Published 07:28 IST, July 25th 2024
Tesla's margins decline, shares plummet amid Musk's diversification plan
The electric vehicle manufacturer reported its lowest quarterly profit margin in five years.

Tesla Q1 earnings disappoint: Tesla experienced a significant 12 per cent drop in shares on Wednesday, wiping out nearly $100 billion in market value. This plunge followed CEO Elon Musk's discussion of future ventures like humanoid robots and driverless taxis, which failed to assuage investor concerns over the company's dwindling profit margins.
The electric vehicle manufacturer reported its lowest quarterly profit margin in five years on Tuesday, missing earnings per share estimates for the fourth consecutive quarter. This resulted in the largest one-day percentage drop in Tesla’s stock since 2020, reducing its market capitalisation to just under $700 billion, down from over $1 trillion in 2021.
Despite retaining the title of the world’s most valuable carmaker, Tesla's valuation heavily depends on anticipated future profits from yet-to-launch products, such as robotaxis and robots. Jeff Osborne of TD Cowen commented, "All of Musk's enthusiasm on the call, outside of [energy] storage, were for products that don't exist."
Tesla’s disappointing results, along with Alphabet’s report of increased capital expenses, led to a weak start for Wall Street's most valuable companies in the second quarter. Alphabet’s stock dropped nearly 5 per cent, contributing to a broad sell-off in the market as investors fretted over high valuations.
Tesla's EV deliveries have declined for two consecutive quarters, and the absence of a lower-cost model has driven buyers to competitors like China's BYD, which outpaced Tesla’s sales in Singapore in the first half of 2024. In response, Tesla has had to cut prices and offer incentives to boost sales of its aging vehicle lineup. Musk noted that competitors "have discounted their EVs very substantially, which has made it a bit more difficult for Tesla."
New launches
The company announced that its cheaper models expected in early 2025 would offer less cost reduction than previously anticipated and delayed the unveiling of its robotaxi to October. UBS analyst Joseph Spak, maintaining a "sell" rating, remarked, "Tesla is not being priced on auto, but autonomy and AI... We believe any payoff from [Tesla's AI] initiatives [is] further out."
Tesla’s stock recently traded at 85 times its 12-month forward earnings estimates, compared to 7 for legacy automaker Ford Motor (F.N). Musk also revealed that Tesla's Optimus humanoid robot had started performing tasks autonomously in one of its facilities and predicted the advent of fully self-driving Tesla vehicles without human supervision by next year.
In 2019, Musk projected a network of robotaxis by 2020, but analysts remain skeptical about Tesla overcoming the technical and regulatory challenges in the near future. Musk conducted a poll on X (formerly Twitter), asking if Tesla should invest $5 billion in his AI startup xAI, with 68 per cent of nearly 1 million participants voting in favor.
Despite the ambitious future plans, the company's price cuts and incentives led to a decline in automotive gross margins, excluding regulatory credits, to 14.6 per cent in the second quarter. Of the 50 analysts covering Tesla, one downgraded their rating, three increased their price targets, and two decreased them. The average analyst rating is a "hold," with a median price target of $212.50, according to LSEG data.
( With Reuters inputs)
Updated 09:46 IST, July 25th 2024