Elon Musk, co-founder of Tesla and SpaceX and owner of X Holdings, speaks at the Milken Institute Global Conference at the Beverly Hilton Hotel in Beverly Hills, California on May 6, 2024.
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As Tesla CEO Elon Musk continues to make big promises about the company’s future in self-driving and robotics, but investors continue to watch profit margins deteriorate.
Tesla said on Tuesday that its second-quarter profit missed Wall Street expectations and that its adjusted operating margin fell to 14.4% from 18.7% a year earlier, the lowest in three years. Its fourth consecutive quarterly decline.
The company reported net income of just $1.48 billion on sales of $25.5 billion, including regulatory deductions of $890 million.
Tesla is being hit on both sides: Expenses are soaring as the company invests in artificial intelligence infrastructure that Musk says is needed to turn Tesla’s electric vehicles into self-driving cars and develop humanoid robots that can do things like factory work.
Meanwhile, deliveries of Tesla’s most popular electric vehicles have fallen this year, and the company has responded by slashing prices and offering incentives such as low-interest loans.
“Affordability remains a top priority for our customers,” Tesla Chief Accounting Officer Vibhav Taneja said in the company’s earnings call, “and accordingly, in the second quarter we offered attractive financing options to offset persistently high interest rates.”
Tesla shares fell about 8% to $227.23 in after-hours trading on Tuesday. As of the close, Tesla shares were down less than 1% this year, while the Nasdaq has risen 20% in the same period.
Tesla said in an investor presentation that the decline in operating profit was due in part to lower average selling prices for its flagship electric vehicles and fewer deliveries. Auto sales fell 7% from a year ago, the second straight year of declines due to increased competition, particularly in China.
Tesla began offering five-year, interest-free loans in April to boost EV sales in China. The deals were set to run until the end of July, but the company extended the offer again on Tuesday, according to a report from Shanghai-based EV news site CnEVPost.
The company also launched a similar deal in Germany, home to Tesla’s only European car factory. The deal also included four-year, interest-free financing for buyers of the new Model Y Long Range AWD vehicles purchased during the quarter.
In May, Tesla began offering financing deals for some Model Y purchases in the United States at 0.99% annual interest rate for terms of three to six years.
“We are currently offering extremely competitive financing rates in most parts of the world,” Taneja said. “Now is the best time to buy a Tesla, so if you’re on the sidelines, come and buy a car.”
Guggenheim’s Ronald Jusikow, who has recommended selling Tesla shares, published a note titled “Do Earnings Matter?” ahead of Tuesday’s earnings release in which he predicted Tesla’s gross profits for its auto division would fall short of expectations “due to significant discounting.”
“Double Your Bet on the Dojo”
Tesla envisions a much more competitive EV market than in the past, but as it moves forward into the future, it’s trying to catch up with companies like: Alphabetical Waymo in the robot taxi market. In addition to investing heavily in autonomous driving, there’s the Optimus humanoid robot project, which Musk has said could eventually make Tesla a company worth tens of trillions of dollars.
These efforts require building data centers equipped with graphics processing units (GPUs). NVIDIA Tesla’s in-house AI processor is also making progress. Tesla’s operating expenses surged 39% year over year to $2.97 billion in the second quarter. Capital expenditures on AI infrastructure in the quarter amounted to $600 million.
Musk said on the conference call that the company will focus on its Dojo supercomputer “to compete with Nvidia.”
Musk previously promised to build the $500 million Dojo supercomputer in Buffalo, New York, and the company is currently building a factory building in Austin, Texas, that will also house a data center.
“Demand for NVIDIA is so high that it’s clearly incumbent on the company to drive up the price of its GPUs to where the market can tolerate it, and it’s so high that I don’t think we have a choice,” Musk said. “So we have to make Dojo work, and we will.”
All of this may sound ominous to investors worried about profit margins, but Musk reiterated his argument on Tuesday that shareholders focused on short-term results are in the wrong company, a problem he described as “noise.”
Musk said Tesla will hold a robotaxi launch event on Oct. 10, two months later than originally planned. He said he’d be “shocked” if Tesla doesn’t offer a self-driving car by next year. In addition to the “dedicated robotaxi,” or cybercab, Musk has promised for years that Tesla will turn customers’ existing electric cars into self-driving cars with a software update.
The update adds features and improves the driver assistance software currently marketed as “Full Self-Driving Supervised.” Tesla also has new AI5 hardware components that need to be added to its EVs to turn them into self-driving cars that don’t need a human to steer or brake at all times.
“As I’ve said before on these calls, Tesla’s value is, by far, self-driving,” Musk said. “Everything else is a pain in comparison. So if you don’t believe Tesla will solve the self-driving car problem, I would advise you not to own Tesla stock.”
clock: Tesla has a lot to prove.
