Are things about to go from bad to worse for Tesla?

Tesla can normally rely on positive commentary from its biggest champion in the investment community, Morgan Stanley analyst Adam Jonas. After the second-quarter results and call featuring CEO Elon Musk, however, the Tesla ‘mega-bull’ was nonplussed. “Almost no detail on outlook. Tesla's outlook continues to lack any specific targets on revenues or margins,” he wrote in a note to investors. “Elon seems to be… exiting the auto industry”. Jonas noted that Musk was “pulling capital out of the business and doubling down on AI, autonomy and robotaxis.” Musk has always touted 'the next big thing' as he keeps investors enthused about stock of a company that remains the most valuable in the sector based on share price, despite recent setbacks. However, without cash coming in from car sales, the whole Tesla project starts to look shaky. And while the company is still self-financing, there are clouds on the horizon. The warning signs are there in the second quarter. Automotive revenues dropped 16% compared to the same quarter last year and the overall operating margin slipped to 4.1%, down from 6.3%. Meanwhile deliveries were down 13% to 384,122 while inventory (the number of unsold cars) climbed to 24 days’ worth of sales, up from 18 days. “We probably could have a few rough quarters,” Musk warned on the call. Other car companies that have reported their second quarter earnings, including Volvo, Stellantis and Volkswagen Group, are also suffering financially in an era of global shocks including pressure from Chinese competitors, US trade tariffs and lumpy EV sales growth. But Tesla has a unique problem in its reliance on incentives paid from governments and on credits bought from it by other car makers to hit emissions targets. Musk helped elect president Donald Trump by becoming the biggest Republican party donor, only for Trump to repay him by removing the $7,5000 EV purchase credit and cancelling fines for car makers that don’t hit emissions targets, effectively allowing unlimited sales of ICE vehicles in the US. Meanwhile in Europe, tightening CO2 emissions rules have forced car makers to up their game and come out with competitive electrified models of their own, reducing (but not eliminating) the need to pool with Tesla. Tesla figures showed that income from regulatory credits halved to $439 million in the three months to the end of June. Without them and decent margins from its (declining) battery storage business, Tesla would have been in the red, according to calculations from Philippe Houchois, an analyst at the bank Jefferies. Tesla acknowledges the hit from Trump’s recently passed legislation. “The One Big Bill has a lot of changes that would affect our business in the near term,” said its CFO, Vaibhav Taneja, on the call. “It will impact our total revenues going forward.” Tesla is also suffering from a stagnating model line-up. The facelifted Model Y has boosted Tesla sales in the UK (the biggest market for the SUV in Europe), SMMT figures show, but not in the rest of Europe, where Musk’s right-wing social media profile has almost certainly depressed sales, especially in the key market of Germany (down 60% in June). Once a best seller in the region, Tesla was only able to point to market leadership in Turkey, the Netherlands, Switzerland and Austria for June. Turkey is a surprise, given that it has just three Tesla dealers, but a report by Fortune magazine showed that Tesla throttled back Model Y power to 214bhp there to dodge a luxury tax – and quoted an industry analyst saying it was possible Turkey was being used to funnel grey imports into Russia. The long awaited cheaper Tesla is “just” a decontented Model Y, Musk said on the call. Production has begun already, the company added, without giving an indication of price. The Cybertruck, meanwhile, is a flop. Tesla no longer breaks out sales of the triangular pick-up truck, but the Model S, Model X and Cybertruck contributed just 2.7% of all Tesla deliveries in the third quarter after sales of the trio halved from the same quarter the year before. Tesla’s hopes are pinned on being able to upgrade cars from 2023 running the latest Hardware 4 platform to operate as robotaxis by the end of next year, allowing owners to theoretically send their out to work in the Uber fleet when not in personal use. However, Tesla has huge regulatory mountain to climb to make that possible without the safety back-up of multiple sensors, even in the friendliest US cities. The company says it has completed 7000 driverless miles in Model Ys converted as robotaxis running below 40mph in its home city of Austin, Texas, but it's struggling to gain approval even for its Full Self-Driving (Supervised) system in Europe and China. The system is essentially Tesla’s take on Ford’s BlueCruise, which has gained approval in parts of Europe. How you value other Tesla future businesses, including the Cybercab robotaxi service and Optimus humanoid robot division, is based almost solely on whether you believe Musk’s promises of world-beating revenues, given the lack of detail about the execution. Even the biggest Tesla cheerleaders are now struggling to square the circle on that. “Tesla is crossing the chasm to autonomy while absorbing slower volume, EV incentive elimination [and] tariffs and investing in new initiatives that may not make margins for years,” Jonas wrote.

main menu

Are things about to go from bad to worse for Tesla?

Boss Elon Musk said “we probably could have a few rough quarters" after EV firm posted big losses

Add your comment

More from Autocar

Top 10s

Latest car reviews

Top manufacturers

Quick search

Legal bits

About Autocar

main menu

Are things about to go from bad to worse for Tesla?

Boss Elon Musk said “we probably could have a few rough quarters" after EV firm posted big losses

Autocar Login Block

Add your comment

More from Autocar

Top 10s

Latest car reviews

Top manufacturers

Quick search

We recommend

Legal bits

About Autocar