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Tesla’s (TSLA) Q2 earnings report, while aligning with EPS and revenue expectations, sparked a sharp selloff in the stock, primarily driven by cautious commentary from CEO Elon Musk and CFO Vaibhav Taneja. Musk warned of “a few rough quarters” ahead, citing the expiration of federal electric vehicle tax credits as a significant headwind, a sentiment echoed by Taneja, who highlighted a limited U.S. vehicle supply in Q3 due to the abrupt policy shift. This guidance, combined with broader concerns about TSLA’s demand and competitive landscape, has amplified investor unease, overshadowing the in-line results and contributing to post-earnings volatility.

• The Q2 results themselves were arguably better-than-feared, especially following back-to-back EPS misses and a reported 13.5% yr/yr drop in vehicle deliveries to 384,122 units, as disclosed earlier in July. Despite these challenges, TSLA posted revenue of $22.5 bln, down 11.8% yr/yr but slightly edging past estimates. However, the results underscored ongoing competitive and brand pressures, with automotive revenue declining 16% to $16.66 bln, reflecting TSLA’s struggle against lower-priced Chinese EV makers like BYD (BYDDY) and NIO (NIO), as well as backlash tied to Musk’s political activities.
• A positive in the report was the improvement in margins, signaling a potential stabilization. Total gross margin rose 90 bps qtr/qtr to 17.2%, with automotive gross margin excluding regulatory credits improving to 15% from 12.5% in Q1. This uptick suggests TSLA may have reached a margin trough, driven by cost-cutting efforts like the revised Model Y’s 20% production cost reduction. Still, average selling prices (ASPs) remain under pressure due to fierce competition, particularly in China and Europe, where TSLA’s aging product lineup faces newer, more affordable alternatives.
• TSLA reiterated its timeline for a more affordable model, with initial builds starting in June 2025 and volume production planned for the second half of the year. But the market seems disappointed by Musk’s comment that the new vehicle is “just a Model Y,” suggesting a lack of differentiation that could limit its ability to recapture market share. The slower-than-expected production ramp, as noted by Taneja, further tempers enthusiasm, particularly as TSLA prioritizes deliveries ahead of the tax credit expiration, potentially straining supply chains.
• The Cybercab, TSLA’s autonomous robotaxi, remains a cornerstone of its long-term growth narrative, with volume production still targeted for 2026. Investors view Cybercab as critical due to its potential to transform TSLA into a high-margin, AI-driven mobility platform. The small-scale robotaxi trial in Austin and progress toward regulatory approval for Full Self-Driving (FSD) in multiple U.S. states and the Netherlands signal momentum, though TSLA trails competitors like Alphabet's (GOOG) Waymo, and Musk’s history of missed autonomy deadlines warrants caution.

TSLA’s Q2 results, while better-than-feared with improved margins and in-line financials, are overshadowed by Musk’s sobering outlook for “rough quarters” ahead and supply constraints flagged by Taneja. The reaffirmed Cybercab timeline and affordable model production offer long-term promise, but near-term headwinds from tax credit changes and competitive pressures dominate investor sentiment.