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 on May 6, 2024 in Beverly Hills, California.
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As Tesla As CEO Elon Musk continues to make lofty promises about his company’s future in self-driving and robotics, investors continue to watch profit margins deteriorate.
Missing Wall Street estimates for second-quarter earnings on Tuesday, Tesla said its adjusted operating margin shrank to its lowest level in three years, falling to 14.4 percent from 18.7 percent a year earlier. It is the fourth straight quarter of contraction.
The company reported just $1.48 billion in net income on $25.5 billion in revenue, which included $890 million in regulatory credits.
Tesla is getting hit from both sides. Expenses are soaring as the company spends on artificial intelligence infrastructure, which Musk says is needed to turn Tesla’s EVs into self-driving cars and to develop humanoid robots capable of doing factory work and more.
Meanwhile, deliveries of Tesla’s most popular electric vehicles are down this year, and the company has responded by slashing prices and offering other incentives, such as low-interest loans.
“Affordability remains a focus for customers,” Vaibhav Taneja, Tesla’s chief accounting officer, said of the company’s earnings. “And in response, in the second quarter, we offered attractive financing options to offset sustained high interest rates.”
Tesla shares fell about 8% in extended trading Tuesday to $227.23. They’re down less than 1% for the year since the close, while the Nasdaq is up 20% in that segment.
Tesla said in its own investment deck that the decline in operating income was due in part to a lower average selling price and lower deliveries of its flagship electric vehicles. Auto revenue fell 7% from a year earlier, the second straight decline, as competition intensified, mainly in China.
Tesla began offering a five-year zero-interest loan to boost sales of its electric cars in China in April. The deal was supposed to last until the end of July, but the company extended the offer again on Tuesday, according to report from CnEVPost, an EV news website based in Shanghai.
The company made similar deals in Germany, where Tesla’s only European car factory is located. The offers included 0% financing for four years for buyers of the new Y Long Range All-Wheel Drive model purchased during the quarter.
In May, Tesla offered a 0.99% APR financing deal in the US for certain Model Y purchases, with terms ranging from three to six years.
“We now offer extremely competitive financing rates in most parts of the world,” said Taneja. “This is the best time to buy a Tesla. I mean, if you’re waiting on the sidelines, go out and get your car.”
Guggenheim’s Ronald Jewsikow, who recommends selling Tesla shares, published a note ahead of Tuesday’s earnings report titled “Do the Earnings Matter?” In it, he predicted the company’s gross margin for the auto industry would miss estimates, “led by heavy discounting.”
“Double down on Dojo”
While Tesla reckons with a much more competitive EV market than in the past, it’s also trying to push the future and catch up with companies like The alphabet Waymo in the robotaxi market. Besides the massive investment in autonomy, there’s the Optimus humanoid robot project, which Musk has said will eventually turn Tesla into a company worth tens of trillions of dollars.
These efforts require building data centers filled with graphics processing units (GPUs) from Nvidia as well as the development of Tesla’s domestic AI processors. Tesla’s operating expenses rose 39% from a year ago in the second quarter to $2.97 billion. AI infrastructure capital spending in the quarter totaled $600 million.
Musk said on the call that the company is going to “double down on Dojo,” its supercomputer, “to be competitive with Nvidia.”
Musk previously promised to build a $500 million Dojo supercomputer in Buffalo, New York. The company is now building a wing of its factory in Austin, Texas, to also house a data center.
“I think we have no choice because the demand for Nvidia is so high and it’s obviously their obligation to raise the price of GPUs to whatever the market will bear, which is very high,” Musk said. “So I think we really need to make the Dojo work and we will.”
For investors worried about profit margins, all of this may sound ominous. But Musk reiterated Tuesday that shareholders focused on short-term results are in the wrong company. He described the current issues 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 doesn’t offer autonomous driving by next year. In addition to the “dedicated robotaxi,” or CyberCab, Musk has promised for years that Tesla will convert its customers’ existing electric vehicles into self-driving vehicles with software updates.
The updates will add features and improve the capabilities of the driver assistance software, which is released today as Full Self-Driving Supervised. Tesla also has a new piece of AI5 hardware that it will need to add to its EVs to turn them into self-driving cars that don’t require a human ready to steer or brake at any moment.
“I’ve said it before on these calls — the value of Tesla is overwhelmingly autonomy,” Musk said. “These other things are disruptive to autonomy. So I recommend that anyone who doesn’t believe Tesla is going to solve autonomous vehicles should not own Tesla stock.”
I’M WATCHING: Tesla has a lot to prove
