Tesla fell more than 7% after hours: Q2 revenue exceeded expectations, net profit dropped by 43%, accelerating investment in AI

Tesla's overall revenue unexpectedly increased in the second quarter, benefiting from the growth in its energy business. However, sales of its main automotive business continued to decline, leading to a double-digit drop in company profits, reflecting the impact of lower car prices and increased investment in the artificial intelligence (AI) field on profitability.

Huaer Street News previously mentioned that due to the ongoing decline in deliveries, it has become a consensus that Tesla's second-quarter performance is not ideal. The market's focus has shifted to some non-automotive businesses, including the delayed release of the autonomous driving Robotaxi, humanoid robot Optimus, FSD technology adoption rate, and the energy business. In terms of automotive business, attention is on the affordable Model 2.

The Tesla financial report this time did not disclose any new information related to the launch schedule of Robotaxi. Tesla CEO Musk confirmed during the earnings call the previous media reports that the planned release of Robotaxi has been postponed from August to October.

During the first-quarter earnings call on April 23, Musk stated that the plan is to start production of a more cost-effective new model as early as the beginning of next year or the first half of next year, "contradicting" previous reports that the development of an affordable model had been canceled. Tesla's stock price rose more than 10% after hours on that day. The Tesla financial report this time did not reveal more "surprises" about Model 2, stating that new models, including affordable models, are expected to start production in the first half of next year. Musk mentioned during the call that affordable models will be delivered in the first half of next year.

After the second-quarter financial report was released, Tesla's stock price fell by about 2% on Tuesday this week, and accelerated further decline after hours, with a post-market drop of over 4%. During Musk's speech on the call, the post-market decline further expanded, exceeding 7%.

Second Quarter Total Revenue Increases, Energy Business Revenue Doubles, Automotive Revenue Down 7%, Net Profit Down Over 40%

After the U.S. stock market closed on Tuesday, July 23, Tesla announced that its total revenue for the second quarter of this year exceeded expectations, with operating profit and earnings per share (EPS) both declining by double digits, far exceeding expectations.

• In the second quarter, revenue was $25.5 billion, a 2% year-on-year increase. Analysts expected a year-on-year decrease of 1.2% to $24.63 billion. Automotive revenue was $19.88 billion, down 7% year-on-year, while energy generation and storage revenue was $3.014 billion, doubling year-on-year.
• Operating profit in the second quarter was $1.605 billion, a 33% year-on-year decrease. Analysts expected a year-on-year decrease of 24.6% to $1.81 billion
• Under the non-GAAP basis, diluted EPS in the second quarter was $0.52, a year-on-year decrease of 43%, compared to analysts' expectations of $0.60, a year-on-year decrease of 34%.
• Second-quarter gross profit was $4.578 billion, a 1% increase year-on-year, with a gross margin of 18%, lower than the 18.2% in the same period last year but higher than analysts' expectations of 17.4%; excluding the "carbon credit" points, the gross margin of the automotive business was 14.6%, lower than expected.
• Non-GAAP net profit in the second quarter was $1.812 billion, a 42% decrease year-on-year, while GAAP net profit was $1.478 billion, a 45% decrease year-on-year.
• Free cash flow (FCF) in the second quarter was $1.342 billion, a 34% increase year-on-year, while analysts expected $1.92 billion, a 91% increase year-on-year.

Tesla stated that it achieved a record total revenue in the second quarter, emphasizing the highlights of its energy business. Tesla's financial report revealed that in the second quarter, the deployment of energy storage products Megapack and Powerwall reached 9.4Gwh, setting a new single-quarter historical high, leading to record-high revenue and gross profit in the energy generation and storage business.

Regarding the energy business, Tesla also mentioned that the output of the Lathrop energy storage factory in California reached a record high in the second quarter, and the Shanghai super factory is on track to start production in the first quarter of next year.

Still expecting Cybertruck to be profitable by the end of this year, expecting a positive quarter-on-quarter growth in car production in the third quarter, and new vehicles such as affordable cars are still expected to start production in the first half of next year

Earlier this month, Tesla announced that second-quarter deliveries decreased by 4.8% year-on-year, declining for two consecutive quarters but with a lower decline than market expectations, maintaining its position as the leader in global pure electric vehicle sales.

In this financial report, when analyzing the factors affecting profitability in the second quarter, Tesla pointed out that negative factors affecting profitability included increased operating expenses from AI projects, reduced car deliveries and a decrease in average selling price (ASP), and related restructuring costs. However, Tesla listed Cybertruck deliveries as a revenue-positive factor similar to the growth in the energy business.

Tesla stated that car production decreased quarter-on-quarter in the second quarter, with expectations of an increase in production in the third quarter. Cybertruck production in the second quarter more than doubled quarter-on-quarter and is still on track to achieve profitability by the end of this year. The Semi electric semi-trailer factory is on track to start production by the end of 2025Looking ahead, Tesla reiterated that due to its commitment to launching new generation vehicles and other products, the growth rate of car production this year may be "significantly lower" than last year. The company also emphasized that the growth rate of energy storage product deployment and energy business revenue this year is expected to exceed that of the automotive business.

In the outlook, Tesla stated that including more affordable models, the company's new car plans are still expected to start production in the first half of next year. These vehicles will utilize both the next-generation platform and existing platforms, allowing them to be produced on the same production line as the current models. This approach will result in a lower cost reduction than previously expected, but will enable the company to cautiously increase car production in a more capital-efficient manner during uncertain times. This will help the company fully utilize the maximum capacity of nearly 3 million vehicles currently projected before investing in new production lines, leading to a production increase of over 50% compared to last year.

Second Quarter "Carbon Sales" Revenue Doubles Quarter-on-Quarter to a New Record

Tesla's past profit driver—revenue generated by selling carbon emission credits—once again played a significant role in the second quarter. This so-called "carbon sales" revenue for the quarter reached a record-breaking $890 million, more than double the $442 million revenue in the first quarter.

When announcing the financial report, Tesla acknowledged the "achievements" of "carbon sales":

"We achieved record regulatory credit revenue in the second quarter as other original equipment manufacturers (OEMs) continue to lag in meeting emission requirements."

Focus Remains on Company-Wide Cost Reduction, Accelerating Development of AI Products and Services Robotaxi Deployment Timing Depends on Technology and Regulation

After Tesla announced its delivery volume this month, several investment banks including Citigroup and Mizuho raised their price targets for Tesla, stating that Tesla's future growth will mainly come from the execution of AI projects, especially Robotaxi and humanoid robot Optimus. A survey released by Morgan Stanley last weekend showed that investors are more concerned about Tesla's "AI narrative" compared to electric vehicles, with 68% of investors considering AI as the main driver of Tesla's stock price in the next year, while only 33% lean towards electric vehicles.

In the financial report released this Tuesday, Tesla did not disclose a specific timeline for the release of Robotaxi, stating:

"The timing of Robotaxi deployment depends on technological progress and regulatory approval. Given its enormous potential value, we are actively seizing this opportunity."

In the financial report, Tesla summarized:

"Our focus remains on company-wide cost reduction, including lowering the selling cost per vehicle, developing our traditional hardware business, and accelerating the development of our AI products and services."

Regarding AI software and hardware, Tesla mentioned that progress continues to be made in the development of software and hardware for autonomous driving and Robotaxi services. Optimus is performing its first task of handling batteries at one of Tesla's factoriesThe southern expansion of Tesla's Gigafactory in Texas is nearing completion, which will accommodate the company's largest H100 chip cluster to date.

Looking ahead, Tesla mentioned that the Robotaxi product will continue to implement the revolutionary "unboxed" manufacturing strategy.

Commenting on Tesla's performance in the automotive and AI fields, netizens summarized that Tesla is telling us that sales continue to plummet, so I need to shift towards hot concepts like AI.

Source: Wall Street News