(Bloomberg) -- Before Tesla Inc.’s results, investors were looking for signs of stability in the company’s electric-car business and some hint that a dazzling self-driving vehicle was imminent. They got neither.
The result was a resounding disappointment: The stock plunged 12% Wednesday, several analysts slashed their price targets and at least three downgraded their ratings on the stock.
Instead of shoring up investors’ confidence, Tesla reported another quarter of disappointing profits as Chief Executive Officer Elon Musk repeated some of his earlier promises about how the EV-maker will be a leader in autonomous cars. But he also confirmed an earlier report that the company was delaying the unveiling of the so-called robotaxi to October.
“Investors were generally confused and lacked conviction into Tesla’s 2Q print,” Barclays analyst Dan Levy wrote in a note to clients. “We believe the key takeaway from Tesla’s 2Q print, a miss driven by auto margins, is that for now, the focus shifts back to fundamentals.”
Tesla shares had risen 85% between their low in April and near-term peak in early July, in part because of the broader speculation that big tech companies will benefit from breakthroughs in artificial intelligence. The rally added more than US$380 billion to the company’s valuation, even as analysts’ estimates for its earnings and revenue have been sliding. The second-quarter results announced on Tuesday further highlighted that dissonance.
“The disconnect from reality means anything can happen,” said 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.”
At the same time, while Musk has made self-driving cars a pillar of the company’s future, most analysts agree that the company will need the support of its core auto business to keep generating cash flow until robotaxis are commercially viable.
Yet, the results did not do enough to allay concerns about the company’s EV business, which has been struggling amid a broader slowdown in demand. Tesla’s earnings missed estimates for the fourth consecutive quarter and its automotive gross margin, excluding regulatory credits — a closely watched metric — fell to 14.6% in the second quarter from 16.4% in the first three months of the year.
“Given the hype cycle the past few weeks around AI, we would expect shares to retrace the recent rally as nothing new was offered around progress with AI,” said Cowen analyst Jeff Osborne.
Analysts at Cantor Fitzgerald, CFRA and New Street Research downgraded their recommendations on the stock after the earnings.
The biggest challenge for the stock in the near term is the lack of any strong catalyst that can push it higher, analysts said. The shares are already trading at an expensive multiple — nearly 80 times forward earnings — well above the valuations of other mega-cap technology stocks.
There’s a growing risk that even the October robotaxi event may not live up to the high expectations built into the stock, according to some analysts.
“Tesla’s Robotaxi announcement in October may be more aspirational than substantive,” Sanford C. Bernstein analyst Toni Saccconaghi wrote in a note to clients.
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