- Tesla’s second-quarter margin expected to hit a five-year low.
- Pressure from discounts, price cuts, and outdated models affecting margins.
- Company to lay off 10% of global workforce.
- Investors eager for details on self-driving technology and potential stock rally.
- Robotaxi launch may be delayed to October due to design changes.
- Wall Street predicts automotive gross margin will fall to 16.27%.
- Analysts anticipate margin recovery by year-end as Cybertruck production costs ease.
- Tesla’s new model strategy to use existing platforms, diverging from prior plans.
- Deliveries to match 2023 record require approximately 977,815 vehicles in the second half of 2024.
- Analysts expect modest delivery growth for 2024 and a 15% increase in 2025.
Main AI News:
In its upcoming earnings report, Tesla (TSLA.O) is anticipated to reveal that its second-quarter margin has dropped to a low not seen in over five years. The electric vehicle manufacturer, grappling with declining margins due to inventory-clearance discounts, price reductions, and promotional financing aimed at boosting sales, faces mounting pressure from a stagnating customer base and outdated model offerings. The company has also announced a 10% reduction in its global workforce, as disclosed in an April memo.
Investors are keen to hear about Tesla’s strategic shift toward self-driving technology and how this move might differentiate the company from its competitors, potentially driving a stock rally akin to its peak in 2021. Although Elon Musk had initially promised the unveiling of Tesla’s robotaxi on August 8, recent indications suggest that the launch may be postponed to October due to design revisions.
Wall Street analysts predict that Tesla’s automotive gross margin, excluding regulatory credits, will fall to 16.27% for the April-June quarter, marking its lowest level since early 2019. This follows a 16.36% margin in the January-March period and an 18.14% margin in the second quarter of 2023. Bernstein analyst Toni Sacconaghi highlighted that Tesla’s discounted financing, despite high interest rates, might pressure margins in the future, as these discounts are realized gradually over the life of loans.
Analysts forecast that margins may bottom out by the end of this year and begin to recover as the costs associated with ramping up Cybertruck production decrease. Paul Marino, Chief Revenue Officer at GraniteShares, emphasized that the AI and robotaxi sectors represent significant future opportunities, suggesting that long-term investors should be prepared for current margin pressures.
In the robotaxi segment, Tesla is seen as having a competitive edge in the U.S. due to its large fleet of vehicles that could be upgraded to robotaxis. However, competition in China from BYD and other companies could pose challenges. Tesla has been reticent about its full self-driving (FSD) plans, but analysts anticipate eventual disclosures as negotiations with OEMs progress.
Tesla’s recent strategic pivot includes introducing new models by early 2025 using existing platforms, a departure from earlier plans for entirely new designs. Despite a 5% year-over-year decline in deliveries for the April-June period, Tesla exceeded analyst expectations. For the remainder of the year, Tesla aims to deliver at least 977,815 vehicles to match its 2023 delivery record of 1.81 million. Analysts predict modest delivery growth for 2024 and a projected 15% increase in 2025, with a key focus on whether deliveries in September will show signs of recovery.
Conclusion:
Tesla’s current margin decline and strategic shifts reflect broader challenges and opportunities within the electric vehicle market. The margin squeeze, driven by discounts and high production costs, may affect short-term profitability but underscores a strategic pivot towards long-term innovations such as AI and robotaxi technology. This transition is crucial for differentiating Tesla from competitors and could potentially drive future stock performance. Investors are closely watching how effectively Tesla navigates these challenges and capitalizes on new technological advancements, with an emphasis on whether the company can achieve its ambitious delivery targets and margin recovery by the end of the year.
