TL/DR: Q2 numbers are going to be bad on most fronts - the update from Elon Musk on robotaxis, new product timelines, AI initiatives will matter more for the stock.
Tesla is set to report a double-digit decline in revenue and earningsamid a slump in sales, fading EV market share, sterner competition and a brand left somewhat tarnished by CEO Elon Musk’s recent foray into politics. Loss of EV credit sales will be material and maybe not properly reflected in share price.
Revenues are seen declining more than 11% to $22.4 billion, with earnings per share down 23% to $0.40 after a very difficult year-to-date for the company as it battles brand tarnish, flailing sales in Europe, rising competition in China and ongoing doubts about its ability to roll out robotaxis.
The critical thing this quarter will be the comments from Elon Musk on the call. His latest foray into the political sphere unnerved investors who had thought he was fully dialled into the Tesla narrative once again following his departure from DOGE and acrimonious split with President Trump.
His commentary will be vital to sustaining the Tesla bull narrative. We'll be looking for detail on the company's new product launches and expansion plans, the latest on Full Self Driving (FSD) and the impact of the loss of EV credits. Meanwhile investors will be especially hungry for updates on the robotaxi rollout following the debut in Austin, Texas last month. This was deemed initially a success but questions over safety soon surfaced.
First of all, the market is well positioned for a major decline in revenues due to the sales slump in Q2. Tesla delivered 384,122 cars (373,728 Model 3/Y and 10,394 other models) worldwide in the second quarter, a decline of 13.5% from the year-ago quarter. The second consecutive quarterly sales drop was also its biggest quarterly decline on record.
For Q1 2025 revenue fell 9% year-on-year to $19.34 billion, automotive margins slid to 16.3% and EPS missed consensus by almost a third. Management responded by withdrawing its full-year 2025 growth outlook, blaming "evolving trade policies" and "uncertain macroeconomic conditions".
Whilst the decline in first quarter sales was attributed to the product mix as the company swung to the Model Y ramp, the same excuse won't wash this time.
Trade policy risks remain as the European Union may look at retaliatory tariffs on US-made cards, while China has also indicated it could increase levies on EVs.
Politics has played a part with Musk’s support for right-wing parties in Europe apparently seeing consumers shy away. European sales fell 28% in May despite the wider EV market growth in the region.
Competition is fierce - Tesla’s market share in China has roughly halved from 10% to 5% in the last 5 years as the likes of BYD have caught the US brand. BYD has surpassed Tesla’s global market share.
And Trump's "big, beautiful tax bill" signed in law during the quarter means the loss of EV tax credits, which has already led to temporary price cuts of up to $7,500 on Model 3 and Model Y vehicles, further pressuring embattled margins.
The Trump bill, which will cut about $2bn in EV tax credits for Tesla, ends penalties under the corporate average fuel economy (Cafe) standards for more polluting automakers, who buy billions of dollars of emissions credits from Tesla. Under the bill, Cafe fines are set at zero, negating the need for other automakers to purchase credits from Tesla, which relies heavily on the income stream.
In the first quarter, Tesla revenues from emissions credits rose 35 per cent to $595 million, surpassing the company’s overall $409 million of net income. Last year, Tesla generated $2.8 billion in revenue from selling regulatory credits worldwide, up from $1.8bn in 2023. In total this amounted to 39 per cent of its $7.1 billion annual net income.
Ending emissions credits may not have an immediate impact on Tesla’s bottom line since it has struck multi-year agreements with other automakers, and these could take years to wind down. Moreover, Tesla can still make money from selling credits overseas – recently striking a pooling arrangement with other automakers in the EU. But around three-quarters of emissions credits revenues are currently generated in the US, it’s thought. The loss of this income stream needs to be adequately addressed by Musk in the call.
Automotive Sales Guidance and Margins
Sales in Europe have collapsed and it is unclear how this is about to be turned around. Tesla management said they would provide full-year guidance in the upcoming Q2 update so this will be pivotal for the stock and has the potential to be a significant catalyst for the stock, albeit the Street has an estimated of between 1.35mn and 1.66mn deliveries this year - there is a wide range to be hit.
It's likely Tesla will report revenues from automotive sales down more than 6%, with margins down to 15%, three percentage below the same quarter a year ago.
Weighing onmargins is Tesla's huge operating expenses and capital expenditures. It is continuing at 2024's elevated spend levels to expand gigafactory output, ramp 4680 battery cell production, and improve its Supercharger network. Revenues from energy generation and storage are however seen rising to more than $3bn, a positive development. Tesla is also spending big on AI-related technologies and new product launches.
One of the key things on the earnings call will be Musk’s position on the robotaxi rollout and state of FSD. Tesla launched robotaxis in Austin, Texas on 22 June with a very small number of Model Y vehicles. There were reports of some robotaxis violating traffic laws in Austin, such as brief lane drift, speeding near pedestrians caught on video. The National Highway Traffic Safety Administration is looking into it, and while it may not signify a long-term problem for the technology it does indicate that even with a relatively small and controlled debut Tesla is facing a mountain to scale this up without incurring more scrutiny and problems. It also underscores a sense of caution about Tesla’s Full Self Driving technology. The tech being trialled in Austin, FSD Unsupervised, is not currently on sale to general Tesla owners.
Finally, we will need to hear more on the politics. No doube Musk’s proximity to Trump hit hte brand in many quarters and his focus on DOGE meant he took his eye off Tesla, according to many shareholders. Renewed doubts about Musk’s focus on running Tesla hit the stock this month after he announced plans to launch a new political party, the America Party, to take on Republican and Democrat incumbency by focussing “on just 2 or 3 Senate seats and 8 to 10 House districts.” Whilst Musk didn’t say anything about taking time off from Tesla, investors felt the move back into the political sphere would mean he becomes more distracted. Investors got what they wanted when Musk quit DOGE last quarter – they are worried about renewed political posturing. A key question for the earnings call is which Musk investors see – the one fully dialled in for Tesla or the one talking politics and the debt?