Why Did Tesla Inventory Spike on Deliveries & Then Crash on Financials? – CleanTechnica – TechnoNews

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I’m not going to lie — at instances, I discover the inventory market baffling. When Tesla launched its Q2 supply and manufacturing numbers, my major thought was: this appears dangerous, very dangerous. The inventory market, nonetheless, thought it was nice information and the inventory value exploded. The rationale for that was that the supply figures had been barely higher than what Wall Road anticipated.

Tesla’s deliveries within the second quarter had been down considerably in comparison with Q2 2023 — 443,956 versus 466,149. That is after a equally dangerous first quarter — 386,810 versus 422,875. That is additionally after Tesla had lower costs, provided varied incentives, backed rates of interest, and many others. It was additionally on the again of large investments into AI {hardware} in operations aimed toward getting Tesla automobiles to true Full Self Driving. To me, it appeared apparent that Tesla’s funds had been getting crunched, even with out doing any math.

After which there’s additionally the truth that Tesla went and applied sudden, mass layoffs and a giant halt or slowdown to growth plans for brand new Supercharger stations (to melt the blow, Elon Musk indicated they might focus extra on increasing the variety of stalls at current stations). These are indicators of an organization dealing with a critical monetary crunch.

So, it appeared apparent that Q2 financials weren’t going to be significantly uplifting. Nonetheless, for some motive, after Tesla launched these preliminary Q2 supply and manufacturing numbers, the inventory soared. I discovered it baffling. Now that Tesla has launched its full Q2 financials, the inventory has crashed, even “helping” to deliver the inventory market to its worst day since 2022. It was additionally the worst one-day inventory drop for Tesla since 2020 — it dropped 12%.

With the quarterly replace, Tesla reported its worst quarterly revenue margin in 5 years (with automotive gross margin, excluding regulatory credit, falling from 16.4% even within the first quarter of this yr to 14.6% within the second quarter). In fact, that’s an indication issues are going within the improper route. Nevertheless it additionally appears painfully apparent that this was coming.

However the larger motive why the inventory surge earlier this month baffled me is that there hasn’t been any vital information exhibiting stronger long-term demand, and Tesla has been fighting demand points for a lot of months. Tesla was speculated to be seeing 50% annual progress, on common, lower than a yr in the past. Has the market forgotten that? Gross sales have shrunk, not grown, and Tesla is dealing with critical demand challenges in all three of its major markets: the USA, China, and Europe. Within the USA, there appears to be a mixture of main markets turning into saturated and Elon Musk driving away a number of potential patrons together with his dive into deep-right politics and conspiracy theories. In truth, Tesla gross sales in California (its major market) had been down 24% in Q2 and had been down 17% within the first half of 2024 as a complete. Musk wants a narrative for a way these will rebound, however as a substitute, he’s gone on to trash speak California and say he’s transferring SpaceX and X headquarters from there to Texas. That ought to assist rebuild shopper demand, proper? In China, the market has turn out to be hyper-competitive, and other than needing to have interaction in a value warfare, an EV firm has to usually roll out new fashions and vital upgrades to current fashions, however Tesla is comparatively sluggish to do that in comparison with its Chinese language opponents. In Europe, it’s an analogous story of rising competitiveness from different manufacturers, maybe residents not liking what Musk tweets, and sure sudden coverage adjustments (in Germany) which have thrown a wrench into the market. All in all, although, this was clear earlier than Tesla’s Q2 financials report and convention name. So, coloration me confused about what Wall Road found on Tuesday that wasn’t already apparent.

Elon Musk reiterated {that a} extra inexpensive Tesla can be coming … sometime. The goal is for it to be in the marketplace subsequent yr. However we’ve been listening to about this new mannequin for years, and it looks as if Tesla’s method to it has modified a number of instances. Additionally, naturally, a less expensive mannequin doesn’t assure increased income. Many patrons of the Mannequin 3 and Mannequin Y might turn out to be patrons of the cheaper Tesla, and gross sales of the previous might droop extra. Presumably, that may damage Tesla’s revenue margins. The trick for Tesla goes to be sustaining demand ranges for the three and Y, and even rising them, whereas rolling out a extra inexpensive mannequin. Nobody has any assure that’s going to work.

Then we get to the massive, huge matter. One way or the other, I’ve gone this far with out discussing Tesla AI and robotaxis. Elon Musk has been saying for months that nobody ought to be invested in Tesla in the event that they don’t imagine in Tesla’s method to AI and robotaxis. Tesla is meant to realize revolutionary, broad robotaxi functionality with its Full Self Driving (FSD) suite sooner or later that can be like turning on a money-printing machine. As a result of, immediately, Tesla house owners (and Tesla) are supposed to have the ability to make cash by sending their self-driving Tesla taxis out to driving folks round. The 2019 Tesla Mannequin 3 in my storage ought to, immediately, turn out to be one thing that may make me cash as a substitute of simply value me cash. That is a part of the place Tesla’s cash has been going — into creating the {hardware} and software program to make this doable. The issue is that Tesla has been hyping this up for I believe round 8 years (however I’ve to confess that I’ve misplaced observe a bit). The larger drawback is that Elon Musk has been claiming for years that we’d be at that time a lot before we clearly can be — the goal yr for really driverless Teslas has been pushed again a number of instances. In the meantime, whereas my 2019 Tesla hasn’t wanted any new {hardware}, Tesla has poured billions of {dollars} into the services being constructed on the firm stage to allow the compute-intensive AI system behind Tesla’s FSD. (Sarcastically, as effectively, constructing such services in a lot hotter Texas — in comparison with California — would possibly end in a lot increased electrical energy payments to maintain all of these computer systems cool.)

On the finish of the day, it’s exhausting to see how Tesla is meant to regain shopper demand progress, not to mention get it again to 50% a yr. It’s additionally exhausting to guess when a real juncture for FSD/robotaxis may very well be, and it doesn’t assist that Tesla’s robotaxi idea reveal occasion has been pushed again from August eighth to someday in October. So, total, the place is the grounded optimism for super-growth supposed to come back from and the way can one justify Tesla’s immense inventory value and market cap with out that optimism? As Reuters experiences, “Tesla’s stock has recently traded at 85 times its 12-month forward earnings estimates, compared to 7 for legacy automaker Ford Motor (F.N).” What really justifies that large distinction at this level?

To finish, I’ll simply notice once more that nothing actually appears to have modified from the start of July, when Tesla’s inventory value soared, to this week, when it crashed. And therefore why I proceed to search out the inventory market baffling. And I’m not the one one. Right here’s a quote from somebody engaged on Wall Road primarily saying the identical factor:

“The disconnect from reality means anything can happen,” mentioned Mike O’Rourke, chief market strategist at Jonestrading. “While it is understandable Tesla shares traded off following the report, it remains hard to understand why they were at such levels prior to the report.”

Precisely.