Tesla (NYSE: TSLA) released its earnings for the second quarter of 2023 yesterday after the markets closed. While the company posted better-than-expected revenues and profits in the quarter the stock is trading lower in US premarkets today. Here are the key takeaways from the company’s earnings report and Wall Street’s reaction.
Tesla reported revenues of $24.93 billion in the quarter which was ahead of the $24.47 billion that analysts were expecting. The company’s automotive revenues rose 46% to $21.27 billion over the period.
Tesla produced 479,700 cars in the second quarter of 2023 as compared to 258,580 in the corresponding quarter last year. The company’s deliveries rose 83% YoY to 466,140 which was ahead of the 445,924 that analysts were expecting.
Tesla posts better-than-expected earnings
Tesla posted an adjusted EPS of 91 cents which was higher than the 82 cents that analysts were expecting. However, while the company’s GAAP net income rose 20% YoY to $2.70 billion, its operating profits fell 3% to $2.40 billion over the period.
Meanwhile, Tesla’s operating margin plummeted to 9.6% in the quarter and fell to single digits. The company’s operating margin fell steeply in the first quarter also due to the price cuts.
Tesla still expects to produce 1.8 million vehicles in 2023 but said that production would fall in Q3 due to planned downtimes.
Musk did not rule out further price cuts and blamed high-interest rates and macroeconomic uncertainty for dampening vehicle sales.
Musk said, “If macro conditions are stable, I think prices will be stable. And if they’re not stable, then we would have to lower prices.”
Commenting on the macroeconomic situation, Musk said, “one day, it seems like the world economy is falling apart, and the next day, everything’s fine. I don’t know what the hell’s going on, I’d be totally frank.” Notably, on multiple occasions, Musk has predicted a US recession and has blamed the Fed’s rate hikes for slowing down the US economy.
Musk says FSD would drive profitability
In response to a question on Tesla’s gross margins, Musk said, “The short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly.”
He added that the current full self-driving (FSD) price of $15,000 is on the lower side. Musk also said that “I know I’m the boy who cried FSD, but man, I think — I think we’ll be better than human by the end of this year.”
Notably, for the last many years, Musk has been promising level 4 autonomy for Tesla cars but they are still not fully autonomous. Musk acknowledged that his previous timelines on FSD haven’t worked out and said “I’ve been wrong in the past. I may be wrong this time.”
Tesla is looking to license FSD
Musk sees autonomous driving as key to Tesla’s valuation and during the earnings call, he said that the company is in talks with a OEM to license its FSD. The company has already partnered with multiple automakers including Ford, General Motors, Rivian, Mercedes, and Polestar to share its Supercharging network.
During the earnings call, Tesla said that it now has over 50,000 Superchargers spread across 5,000 locations.
Musk also talked about the revenue opportunity from robotaxis and said, “In the long term, Autonomy, we think, is going to just drive volume through the ceiling next level and – and our sort of future robotaxi products — dedicated robotaxi products, we think, have like quasi-infinite demand. So, we’re — the way we’re going to manufacture the robotaxi is also itself a revolution. So, it’s a revolutionary design made in a revolutionary way. It’ll be, by far, the highest units per hour of any vehicle production ever.”
Notably, Musk had once predicted 1 million robotaxis by 2020 but so far the plan hasn’t materialized.
Cybertruck deliveries to begin this year
Tesla said that it is building “release candidates” for its Cybertruck while warning that it is “always difficult to predict the ramp initially.” The company did not provide exact specs of the pickup but reiterated its previous stance that the model would enter mass production in 2024.
In response to the demand and orders for the model, Musk said, “Demand is so — so far, off the hook, you can’t even see the hook.”
Notably, Ford has lowered the prices for its F-150 Lightning pickup truck by as much as $10,000 before the launch of Tesla’s Cybertruck.
How Wall Street reacted to Tesla’s earnings
Analysts’ reaction to Tesla’s Q2 earnings was mixed. Goldman Sachs’ Mark Delaney said, “We believe this was a solid 2Q report with Tesla taking market share and slightly exceeding our automotive non-GAAP margin estimate (and beating in Energy/Services).”
Delaney maintained his neutral rating on Tesla and added, “However, we believe there could continue to be margin headwinds in the intermediate term if Tesla lowers prices to support higher volumes.”
Bank of America’s John Murphy reiterated a neutral rating and said, “Ultimately, the weaker gross margin highlighted the impact of TSLA’s aggressive price cutting and, at 9.6%, its operating margin is now approaching the level of incumbent original equipment manufacturers (OEMs).”
Guggenheim analyst Ron Jewsikow who has a sell rating on Tesla said “Overall, while the print was better than feared, forward-looking pricing, production, operating leverage and demand commentary will likely weigh on shares following the considerable run in the stock since disappointing 1Q23 results were reported on 4/19 (+79% vs. +11% S&P 500). We continue to believe the direction for pricing and margins is lower near-term, a difficult backdrop with shares trading at ~75X our FY24 EPS estimates.”
Wedbush maintains its buy rating on TSLA stock
Wedbush analyst Dan Ives maintained his buy rating and $300 target on Tesla and said, “Tesla delivered its June quarter results where the company saw beats on the top and bottom lines following multiple rounds of aggressive price cuts has put Tesla in a position of strength after building its EV castle and now is set to further monetize its success. The automotive ex-credits gross margin beat was front and center and is clearly an indication that Musk & Co. continue to play chess while other EV players are playing checkers. Overall, this was a goldilocks 2Q print by Musk & Co. given all the noise surrounding the story heading into this quarter.”
TSLA stock is meanwhile trading around 4% lower in US premarkets today as markets seem disappointed with commentary on Cybertruck and the continued contraction in margins.
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