Elon Musk, co-founder of Tesla and SpaceX and owner of X Holdings Corp., speaks at the Milken Institute Global Conference at the Beverly Hilton Hotel in Beverly Hills, California, on May 6, 2024.
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like Tesla CEO Elon Musk continues to make wild promises about the company’s future in autonomous driving and robotics, but investors continue to watch profit margins erode.
On Tuesday, as Wall Street was still waiting to release its second-quarter earnings estimates, Tesla reported its adjusted operating margin fell to its lowest level in three years, to 14.4% from 18.7% a year ago. It was the fourth straight quarterly decline.
The company reported net income of $1.48 billion on revenue of $25.5 billion, including $890 million in regulatory credits.
Tesla is being hit from both sides: Costs are skyrocketing as the company spends on the artificial intelligence infrastructure needed to turn its EVs into self-driving cars and develop humanoid robots that can do factory work.
Meanwhile, deliveries of Tesla’s most popular electric vehicles have been declining this year, and the company has responded by slashing prices and offering other incentives like low-interest loans.
“Affordability remains a top priority for our customers,” Vaibhav Taneja, Tesla’s chief accounting officer, said on the company’s earnings call. “And in response, in Q2 we provided attractive financing options to help offset persistently high interest rates.”
Tesla shares fell about 8% in after-hours trading Tuesday, trading at $227.23. By the close, they were down less than 1% so far this year, while the Nasdaq was up 20% over that period.
Tesla said in an investor filing that the operating profit decline was partly due to lower average selling prices and fewer deliveries of its top EVs. Car sales fell 7% from a year ago, the second straight decline, driven by increased competition, particularly in China.
Tesla began offering a five-year, interest-free loan product in China in April to boost EV sales. The deal was supposed to last until the end of July, but the company extended the deal again on Tuesday, according to a report by Shanghai-based EV news site CnEVPost.
The company has launched a similar deal in Germany, home to Tesla’s only European auto plant, that includes 0% financing for four years for buyers of new Model Y Long Range All-Wheel Drives purchased during the quarter.
In May, Tesla offered a 0.99% APR installment loan for terms ranging from three to six years for select Model Y purchases in the United States.
“We are currently offering very competitive financing rates in most parts of the world,” Taneha said. “This is the best time to buy a Tesla. So if you’re sitting on the sidelines, come out and buy a car.”
Guggenheim’s Ronald Zuishkoff, who recommends shorting Tesla stock, released a note titled “Do Earnings Matter?” ahead of the company’s earnings report on Tuesday, in which he predicted the company’s auto gross margin would miss expectations “due to significant discounting.”
‘Focus more on the Dojo’
Tesla is looking at a much more competitive EV market than it has in the past, but it’s also trying to move into the future and catch up with companies like: Alphabet of Waymo in the robotaxi market. In addition to its massive investment in autonomous driving, there is the Optimus humanoid robot project that Musk says will eventually make Tesla a multi-trillion dollar company.
This effort requires building data centers filled with graphics processing units (GPUs). Nvidia Tesla’s own AI processor development is also included. Tesla’s operating expenses soared 39% year-over-year in the second quarter, reaching $2.97 billion. Capital spending on AI infrastructure for the quarter reached $600 million.
Musk said on the call that the company would be “focusing” on its supercomputer, “Dojo,” to “compete with Nvidia.”
Musk previously pledged to build a $500 million Dojo supercomputer in Buffalo, New York. The company is currently building a wing of its Austin, Texas, factory to house a data center.
“I think the demand for Nvidia is so high that they have no choice, and it’s their job to raise their GPU prices as high as the market can bear, which is very high,” Musk said. “So I think we have to make Dojo work really well, and we will.”
All of this may sound ominous to investors concerned about profit margins. But Musk reiterated Tuesday that shareholders who focus on short-term results are in the wrong company. He described the current problems as “noise.”
Musk said Tesla will hold a robotaxi unveiling event on October 10, two months later than originally planned. He said he would be “shocked” if Tesla didn’t offer autonomous driving by next year. In addition to “dedicated robotaxis,” or CyberCabs, Musk has promised for years that Tesla will turn customers’ existing EVs into self-driving vehicles with software updates.
The update adds features and improves the performance of the driver assistance software that is marketed today as Full Self-Driving Supervised. Tesla also has a new AI5 hardware component that it plans to add to its EVs, turning them into self-driving cars that don’t require a human to always be in control or brake.
“I’ve said this before on this call: Tesla’s value proposition is overwhelmingly autonomy,” Musk said. “These other things are nuisances compared to autonomy. So anyone who doesn’t believe Tesla is going to solve vehicle autonomy should probably not own Tesla stock.”
see: Tesla has a lot to prove
