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Tesla (TSLA) stock crashed over 12% on Wednesday following its Q2 earnings release, as the Elon Musk-run company reported a mixed set of numbers. While the stock has recovered somewhat from the lows, it has yet again turned negative for the year, after having previously traded in the red throughout the first half of 2024.
Here’s the forecast for Tesla stock following its Q2 earnings report, and the key risks and opportunities that investors should watch out for from here.
Why Did TSLA Stock Plunge Following Its Q2 Earnings Report?
Tesla’s Q2 revenues rose to a record high and were ahead of estimates, primarily led by the still fast-growing Energy segment. Tesla’s energy storage deployments reached record highs in Q2, and the Energy segment – which Musk once said could become as large as the automotive business – reported record profits in the quarter.
The company’s regulatory credits also hit a record high, thanks to the slow electric vehicle (EV) ramp-up from legacy automakers. These credits flow to Tesla’s bottom line, and help to propel its profits.
But that was perhaps all the good news that Tesla had for investors in its Q2 report and earnings call. As I had noted in my pre-earnings analysis, the probability of fireworks in Tesla’s earnings call was rather low. This, coupled with the stock's stellar rally in the preceding month, laid the groundwork for a massive post-earnings sell-off.
Tesla Lacks Near-Term Growth Drivers
Notably, Tesla’s automotive gross margin – once the envy of other automakers – fell to a five-year low of 14.6% in Q2, and was well short of the 16.3% that analysts expected. Lower-than-expected margins meant that Tesla missed consensus earnings per share (EPS) estimates, despite fat contributions from regulatory credits.
As ironic as it might sound, Musk began his commentary during the Q2 earnings call by blaming other automakers for discounting prices for their EVs, which he said has made things "a bit difficult for Tesla.” In reality, though, other automakers have simply been reacting to Tesla’s numerous price cuts over the last two years.
As things stand today, Tesla’s automotive business lacks near-term growth drivers. The company’s deliveries fell YoY in the first half of the year, and it looks unlikely that things will turn around too much in either the back half of the year, or for that matter, in 2025.
The upcoming low-cost platform could help propel Tesla’s deliveries, but that looks more like a 2026 kind of story - even as the model’s deliveries are expected to commence in the first half of 2025.
On the margin front, there also looks to be little respite over the next couple of quarters - unless, of course, Tesla takes the lead again, this time by raising car prices.
To sum it up, the automotive business which currently accounts for the bulk of Tesla’s revenues is not expected to turn around anytime soon.
Musk Sees Autonomy and AI Products as the Key to Tesla’s Valuation
Musk sees progress on autonomy as key to Tesla’s valuation, and reiterated his stance quite unequivocally during the Q2 earnings call by saying, “I recommend anyone who doesn't believe that Tesla would sell vehicle autonomy should not hold Tesla stuff.”
The company has formally delayed its robotaxi unveil to Oct. 10, which Musk said was needed to “make some important changes” and also because Tesla wants to show a “couple of other things” at the event. Musk – who has a flair for coming up with big numbers – said that Tesla’s robotaxi fleet will eventually surpass 20 million, even as the product’s launch is running late by years. Incidentally, Musk had once said that Tesla’s EV production capacity would hit 20 million units by 2030 – a goal that looks all but out of sight, given the current situation.
Musk, who is on the same page with perma-bull Cathie Wood on Tesla’s market cap rising to $5 trillion on the back of autonomous cars and robotaxis, believes that its Optimus humanoid could be the biggest opportunity for the company, and help it achieve a “valuation several times that number.” Tesla, however, plans to start selling Optimus to outside customers only in 2026, and until then will use them internally.
All of that said, while Optimus, Dojo supercomputer, full autonomy, and robotaxi sound quite fantastic and could drive long-term growth, none of those is a short-term driver for TSLA stock, especially given Tesla’s past flexibility with keeping up with product deadlines.
Tesla Stock Forecast
Overall, I see Tesla as a “present imperfect, future uncertain” kind of story. While the current business continues to sag, the future products are still at least a few quarters away - and with an air of uncertainty over their timeline, as well as their market potential. Remarking on Musk’s commentary during the Q2 earnings call, Deepwater Asset Management’s Gene Munster said that while he checked the right boxes, “those boxes don’t start getting checked for some time.”
After Tesla’s Q2 report, New Street and Cantor Fitzgerald both downgraded the stock, while Barclays, Citigroup, and Goldman Sachs all lowered their target prices. However, Truist and Piper Sandler raised their target prices for TSLA. Overall, Tesla has a consensus rating of “Hold” from analysts, and is trading above Wall Street's mean target price.
All things considered, I would nibble on Tesla here after the post-earnings crash, but wait for a better price before diving into the stock. While it remains among the most consequential companies of our times, the risk-reward is not looking too promising to go all out at these levels.
On the date of publication, Mohit Oberoi had a position in: TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
