Tesla Shares Plummet 12% After Profit Margin Miss

Tesla shares experienced a sharp decline of 12% on Wednesday, wiping out nearly $100 billion in market value. This drop followed CEO Elon Musk’s presentation on humanoid robots and driverless taxis, which failed to reassure investors concerned about the electric car manufacturer’s declining profit margins.

Quarterly Financial Performance:

Tesla reported its lowest quarterly profit margin in five years, with earnings per share missing estimates for the fourth consecutive quarter. The stock’s one-day percentage drop was the largest since 2020, reducing Tesla’s market capitalization to just under $700 billion, down from over $1 trillion in 2021.

Investor Expectations and Product Delays:

Despite remaining the world’s most valuable car maker, Tesla’s valuation heavily relies on investor expectations for future profits from yet-to-be-launched products, such as robotaxis and humanoid robots. TD Cowen’s Jeff Osborne commented, “All of Musk’s enthusiasm on the call, outside of (energy) storage, were for products that don’t exist.”

Broader Market Impact:

Tesla’s disappointing results coincided with a report from Alphabet indicating higher capital expenses, contributing to a broader sell-off in Wall Street’s most valuable companies. Alphabet’s stock fell nearly 5%, adding to the market’s concerns about high valuations.

Challenges in the EV Market and Competition:

Tesla has faced challenges in maintaining its electric vehicle (EV) deliveries, which have declined for two consecutive quarters. The company has not yet introduced a lower-cost model, leading some buyers to opt for competing EVs. For example, China’s BYD widened its sales lead over Tesla in Singapore during the first half of 2024.

Tesla has been forced to reduce prices and offer incentives for its aging vehicle lineup to address lagging sales. Musk noted that competitors have significantly discounted their EVs, making the market more challenging for Tesla.

Future Product and Strategy Outlook:

Tesla announced that its anticipated cheaper models in the first half of 2025 would offer less cost reduction than previously forecasted. The company also delayed a much-anticipated event for its robotaxi project to October.

UBS analyst Joseph Spak reiterated a “sell” rating on Tesla’s stock, stating, “Tesla is not being priced on auto, but autonomy and AI … We believe any payoff from (Tesla’s AI) initiatives (is) further out.”