In a recent edition of CNN Business’ Nightcap newsletter, the spotlight was on Tesla and its second-quarter earnings report, which raised significant concerns on Wall Street. Following the report's release, Tesla's stock experienced a steep decline, dropping more than 8% in value on Thursday. This downturn is alarming, especially as the company faces a troubling combination of factors: a significant drop in sales, shrinking profits for three consecutive quarters, and an impending loss of a crucial revenue stream due to changes in tax incentives for electric vehicles (EVs).
Despite the dismal financial indicators, the atmosphere during Tesla's earnings call with analysts was notably upbeat. CEO Elon Musk and other top executives focused their dialogue on the company's future as a robotics and AI powerhouse, rather than addressing the pressing issues affecting current sales and profitability. This shift in narrative raised eyebrows among investors and analysts alike, who were expecting a more straightforward discussion about Tesla's core business—selling electric vehicles.
The reaction from analysts varied, with many expressing growing skepticism about Musk’s vision. Although some bullish analysts voiced support for Musk’s long-term aspirations, they could not ignore the stark reality: consumer demand for Tesla’s vehicles is weakening. One prominent analyst, William Stein from Truist, pointed out that the company provided "remarkably little detail" on critical aspects of its business, such as the anticipated new lower-priced model, suggesting that the outlook felt more speculative than grounded in reality.
During the call, Musk did concede that Tesla is undergoing a "weird transition period" and could face several difficult quarters ahead, particularly with the upcoming loss of a $7,500 tax credit for U.S. EV buyers and the diminishing market for regulatory credit sales. Despite acknowledging these challenges, the conversation largely bypassed the immediate financial concerns, opting instead to highlight future projects like robotaxis and the much-anticipated Optimus robot.
Even Dan Ives, a well-known Tesla supporter from Wedbush Securities, found the communication during the call lacking. He described the call as less than stellar, indicating that the insufficient detail contributed significantly to the stock's selloff. Ives, while remaining optimistic about Tesla’s future prospects, acknowledged the disconnect between the company's current performance and its lofty valuation.
Tesla's detractors argue that Musk's strategy of downplaying the car business in favor of a futuristic vision is increasingly problematic. Analyst Gordon L. Johnson articulated this sentiment, stating that the stock price no longer reflects the company's vehicle sales but rather hinges on the promise of a robot-driven, self-driving future. He criticized the lack of transparency regarding Tesla's core business, suggesting that avoiding discussions about current vehicle sales only obscures the reality of the company's stagnation.
Ultimately, Musk's approach has always centered on the long-term vision for Tesla. His belief is that the company should not dwell on its current challenges but instead focus on its potential achievements. Musk envisions a future where Tesla will sell affordable vehicles, deliver a multitude of Cybertrucks, and establish itself firmly as a leader in AI and robotics technology. Until that vision becomes a reality, the company may continue to face scrutiny regarding its current performance and market strategy.
