Tesla ($TSLA) shares experienced a notable decline early Wednesday after the company's second-quarter earnings report revealed results that fell short of market expectations. The electric vehicle manufacturer reported adjusted earnings of $0.52 per share for the June quarter, significantly down from $0.91 the previous year.
This figure also lagged behind the consensus estimate of $0.62 as polled by Capital IQ. In premarket trading, the stock plummeted by 7.9%, highlighting investor concern regarding its financial performance. A key factor contributing to this downturn was the company's operating margin, which decreased by 333 basis points year over year to 6.3%.
The decline was attributed to lower average vehicle prices and a drop in deliveries across its popular models, including the S, 3, X, and Y, as well as increased operating expenses that surged to $2.97 billion, up from $2.13 billion in the same quarter last year. This rise in costs was mainly driven by investments in artificial intelligence projects and substantial restructuring charges amounting to $622 million. During the earnings call, CEO Elon Musk addressed the intense competitive pressure faced by Tesla, specifically mentioning how competitors have been discounting their vehicles 'quite substantially.' Musk indicated that while the downside pressure is currently challenging, he views it as a short-term issue rather than a long-term problem.
This sentiment reflects a cautious optimism about the company’s future performance amidst market volatility. Despite the challenges, Tesla reported a slight increase in revenue for the quarter, which rose by 2% year over year to $25.5 billion. This result outperformed Wall Street’s expectations, which projected revenue of approximately $24.74 billion.
However, automotive revenue saw a decline of 7% to $19.88 billion, overshadowed by a robust performance in the energy generation and storage segment. This segment saw a remarkable increase, climbing to $3.01 billion from just $1.51 billion a year ago, with the company reporting a record deployment of 9.4 gigawatt hours in Q2, fueling both revenues and gross profits. Tesla's services and other revenue also saw a solid increase of 21%, reaching $2.61 billion.
This diversification of income sources speaks to the company’s strategic efforts to balance out declining automotive sales with growth in energy storage and service segments. Earlier this month, Tesla announced second-quarter deliveries of 443,956 vehicles. While this represents a 5% decrease from the same period last year, it still surpasses the consensus estimate of 438,900 vehicles projected by Visible Alpha, indicating that Tesla's production capabilities remain robust. Looking ahead, Tesla has advised stakeholders that its vehicle volume growth rate in 2024 'may be notably lower' than what was experienced in 2023, as the company prepares to launch next-generation vehicles and other innovative products.
Plans for production of new, more affordable models are on track to commence in the first half of 2025, demonstrating Tesla's commitment to expanding its market reach despite current fluctuations in the automotive sector..