Tesla just reported its first full-production Cybertruck and released second-quarter earnings. What does it mean for TSLA stock?
What’s the latest?
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Cybertruck:
Tesla’s first pickup truck has come off the production line, and CEO Elon Musk said deliveries should begin by the end of the year.
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Earnings: Tesla just pulled in a net income of $2.7 billion, a solid 20% boost compared to the previous year. Revenues surged by an impressive 47% to reach $24.93 billion.
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TSLA stock:
The share price fell 4% after hours following Q2 earnings results but has soared 170% year-to-date.
Reasons for optimism
Cybertruck
There is a lot of excitement surrounding the news that the first Cybertruck was assembled at Giga Austin. It means an entirely new line of vehicles, which optimists think could one day outstrip the sales of the popular Model Y and Model 3.
There are still many unanswered questions about the vehicle. We are lacking specific details about the truck and its production schedule, leaving some sceptics to question the timing and motive behind the announcement, suspecting it might be an attempt to generate hype and divert attention from other concerns.
Superchargers
Tesla is aggressively expanding its presence in the U.S. charging market, forming partnerships with major companies like Ford and GM to utilize its North American Charging Standard (NACS).
While this move may not have an immediate impact on revenue, analysts predict a substantial boost in the company's top line in the future, largely driven by EVs from other carmakers using Tesla's network. This strategic approach positions Tesla for continued relevancy in the evolving EV landscape.
New revenue streams
Tesla’s business model still heavily relies on automobile sales, but the ‘other’ categories are starting to make a bigger dent. That helps add some diversity and removes concentration risk from the business.
Looking back over the whole of 2022, Tesla generated $81.46 billion in revenues, whereby $71.46 billion came from auto sales (88%). The remaining 12% was a mix of extra services, energy generation and storage from SolarCity as well as regulatory credits.
DID YOU KNOW?
Tesla’s 2023 deliveries are set to outpace all deliveries made from 2012 to 2020.
Tesla announced on July 2 that in the second quarter, the firm produced nearly 480,000 vehicles and delivered over 466,000 vehicles - both new records. The company appears to be gradually overcoming one of its biggest challenges to meet the heavy demand for its cars by producing enough of them.
Downside risks
Margin Squeeze
The earnings report brought up a bit of a conundrum for Tesla. The firm has been heavily discounting vehicles to really help drive up sales but has sacrificed profit margins.
Operating margin, which shows how well they turn sales into pre-tax profits, took a hit in the April-June quarter, going down to 9.6%. That's a considerable drop from the 14.6% they had a year ago, and it had already taken a significant hit in the January-March quarter as well. So, it seems like they're facing some challenges in striking the right balance between boosting sales and keeping those profits rolling in.
If prices are to stay low to stay competitive, only heavier cost controls can bring profit margins back into line. Management did allude to this in the Q2 conference call, and this could be a key driver for the stock over the coming months.
BYD
As of now, Tesla is in a strong position, way ahead of both traditional car manufacturers and new startups in the EV market. But the competition is indeed getting fiercer, with rivals like China's BYD Co. making significant strides. BYD recently hit a sales record, selling a whopping 352,163 electric vehicles in the second quarter, not much less than Tesla’s worldwide deliveries. BYD's rapid progress shows they're a force to be reckoned with.
Tesla price chart
Having fallen by nearly 75% throughout 2022, TSLA shares have rallied back to within 30% of the adjusted all-time high of $409.97 in 2023.
The $200 mark has proved a critical juncture between bulls and bears, and so while above this level, it seems likely the current uptrend can continue. However, a drop under this level could spell a move back down to the 2022 low.
Source: FlowBank / TradingView
Final thoughts
The Cybertruck could be a big source of long-term growth for Tesla, but full-scale production is likely a year or two away. Tesla's sales growth remains robust but this has come at the cost of operating margin, indicating the challenge of preserving profits amid increasing competition from rivals like BYD and the big auto manufacturers.
After a massive rally this year, there is room for some consolidation in the stock but a return to the bearish trend of 2022 seems unlikely.
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