Tesla faces its worst financial quarter in a decade; can Robotaxi support Musk's future bet?
Tesla is facing its most severe financial quarter in a decade, with expected revenue declining by 11% and earnings per share dropping by 18%. Weakening market demand, coupled with the imminent cancellation of federal incentives in the United States, is putting pressure on the company. Musk's autonomous taxi plan is seen as a crucial factor supporting the stock price. Although Tesla's stock price has risen by 50% since April, it is still down 31% from its peak in December last year. Tesla's price-to-earnings ratio is as high as 142 times, indicating a significant gap between its financial condition and stock price
According to Zhitong Finance APP, the outlook for Tesla's (TSLA.US) core automotive manufacturing business is increasingly bleak, posing a severe test for its CEO Elon Musk in his efforts to boost the company's stock price with his vision for the future of autonomous driving. The electric vehicle manufacturer is expected to report its most significant revenue decline in nearly a decade when it announces its earnings after the market closes on Wednesday, as demand for Tesla vehicles is gradually decreasing.
Analysts expect adjusted earnings per share of 42 cents and revenue of $22.6 billion, representing declines of 18% and 11% compared to the same period last year. This would mark the largest quarterly sales drop since 2012.
Moreover, U.S. federal incentives aimed at encouraging electric vehicle sales will be eliminated by the end of this year, making the situation potentially more challenging in the coming months. This puts greater pressure on Musk to advance Tesla's robotaxi project. The project is increasingly seen as a crucial factor supporting the company's stock value, which has risen 50% since its low in April. A limited-scale trial of the project was conducted in Austin last month.
Nicholas Colas, co-founder of DataTrek Research, stated, “Tesla is more reliant on investors' confidence in the company's long-term vision compared to other large-cap stocks.” He served as an automotive industry analyst for a decade.
Tesla's sales have been affected by product aging and public dissatisfaction with Musk's role in the Trump administration. During the Trump administration, Musk was responsible for significant cuts to government spending. For these reasons, Tesla's stock price has also been impacted, falling 31% from its peak in December last year. At that time, Musk's relationship with Trump was seen as a favorable factor for the company.
However, Tesla's stock price-to-earnings ratio remains as high as 142 times (i.e., 142 times its expected earnings), while the Nasdaq 100 index has a P/E ratio of only 27 times, reflecting a significant gap between the company's deteriorating financial condition and its stock price. Data shows that Wall Street has lowered its earnings expectations for 2025 by 28% over the past three months.
Tesla's automotive manufacturing business contributed 90% of the company's revenue in 2024 and generated 94% of its gross profit. However, this business is also plagued by a series of issues: production halts to readjust the production line for the redesigned Model Y and increasing competition from domestic brands in China.
Additionally, the tax bill proposed by Trump will eliminate two key incentives for the U.S. electric vehicle industry. A $7,500 tax credit for most domestically produced electric vehicles will be eliminated starting in September, and another punitive measure against traditional automakers that fail to comply with federal fuel economy standards will also be abolished These tax incentives brought Tesla $2.8 billion in revenue last year.
However, Tesla's optimists have not backed down. Among the analysts tracking the company's stock, nearly half recommend investors buy the stock, a ratio that has remained unchanged since the beginning of the year.
Autonomous taxis are the main reason for this optimism, with Musk predicting that by the end of 2026, there will be hundreds of thousands of such vehicles on the road. Long-term investors have also mentioned other futuristic visions, such as a humanoid robot named Optimus, and their belief in Musk's ability to continuously push the boundaries of innovation.
According to calculations by DataTrek's Colas, about 95% of Tesla's stock price depends on the company's future performance. Compared to other stocks among the so-called "seven tech giants," only Nvidia (NVDA.US) and Microsoft (MSFT.US) have a similar ratio, around 75%.
Tesla is currently planning to introduce autonomous taxis in California and Arizona. Earlier this month, Musk stated that autonomous taxis could launch in the San Francisco Bay Area "within a month or two," provided they receive approval from the relevant regulatory authorities.
However, the company faces intense competition. Waymo, the autonomous vehicle division of Google's parent company Alphabet (GOOGL.US), has already launched similar services in Los Angeles, Austin, Phoenix, and San Francisco. Additionally, it has just launched such services in Atlanta through the Uber (UBER.US) platform, with Miami and Washington expected to join next year. Furthermore, Uber is collaborating with electric vehicle manufacturer Lucid Group (LCID.US) and autonomous technology startup Nuro to plan the launch of an autonomous taxi fleet.
UBS analyst Joseph Spak stated, "It is this focus on long-term growth that makes Tesla the most 'story-driven' stock."
Joe Gilbert, a portfolio manager at Integrity Asset Management, added, "The success story of Tesla is Musk himself. If he can convince the market that he is refocusing on autonomous taxis and brand building, then the stock can perform."
