Tesla Q2 Results: 3 Key Takeaways For Investors (Rating Downgrade)

Jul. 20, 2023 10:51 AM ET Tesla, Inc. (TSLA)

Summary

• Tesla, Inc.’s Q2 revenue grew by 47% YoY to reach $24.93B, exceeding analyst estimates. However, margins continue to decline, with automotive margins falling from 32.9% in Q1 ’22 to 19.2% in Q2 ’23.
• Tesla’s full self-driving software continues to progress, with the company open to licensing it to other car manufacturers.
• Other business segments, such as energy storage and services, are growing at a rapid pace, with energy storage deployments increasing threefold.
• The main concern now is whether Tesla can justify its current premium valuation in the short to medium term, as margins continue to plummet.

Introduction

Tesla’s Q2 results were mixed. The company delivered 254,695 vehicles, which was up 27% year-over-year. However, profits fell 31% to $2.26 billion. The company’s production challenges in Berlin and Austin are likely to weigh on deliveries in the second half of the year. Additionally, Tesla faces increasing competition from traditional automakers and new entrants in the electric vehicle market. As a result, the author believes that Tesla’s stock is overvalued and could be downgraded.

Production Challenges

Tesla’s production challenges in Berlin and Austin are likely to weigh on deliveries in the second half of the year. The company has been struggling to ramp up production at its new factories in Germany and Texas. As a result, deliveries of the Model Y from these factories have been delayed.

The production challenges in Berlin and Austin are due to a number of factors, including supply chain disruptions and labor shortages. Tesla has also been facing regulatory challenges in Germany.

Competition

Tesla faces increasing competition from traditional automakers and new entrants in the electric vehicle market. Traditional automakers, such as Volkswagen and General Motors, are investing heavily in electric vehicles. Additionally, new entrants, such as Rivian and Lucid, are also entering the market.

The increasing competition is likely to put pressure on Tesla’s margins. Tesla has been able to maintain high margins by selling its vehicles at a premium. However, as competition intensifies, Tesla may be forced to lower its prices.

Valuation

Tesla’s valuation is still very high, even after the recent sell-off. The company’s market capitalization is over $700 billion, which is more than the combined market capitalization of Volkswagen, General Motors, and Ford.

The author believes that Tesla’s valuation is unsustainable. The company is facing a number of challenges, including production challenges, increasing competition, and regulatory challenges. As a result, the author believes that Tesla’s stock could be downgraded.

Conclusion

Tesla’s Q2 results were mixed. The company delivered more vehicles than expected, but profits fell. The company’s production challenges in Berlin and Austin are likely to weigh on deliveries in the second half of the year. Additionally, Tesla faces increasing competition from traditional automakers and new entrants in the electric vehicle market. As a result, the author believes that Tesla’s stock is overvalued and could be downgraded.

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