Investors react to Tesla’s poor quarterly earnings and delayed robotaxi, causing a 12% stock drop
Before Tesla Inc.'s results, investors anticipated signs of stability in its electric-car business and hints of an imminent self-driving vehicle.
However, they were disappointed, according to BNN Bloomberg.
The stock plummeted 12 percent on Wednesday. Several analysts slashed their price targets, and at least three downgraded their ratings on the stock.
Tesla's quarterly profits fell short of expectations. CEO Elon Musk reiterated previous promises about leading in autonomous cars but confirmed the robotaxi unveiling was delayed to October.
“Investors were generally confused and lacked conviction into Tesla’s 2Q print,” Barclays analyst Dan Levy noted. “The key takeaway from Tesla’s 2Q print, a miss driven by auto margins, is that for now, the focus shifts back to fundamentals.”
Tesla shares had climbed 85 percent from their low in April to a peak in early July, driven by speculation about big tech companies benefiting from AI breakthroughs.
This rally added over US$380bn to Tesla’s valuation, even as analysts’ estimates for earnings and revenue declined. The second-quarter results further highlighted this dissonance.
Mike O’Rourke, chief market strategist at Jonestrading, stated, “The disconnect from reality means anything can happen. While it is understandable Tesla shares traded off following the report, it remains hard to understand why they were at such levels prior to the report.”
Most analysts agree that Tesla needs the support of its core auto business to generate cash flow until robotaxis become commercially viable, despite Musk’s focus on self-driving cars.
Tesla’s earnings missed estimates for the fourth consecutive quarter, and its automotive gross margin, excluding regulatory credits, dropped to 14.6 percent in the second quarter from 16.4 percent in the first quarter.
Cowen analyst Jeff Osborne commented, “Given the hype cycle around AI, we expect shares to retrace the recent rally as nothing new was offered around progress with AI.”
Analysts at Cantor Fitzgerald, CFRA, and New Street Research downgraded their recommendations on the stock post-earnings.
Analysts believe the biggest near-term challenge for Tesla's stock is the lack of a strong catalyst to drive it higher. The shares are already trading at nearly 80 times forward earnings, well above the valuations of other mega-cap technology stocks.
Some analysts warn that even the October robotaxi event might not meet the high expectations built into the stock.
“Tesla’s Robotaxi announcement in October may be more aspirational than substantive,” wrote Sanford C. Bernstein analyst Toni Sacconaghi.
