Why Did Tesla Stock Spike on Deliveries & Then Crash on Financials?

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I’m not going to lie — at occasions, I discover the inventory market baffling. When Tesla launched its Q2 supply and manufacturing numbers, my primary thought was: this seems to be dangerous, very dangerous. The inventory market, nevertheless, thought it was nice information and the inventory worth exploded. The rationale for that was that the supply figures had been barely higher than what Wall Avenue anticipated.

Tesla’s deliveries within the second quarter had been down considerably in comparison with Q2 2023 — 443,956 versus 466,149. That is after a equally dangerous first quarter — 386,810 versus 422,875. That is additionally after Tesla had lower costs, provided numerous incentives, backed rates of interest, and many others. It was additionally on the again of huge investments into AI {hardware} in operations geared toward getting Tesla vehicles to true Full Self Driving. To me, it appeared apparent that Tesla’s funds had been getting crunched, even with out doing any math.

After which there’s additionally the truth that Tesla went and applied sudden, mass layoffs and a giant halt or slowdown to growth plans for brand spanking new Supercharger stations (to melt the blow, Elon Musk indicated they’d focus extra on increasing the variety of stalls at current stations). These are indicators of an organization dealing with a critical monetary crunch.

So, it appeared apparent that Q2 financials weren’t going to be significantly uplifting. Nonetheless, for some motive, after Tesla launched these preliminary Q2 supply and manufacturing numbers, the inventory soared. I discovered it baffling. Now that Tesla has launched its full Q2 financialsthe inventory has crashed, even “helping” to deliver the inventory market to its worst day since 2022. It was additionally the worst one-day stock drop for Tesla since 2020 — it dropped 12%.

With the quarterly replace, Tesla reported its worst quarterly revenue margin in 5 years (with automotive gross margin, excluding regulatory credit, falling from 16.4% even within the first quarter of this yr to 14.6% within the second quarter). After all, that’s an indication issues are going within the unsuitable course. But it surely additionally appears painfully apparent that this was coming.

However the greater motive why the inventory surge earlier this month baffled me is that there hasn’t been any vital information exhibiting stronger long-term demand, and Tesla has been combating demand points for a lot of months. Tesla was alleged to be seeing 50% annual development, on common, lower than a yr in the past. Has the market forgotten that? Gross sales have shrunknot grown, and Tesla is facing serious demand challenges in all three of its main markets: the USA, China, and Europe. Within the USA, there appears to be a mixture of main markets turning into saturated and Elon Musk driving away plenty of potential consumers together with his dive into deep-right politics and conspiracy theories. In truth, Tesla sales in California (its main market) were down 24% in Q2 and had been down 17% within the first half of 2024 as an entire. Musk wants a narrative for the way these will rebound, however as an alternative, he’s gone on to trash speak California and say he’s shifting SpaceX and X headquarters from there to Texas. That ought to assist rebuild shopper demand, proper? In China, the market has grow to be hyper-competitive, and apart from needing to interact in a worth conflict, an EV firm has to recurrently roll out new fashions and vital upgrades to current fashions, however Tesla is relatively slow to do this compared to its Chinese competitors. In Europe, it’s the same story of rising competitiveness from different manufacturers, maybe residents not liking what Musk tweets, and sure sudden coverage adjustments (in Germany) which have thrown a wrench into the market. All in all, although, this was clear earlier than Tesla’s Q2 financials report and convention name. So, coloration me confused about what Wall Avenue found on Tuesday that wasn’t already apparent.

Elon Musk reiterated {that a} extra inexpensive Tesla shall be coming … sometime. The purpose is for it to be in the marketplace subsequent yr. However we’ve been listening to about this new mannequin for years, and it looks like Tesla’s method to it has modified a number of occasions. Additionally, naturally, a less expensive mannequin doesn’t assure increased income. Many consumers of the Mannequin 3 and Mannequin Y might grow to be consumers of the cheaper Tesla, and gross sales of the previous might hunch extra. Presumably, that might harm Tesla’s revenue margins. The trick for Tesla goes to be sustaining demand ranges for the three and Y, and even growing them, whereas rolling out a extra inexpensive mannequin. Nobody has any assure that’s going to work.

Then we get to the large, large matter. By some means, I’ve gone this far with out discussing Tesla AI and robotaxis. Elon Musk has been saying for months that nobody ought to be invested in Tesla in the event that they don’t consider in Tesla’s method to AI and robotaxis. Tesla is meant to realize revolutionary, broad robotaxi functionality with its Full Self Driving (FSD) suite sooner or later that shall be like turning on a money-printing machine. As a result of, all of the sudden, Tesla homeowners (and Tesla) are supposed to have the ability to generate profits by sending their self-driving Tesla taxis out to driving individuals round. The 2019 Tesla Mannequin 3 in my storage ought to, all of the sudden, grow to be one thing that may make me cash as an alternative of simply price me cash. That is a part of the place Tesla’s cash has been going — into creating the {hardware} and software program to make this attainable. The issue is that Tesla has been hyping this up for I feel round 8 years (however I’ve to confess that I’ve misplaced monitor a bit). The larger drawback is that Elon Musk has been claiming for years that we’d be at that time a lot earlier than we clearly shall be — the goal yr for actually driverless Teslas has been pushed again a number of occasions. In the meantime, whereas my 2019 Tesla hasn’t wanted any new {hardware}, Tesla has poured billions of {dollars} into the services being constructed on the firm degree to allow the compute-intensive AI system behind Tesla’s FSD. (Mockingly, as nicely, constructing such services in a lot hotter Texas — in comparison with California — may end in a lot increased electrical energy payments to maintain all of these computer systems cool.)

On the finish of the day, it’s arduous to see how Tesla is meant to regain shopper demand development, not to mention get it again to 50% a yr. It’s additionally arduous to guess when a real juncture for FSD/robotaxis may very well be, and it doesn’t assist that Tesla’s robotaxi idea reveal occasion has been pushed again from August eighth to someday in October. So, total, the place is the grounded optimism for super-growth supposed to return from and the way can one justify Tesla’s immense inventory worth and market cap with out that optimism? As Reuters experiences, “Tesla’s stock has recently traded at 85 times its 12-month forward earnings estimates, compared to 7 for legacy automaker Ford Motor (F.N).” What actually justifies that huge distinction at this level?

To finish, I’ll simply word once more that nothing actually appears to have modified from the start of July, when Tesla’s inventory worth soared, to this week, when it crashed. And therefore why I proceed to search out the inventory market baffling. And I’m not the one one. Right here’s a quote from somebody engaged on Wall Avenue primarily saying the identical factor:

“The disconnect from reality means anything can happen,” stated Mike O’Rourke, chief market strategist at Jonestrading. “While it is understandable Tesla shares traded off following the report, it remains hard to understand why they were at such levels prior to the report.”

Precisely.