To The Moon

After the bell on July 24th, $ Tesla (TSLA)$ reported Q2 earnings.

The good.

1. Sales stopped falling and rebounded, and inventories declined.The sales plunge in April-May rebounded significantly with promotions in June, and inventory pressure was significantly reduced.

2. Energy business became the second curve.Deployment reached 9.4 GWh, with gross margins improving to 25% on 100% revenue growth, and with further energy storage infrastructure development and potential openings to the outside world expected, the upside remains not insignificant going forward.

3. Carbon credits revenue boosted revenue.Carbon credits, an environmental policy originating in 11 U.S. federal states, are designed to push car companies to increase the percentage of zero-emission vehicles they sell.By 2025, automakers will have to sell a certain percentage of zero-emission vehicles or they will need to buy carbon credits from energy companies such as Tesla to avoid stiff regulatory penalties.Since all of Tesla's models are zero-emission vehicles, they can earn a lot of carbon credits.

   1. As a side note, one of the reasons why Elon Musk is being infinitely more favorable to Trump is that he doesn't want to give up his current clean-energy policy advantage because Trump is more in favor of traditional energy sources.

4. Reduce costs and increase efficiency to preserve cash flow.While Non-GAAP EPS was $0.52 (down from $0.61 at consensus), there was a one-time $620 million restructuring charge in Q2 (mostly due to layoffs, etc.) that won't have an impact going forward.Margins are actually picking up on the operating side itself, but nay gross margins can't support it.

The bad side.

1. Gross margins are down again and likely to continue to decline.Selling cars at a discounted rate in June hurt gross margins further, and the tram cycle is still down, with competition in the China region still fierce despite protection within the US.And tariffs from trade friction in the European region are starting to apply pressure.

2. Robotaxi has been delayed until October 10, but actual deployment is dependent on technological advances and regulatory approvals, so it's still a bit too early for expectations.Also, wide-scale commercialization of FSD is still a ways off.

3. The cadence of new vehicles also remains uncertain.With production of Semi trucks expected to start by the end of 2025, and deliveries and further expansion of Cybertruck also dependent on capacity and actual demand, the initiative on pacing is not in the company's hands.

Investment highlights

1. The after-hours expansion from -4% directly to -8% is basically reaching the area of the implied pre-earnings IV downside decline (plus or minus 8-10%), partly of the feedback on the current period's results, and partly of the feedback on the conference call (which didn't hear any more encouraging news).

   

2. It's not performance that determines the trend in Tesla's stock price, it's expectations.

   1. It's clear that TSLA's YTD returns are back in negative territory again after this, and it's also clear that the wave that started at the end of June was in anticipation of Robotaxi, a pickup in sales, and so on;

   2. The 24 day session will be a bit of a crossfire, with investors like Cathie Wood who like to sell high and sell low likely to buy back some of the positions they previously sold around 270, while short sellers' aversion to the uncertainty of "two more months" will increase the sell-off;

3. I think Tesla's number one issue is: timing.Whether it's the commercialization of FSD, the landing of Robotaxi and further realizations, the pickup in sales, or the addition of AI, the biggest enemy of the expected deal at this point is time.So the exchanges before then could be very intense.

4. Since the after-hours drop in earnings is right on top of the downside drop in IV Bank, that's going to be a lot of trading over the next few days.So for most options trades, if there is no further downside in the remaining days of the week, even below the 200 mark, it could still be a "short volatility" win.