Tesla stock tumbles nearly 10% on margin concerns, Musk warning on Q3 production

On Tesla’s earnings call, Elon Musk said Q3 production will dip slightly but that the EV maker is in discussion with a 'major OEM' to license FSD software.

Tesla stock (TSLA) tumbled 9.7% on Thursday, its worst day since April, after the electric vehicle maker reported a revenue and earnings beat, but margins that came in below expectations.

Tesla CEO Elon Musk also signaled that third quarter production would be down slightly.

"We continue to target 1.8 million vehicle deliveries this year, although we expect that Q3 production will be a little bit down because we've got summer shutdowns for a lot of factory upgrades, so just probably a slight decrease in production in Q3 for sort of global factory upgrades," Musk said during his opening remarks on the conference call.

Tesla's closely watched second quarter gross margins came in at 18.2%, below analyst expectations for 18.8%. Tesla's operating margin also fell below 10% to 9.6%, which is nearly 5% — 493 basis points, to be precise — below what it was a year ago.

"The short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly," Musk said during the Q&A portion of the call, adding later that "it does make sense to sacrifice margins in favor of making more vehicles."

Ahead of Wednesday's earnings report, Tesla stock had gained more than 130% in 2023.

Tesla also reported that it was working on Cybertruck equipment installation at its gigafactory in Austin, Texas, with initial production slated to begin "later this year" along with initial customer deliveries.

According to Musk, demand for the new truck is "off the hook."

"Demand is so far off the hook, you can't even see the hook," Musk said regarding the Cybertruck. "So that's really not an issue."

In terms of other services, Musk revealed Tesla now has close to 50,000 Supercharger connectors and over 5,000 stations globally. Musk also disclosed the company is in early discussions with a "major OEM" regarding licensing its full-self driving (FSD) software.

Tesla CEO Elon Musk stands in front of a Cybertruck on a stage in front of a crowd at a presentation.
Tesla co-founder and CEO Elon Musk introduces the newly unveiled all-electric battery-powered Tesla Cybertruck at Tesla Design Center in Hawthorne, California, on November 21, 2019. (Photo by FREDERIC J. BROWN/AFP via Getty Images) (FREDERIC J. BROWN via Getty Images)

From Wall Street's point of view, the analyst community felt the report and subsequent earnings call provided no major surprises and were better than feared.

"Overall this was a Goldilocks 2Q print by Musk & Co. given all the noise surrounding the story heading into this quarter," Wedbush analyst Dan Ives said in a note to clients. Ives also raised his price target to $350 for the stock.

"We expect the shares to trade modestly lower as the current valuation likely needed a stronger Q2 outcome. That said, no major surprises here either," Citi analyst Itay Michaeli said in his analysis.

Guggenheim's Ron Jewsikow, who has a Sell rating on Tesla, was less sanguine.

"Overall, while the print was better than feared, forward-looking pricing, production, operating leverage, and demand commentary will likely weigh on shares following the considerable run in the stock," he said.

For the second quarter, Tesla reported revenue of $24.9 billion, topping Street estimates for $24.51 billion, with adjusted EPS coming in at $0.91 against estimates for $0.81. That revenue figure represents a slight gain from Q1 and a jump of over 45% from a year ago.

On the profitability end, Tesla reported adjusted net income of $3.1 billion, compared to estimates of $2.87 billion and more than the $2.9 billion adjusted net income from Q1.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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