Tesla Earnings Preview: What Can Offset Declining Sales?
Tesla will announce its FY2025 Q2 earnings report after the market closes on July 23. Since the trial operation of Robotaxi began in Austin, Texas, on June 22, Tesla's stock price has not seen a significant boost. Meanwhile, car sales figures are clear, with a 13.5% year-over-year decline in the second quarter. Investors are closely watching changes in the gross margin of cars. Additionally, with Robotaxi and Optimus temporarily difficult to monetize, the expected difference may lie in the energy storage business.
Core Focus: What Is the Market Watching?
Tesla's Q2 revenue is expected to be $22.36 billion, a roughly 12.32% decline from $25.5 billion in Q2 FY2024. Strong energy storage revenue may partially offset automotive weakness.
EPS is expected to be around $0.32, a decline of 23.38% from Q2 FY2024.
Four Things to Watch
1) Vehicle deliveries and production
Tesla disclosed that it delivered 384,122 vehicles in Q2, marking a 13.5% decline from the previous year but a 14% increase from the 336,681 delivered in Q1. Additionally, the company produced 410,244 vehicles, which is consistent with last year's numbers but up from 362,615 in Q1. Investors will be looking for confirmation of these figures and for guidance on trends in production and deliveries for Q3, particularly regarding whether Tesla can surpass one million deliveries in the second half of 2025 to exceed the total of 1.79 million vehicles delivered in 2024.
Tesla now faces numerous competitors catching up, such as GM. The company is consistently rolling out a strong lineup of EVs across their Cadillac, Chevrolet, and GMC brands. In the first half of 2025, GM's share of total EV sales grew to 12.9%, gaining more than 6 percentage points of market share, while Tesla gave away a similar amount. The increasingly competitive EV market is proving to be a tough environment for the EV pioneer.
2)Automotive gross margin
A key area of focus will be Tesla's automotive gross margins, which decreased to 16.3% in Q1 2025 from 18.3% in Q2 2024. Expectations are set for these margins to stabilize at around 16.4% in Q2 2025, the current quarter.
The Department of Labor's CPI data shows that the year-over-year growth rate of new car prices in the U.S. turned positive in April. The launch of Tesla's updated Model Y could also help boost the average selling price. However, uncertainties in the supply chain could still put pressure on gross margins
3)Energy storage segment and services revenue
Tesla's energy storage business has been increasing its share of the company's total revenue, reaching 14.12% in Q1 2025. At the same time, its gross margin has surpassed that of the automotive segment. Investors may anticipate record gross profits in this sector and seek updates on the Shanghai Megapack factory. The Megapack, an energy storage product for commercial and industrial use, began production in Shanghai in February. This facility not only serves the local market but has also started exporting to other Asia-Pacific countries, such as Australia. The Shanghai Megapack uses batteries from CATL, which cost half as much as those in the U.S., potentially further boosting the gross margin of the energy storage business. According to the official website, Megapack production is scheduled until Q1 of next year, making it a key profit driver in the short term.
Additionally, growth in services revenue is expected to help mitigate declines in the automotive sector. While revenue from the trial operation of Robotaxi is negligible, it is expected to enhance the subscription rates for Full Self-Driving (FSD) in the coming quarters.
4) Guidance and strategic updates
After retracting its 2025 growth projections in Q1, Tesla indicated it would provide updated guidance in Q2. Investors are poised to closely examine any new forecasts concerning annual vehicle deliveries, developments in the production of more affordable vehicles, the next rollout plan of robotaxis, and advancements in Full Self-Driving technology.
It's also noteworthy that the EV market landscape underwent a significant shift at the beginning of Q3. Starting October 1, the federal tax incentives offering up to $7,500 for qualifying new EV purchases will be discontinued. Additionally, the widely utilized "leasing loophole," which greatly expanded the range of eligible sales, has been eliminated. Consequently, Tesla may have to confront the challenge of diminishing incentives.
Option Market Signals
The data for options expiring next Friday shows that trading is mainly concentrated on the $325 call options. The Put/Call ratio is at a median level. The Implied Volatility (IV) is decreasing, indicating that there may not be significant fluctuations before the earnings report. However, after the past 12 earnings reports, Tesla's stock price has fluctuated on average by 10.24%, making betting on Tesla's earnings a high-risk, high-reward investment.
Summary of Risks and Opportunities
Potential Positive Catalysts: Product price increases; energy storage segment.
Risks to Monitor: Delay of Optimus and other products; competition in EV area
Valuation:
Tesla's PE ratio currently exceeds 150 times. This valuation includes expectations for the future monetization of Robotaxis and Optimus robots.
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