Tesla misses Wall Street targets as price cuts, incentives weigh

Tesla on Tuesday reported its lowest profit margin in more than five years and missed Wall Street earnings targets in the second quarter, as the electric vehicle maker cut prices to revive demand while it increased spending on AI projects.

Tesla recorded automotive gross margin excluding regulatory credits of 14.65 per cent in the second quarter, compared with estimates of 16.29 per cent, according to 20 analysts polled by Visible Alpha.

Tesla shares were down about 4 per cent in after-hours trading.

The results were a reminder of headwinds facing the company in its main auto business, even as CEO Elon Musk reoriented the carmaker to self-driving technology, helping Tesla stock recoup most of its losses this year.

The second quarter marked a tumultuous period for the EV maker, with Musk shelving development of an all-new cheaper car in favor of working on creating self-driving taxis. The company also laid off more than 10% of its employees in the face of slowing sales and rising competition.

Tesla said profit was also weighed down by an "increase in operating expenses largely driven by AI projects" and "restructuring charges."

It previously said it expected to "recognize in excess of $350 million of costs primarily related to employee termination expenses in the second quarter of 2024."

The company's electric vehicle deliveries have fallen for two consecutive quarters as the automaker battles rising competition and slow demand stemming from a lack of affordable new models.

Shares of Tesla have surged over 30% since June 13, when shareholders voted to approve Musk's $56 billion pay package that was invalidated by a Delaware court in January.

The company on Tuesday reported revenue of $25.50 billion for the three months ended June, compared with $24.93 billion a year earlier. Analysts on average had estimated $24.77 billion, according to LSEG data.

Tesla's sales of regulatory credits nearly tripled to $890 million in the second quarter from a year earlier.

"Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025," Tesla said in a statement.

Tesla reiterated that cost reductions for new vehicles would be less than expected.

Net income was $1.48 billion in the second quarter, compared to $2.70 billion a year ago.

Adjusted earnings of 52 cents per share missed the Wall Street consensus of 62 cents, as calculated by LSEG.