Tesla is a mega cap company with a long-term vision to change the world through its innovative technologies. Known for its game changing electric vehicles and advanced software, led by the enigmatic Elon Musk, the company’s story is as much about its technological advancements as it is its volatile share price.

Despite the recent slow sales growth of electric vehicles (EV) and what some analysts are calling an “EV recession,” Tesla’s share price is still up more than 50% over the past three months. This resilience highlights the company’s significant impact on markets beyond the auto industry, given the sentiment changes when Tesla unveils new progress in exciting technology like autonomous driving.

This week, Tesla’s Q2 FY2024 earnings report has stirred mixed reactions. The company’s performance reflected a blend of operational resilience and areas needing improvement, with revenue growth tempered by declines in net profit and earnings per share.

In the face of growing competition in the EV market, the pressure to perform is mounting. Tesla’s strategic focus on innovation and market disruption remains crucial for maintaining its competitive edge. This article goes under the hood into Tesla’s recent performance, highlighting the key factors that influenced its Q2 results and the company’s forward-looking strategies.

Devil in the details

Tesla’s Q2 2024 financial performance revealed a company in a difficult market.

The company reported revenues of US$25.5 billion, a 2% increase from the previous year and ahead of analyst expectations of US$24.7 billion. Revenue was impacted positively by substantial growth in the Energy Generation and Storage business, Cybertruck deliveries and increased regulatory and credit revenue. Conversely, revenue was adversely affected by a reduced average selling price of S3XY vehicles due to pricing strategies and attractive financing options, a decline in S3XY vehicle deliveries, and a negative foreign exchange impact.

Despite the growth in revenue, net profits dropped significantly by 45% year-over-year to US$1.48 billion, with earnings per share (EPS) falling to US$0.42 from US$0.78 in Q2 2023.

Automotive revenue declined by 7% to US$19.88 billion, reflecting challenges in the EV segment, including slower demand and intensified competition. However that isn’t the full story. Investors would be wise to consider that the second quarter also included a US$622 million restructuring charge for employee layoffs. It’s fair to note the charge was larger than anticipated. If you sum what Tesla investors hope to be a rare change, that would add roughly US$0.14 to earnings per share during the second quarter.

Nevertheless, energy storage sales and increased regulatory credit sales also helped offset this sales weakness. Tesla’s global EV deliveries for the quarter stood at 443,956, down 5% from the previous year.

Despite mixed top- and bottom-line results, however, there are plenty of reasons for investors to look forward when considering their long-term investing thesis.

Driving the Results

Several factors influenced Tesla’s Q2 2024 results.

The company faced heightened competition from established automakers entering the EV market, which impacted sales volumes and necessitated price cuts. We wrote back in May about BYD’s Relentless Rise and how it may threaten Tesla’s dominance. CEO Elon Musk acknowledged the “hangover” from rivals’ substantial price reductions, complicating Tesla’s market position.

Musk’s remarks during the earnings call highlighted the ongoing challenges but provided an optimistic outlook.

He stated:

“We don’t see this as a long-term issue, but really fairly short-term.”

Musk is clearly of the belief that Tesla can see out a price war longer than the competition. He also reiterated plans for innovations in autonomy and AI, announcing that the company would release more details on fully-automated robotaxi’s in October, pushed back from the initial August date.

Lights at the End of the Tunnel

Despite the challenges, Tesla’s outlook remains optimistic and forward-looking. There are three major factors for investors to consider, making it easier to take quarterly results with a grain of salt.

First, during the second-quarter conference call, CEO Elon Musk announced that Tesla would delay the unveiling of a dedicated robotaxi model to October 10, from the original date of August 8. While robotaxis and self-driving vehicles might still seem like science fiction, this unveiling is a pivotal moment for Musk’s artificial intelligence (AI) ambitions. Dan Ives, a Wedbush Securities analyst and longtime Tesla supporter, said the unveiling will “kickstart the AI narrative at Tesla, which we estimate could be worth $1 trillion alone over the next few years.”

Second, it has been apparent for some time that the high-end EV market is saturated, with consumers seeking more affordable options. Although there were speculations that Tesla might delay its affordable model to focus on the robotaxi, the company is now back on track to launch a more affordable model during the first half of 2025, or possibly sooner.

Few details were provided, but the plan will combine elements of Tesla’s existing vehicle platforms and a new platform intended for the robotaxi. If Tesla can indeed introduce a $25,000 model by early 2025, it will open the market to a broader consumer base.

Third, while Musk has endorsed former President Donald Trump in this year’s election, it does not necessarily mean the company will benefit in the short term if Trump wins. For example, Tesla’s plans for a future factory in Mexico are uncertain, as Trump could impose tariffs on Mexican goods, which would negatively affect Tesla vehicles produced there. Additionally, if Trump wins and reduces or eliminates the Inflation Reduction Act EV tax credits, it could impact Tesla’s near-term profits, although Musk argues it would be far more detrimental to Tesla’s competitors.

Tesla’s emphasis on autonomy and AI underscores its commitment to pioneering advancements in the automotive industry. Musk’s track record, although sometimes overly optimistic in terms of timelines, has demonstrated a capacity to deliver transformative technologies, including the widespread adoption of electric vehicles, disruption of the auto industry, and the success of SpaceX and other ventures.

Tesla’s expansion into AI and full self-driving, along with plans for the robotaxi unveiling and the production of the next-generation Roadster, highlights its innovative drive. While the company anticipates potentially lower vehicle volume growth in 2024 compared to 2023, it is strategically positioned for long-term success. Musk’s vision of a fully electric transportation system, encompassing cars, planes, and ships, reinforces Tesla’s ambitious trajectory.

Short-term obstacles, such as increased competition and macroeconomic factors, may affect Tesla’s performance. However, the company’s unwavering commitment to technological innovation and market disruption places it in a favourable position for sustained growth. Tesla’s ability to adapt and innovate in response to market changes will be crucial in maintaining its leadership in the evolving EV landscape.

The TAMIM Takeaway

Tesla’s Q2 2024 results have tempered the short-term expectations of some investors and analysts, yet Elon Musk remains focused on the bigger picture. The potential for Tesla to become one of the most disruptive technology companies in history is still very much alive.

The company’s financial performance demonstrated resilience amid market challenges, with revenue growth offset by declines in net profit and EPS. Increased competition and macroeconomic factors played a role in these results, but Tesla’s strategic emphasis on autonomy, AI, and innovation remains robust.

Despite these short-term hurdles, Tesla’s long-term outlook remains promising. The company’s relentless pursuit of technological advancements and market disruption continues to shape its trajectory. As Tesla navigates the complexities of the evolving EV market, its capacity for innovation and adaptability will be crucial for sustained growth and maintaining its leadership position.

Investors can take confidence in Tesla’s long-term potential, bolstered by its track record of delivering groundbreaking technologies and its ambitious vision for the future. The story of Tesla is far from over, and the company is poised to drive some of the most significant technological disruptions the world has ever seen.

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Disclaimer: Tesla (NASDAQ: TSLA) is held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.