner Bros. Discovery and its cable network, TNT. The NBA’s new media rights deal is part of a broader $77 billion, 11-year renewal, with Disney and Comcast’s NBCUniversal securing the other two packages.
During a recent earnings call, Tesla CEO Elon Musk focused more on the company’s future in autonomy rather than addressing issues with its existing auto business.
“The value of Tesla is overwhelmingly in autonomy. The other aspects are relatively minor compared to autonomy,” Musk stated. Tesla is now set to unveil its robotaxi in October, having delayed the launch by two months.
Since reaching a high in July, Tesla’s stock has fallen nearly 18%. Wall Street analysts predict further declines, particularly as the company’s adjusted operating margin has hit a three-year low amid decreasing auto sales.
“Whenever there is a significant gap between current reality and Musk’s future vision, it puts pressure on the stock,” TD Cowen analyst Jeff Osborne told CNBC’s “Squawk on the Street.” Osborne has set a price target of $180 for Tesla’s stock, nearly 17% below its closing price on Wednesday.
Osborne expressed uncertainty about how Tesla will address its automotive challenges given its structurally lower margins. “They didn’t really address that issue during the call,” he said. “It’s unclear how they plan to rejuvenate demand with any new vehicles.”
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