To The Moon

• Tesla $Tesla Motors(TSLA)$ stock is currently down 16.51% from its 2024 high.

• The year-to-date return is -11.54%. It is the worst performing stock among the Magnificent Seven stocks.

   

What You Need to Know About Tesla’s Latest Developments:

1) 2Q2024 Earnings Result is Disappointing

A) Mixed Earnings Results

• Revenue: $25.50 billion vs. $24.77 billion expected

• Earnings per share: 52 cents adjusted vs 62 cents expected

• Revenue beat expectations partially due to a 99.7% yoy increase in energy generation and storage revenue.

• However, the energy generation and storage segment only accounts for 11.8% of total revenue, so it couldn’t significantly boost Tesla’s earnings.

• Revenue increased 2.3% yoy, but Operating Income declined by 33.1% yoy.

• Besides slashing car prices, Tesla has been subsidizing financing by offering lower down payments and 0-interest loans for certain periods.

• The fundamental problem of lower revenue/operating income is still lower car sales due to weaker demand.

B) Profit Margins Are Concerning

• Gross profit margin improved 0.6 ppt qoq to 18% in 2Q2024.

• The gross profit margin for automotive sales stood at 17.8% but declined to 13.9% excluding regulatory credits.

• Operating Margin was 6.3% in 2Q2024, improving slightly from 5.5% in 1Q2024.

Despite the disappointing results, we see qoq increases in revenue, operating income, FCF, and profit margins in 2Q2024, suggesting that we may have seen the worst quarterly earnings in 1Q2024.

2) Elon Musk Pushed Back Robotaxi and New Models Timeline

A) Robotaxi Unveil Pushed Back to October 10

• The Robotaxi was delayed as Elon Musk wants to make some tweaks in the design.

B) New Models Launch Date Moved from Early 2025 to 1H2025

• Elon Musk previously said, “we expect it to be more like early 2025, if not late this year” regarding new car models during the 1Q2024 earnings call.

• However, during the 2Q2024 earnings call, Musk revised the new models narrative to, "Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025.”

3) Tesla Expects Europe, China to Approve Supervised FSD by Year-End

• Tesla will ask for regulatory approval of the supervised FSD in Europe, China, and other countries soon and expects to receive approval by year-end.

4) Tesla May Invest in ChatGPT Competitor xAI

• A potential upside catalyst is that Elon Musk will seek Tesla board approval to invest $5 billion into his own startup, xAI, which Musk says will help advance full self-driving and build up the new Tesla data center.

5) A Republican Election Sweep Could Mean Rollback in EV Incentives and Strict Emission Regulation

• Investors are pricing in a Republican election sweep.

• If Trump wins the presidential election and Republicans win control of Congress, Trump may roll back some EV tax credits and weaken emissions standards, hurting Tesla’s EV business.

• However, Trump seems likely to appreciate a “gesture of respect.” He boasted how Apple’s CEO begged him to drop tariffs on Apple in a recent interview.

• Some Apple products imported from China were exempted from the 25% tariff imposed by Trump in the 2019 US-China trade war.

Therefore, the change in EV policies may not be as serious as analysts thought, as long as Elon Musk forms an alliance with Donald Trump.

Conclusion:

• All in all, Tesla failed to excite investors as Elon Musk did not make a lot of new promises in this earnings call.

• Tesla has risen 51.92% since its 1Q2024 earnings release. I reckon Tesla share price may hover around the current price level or trend lower due to lack of near-term catalysts, and only rise higher when approaching October in anticipation of the Robotaxi unveil on October 10 and the 3Q2024 earnings release in October.

• Despite a weak 2024 earnings outlook, I maintain a long-term constructive view on Tesla. We should probably look at 2024 as a transition year for Tesla. Nevertheless, I view any weakness in the share price as a good opportunity to accumulate for the long term.

• According to Bloomberg analysts' consensus, the 12-month target price for Tesla is $212.92, representing a downside potential of 3.1% from yesterday’s closing price of $219.8.

Source: Bloomberg, 28 Jul 2024