🔒 Only Tesla’s AI Robotaxi can save investors now: Liam Denning

Tesla Inc., championed by CEO Elon Musk, is seen as an AI powerhouse hidden within a car manufacturer. The company reported better-than-expected sales and production numbers for Q2, with deliveries outpacing production, leading to a 10% stock jump. However, the positive spin fades upon deeper examination: vehicle sales have stagnated, premium model sales declined, and Tesla resorted to heavy discounts. Despite challenges, Tesla’s market cap has soared, driven by AI optimism.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

Join us for BizNews’ first investment-focused conference on Thursday, 12 September, in Hermanus, featuring top experts like Frans Cronje, Piet Viljoen, and more. Get insights on electricity and exploiting SA’s gas bounty from new and familiar faces. Register here.

By Liam Denning

Tesla Inc. is, according to its promoters — very much including Chief Executive Elon Musk — an artificial intelligence giant trapped in a carmaker’s body. That much was evident from quarterly sales and production numbers, and the market’s reaction to them, on Tuesday morning. ___STEADY_PAYWALL___

Tesla made about 411,000 vehicles and delivered about 444,000 in the second quarter. This was better than expected, with deliveries slightly beating the consensus estimate and, importantly, outpacing production. Tesla’s stock jumped as much as 10% in response.

The slightest of digging yields a somewhat less bullish interpretation. First, that consensus has been going downhill faster than a Cybertruck with pedal issues. Only a month ago, Tesla’s numbers would have missed.

Moreover, even beating estimates meant a 5% drop in deliveries, year over year. On a rolling four-quarter basis, Tesla’s vehicle sales flattened out last summer and Musk in January explicitly abandoned the company’s previous growth target of 50% per year, compounded. The beaten-down consensus estimate implies sales dropping outright in 2024. With the first-half numbers now in the books, even hitting that forecast requires two record quarters in a row, averaging 487,000 deliveries apiece. Pending that next “growth wave,” Tesla’s core business, accounting for 89% of its gross profit, isn’t growing.

Strikingly, sales of Tesla’s premium models, other than the mass-market-ish 3 and Y, were actually lower in the second quarter than in the fourth quarter of 2023. You may recall that is when the Cybertruck joined the Models S and X in the high-priced segment; meaning the addition of this third model hasn’t boosted those sales overall (which also came in a bit below production). Multiple recalls for the months-old Cybertruck probably haven’t helped fully offset the continued ageing of the S and X when it comes to attracting buyers, even as rival models proliferate and Rivian Automotive Inc., a serious challenger at that end of the market, has received a financial lifeline from Volkswagen AG.

Deliveries of the mainstay Models 3 and Y, while down year over year, did come in higher than production. That cleared about 36,000 vehicles from inventory, which should mean better free cash flow in the second quarter compared with the prior quarter’s big burn.

Yet, overall, Tesla only cleared about a quarter of its big pile of unsold vehicles that has built up since the second quarter of 2022. Moreover, it did so partly via further discounts and even resorting to zero-rate financing in China, which implies an effective price cut of several thousand dollars for those vehicles. Even then, preliminary data from China’s Passenger Car Association show a 24% drop in shipments from Tesla’s Shanghai factory in June, year over year. 

As much as these headline delivery numbers beat a hurdle that had been all but buried, the wider context suggests little prospect of turning around what should be the main story: another big decline in earnings. The consensus estimate for 2024 now implies a 22% drop from last year, which saw a 29% drop from 2022.

Yet a car company with flattened sales in its core business, an aging lineup and shrinking profits has seen its market capitalization expand by about $275 billion since hitting a low point in April, with a fifth of that on Tuesday morning alone.

As growth and margins in the existing business of making electric vehicles have faltered, the need for AI-related promises to pick up the slack has only intensified. Luckily for Tesla, in the face of repeated disappointments and structural challenges to Musk’s robotaxi vision, investors remain eager as ever to pull on that rope.

Read also:

© 2024 Bloomberg L.P.