Tesla Q2 Earnings Preview: Automotive Business May Face Largest Decline in a Decade, Can Robotaxi Support High Valuation?

Tesla is preparing to face a financial report that may mark the largest quarterly revenue decline in over a decade, as its core automotive manufacturing business faces unprecedented pressure.

Market consensus predicts that Tesla may record the sharpest quarterly sales decline since 2012 in Q2, with revenue expected to drop approximately 11% year-on-year to $22.6 billion, and adjusted earnings per share may decline by 18%.

As Tesla's main automotive business comes under pressure, whether Musk can once again support the company's high valuation with his grand vision for RoboTaxi and artificial intelligence has become a focal point for investors. Deutsche Bank believes that the RoboTaxi business is transitioning from concept to reality, with the fleet size expected to expand to over 1,000 vehicles within the next 6 to 9 months, and the operational range will extend to other cities such as San Francisco, Phoenix, and even Miami.

Barclays stated that Tesla's upcoming Q2 financial report reveals a contradictory situation: on one hand, the grand narrative of autonomous driving and RoboTaxi is capturing market imagination with unprecedented momentum, supporting high stock prices; on the other hand, the fundamentals of the company's core automotive business continue to weaken, with delivery volumes expected to decline by 10% by 2025. Tesla's stock price has fallen 31% from its peak last December. However, under Musk's continuous push, the anticipation for the RoboTaxi business has led to a 50% rebound in stock price since the low in April.

“Telsa relies more on investors' confidence in its long-term vision than any other large-cap stock,” noted Nicholas Colas, co-founder of DataTrek Research. He estimates that approximately 95% of Tesla's current stock price is related to the company's potential future business rather than its current financial performance. This ratio is significantly higher than that of other tech giants like Microsoft or Nvidia.

Automotive Core Business Faces Severe Challenges, Gross Margin May Improve

As Tesla's pillar, the automotive business contributed 90% of the company's revenue and 94% of its gross profit in 2024, but it is now in trouble.

Data shows that Tesla has reported Q2 deliveries of 384,000 vehicles, a year-on-year decline of 13%, marking the second consecutive quarter of decline. Among these, Model 3 and Model Y contributed 374,000 units.

In terms of finances, Deutsche Bank predicts Tesla's Q2 revenue will reach $22.2 billion, primarily driven by a higher mix of the new Model Y Juniper model, pushing the average selling price (ASP) of vehicles up 4% quarter-on-quarter to $41,600.

Regarding profit margins, Deutsche Bank expects that, benefiting from increased delivery volumes, the gross margin of the automotive business excluding carbon credits will rebound from 12.5% in Q1 to about 14%, driving the overall GAAP gross margin to 16.9%, also better than the market expectation of 16.4%. Barclays expects the gross margin of the automotive business excluding carbon credits to be 13.0% in the second quarter Although this is a 50 basis point improvement from 12.5% in the first quarter, it is still significantly lower than in previous years.

Deutsche Bank is also paying attention to competition from Xiaomi's SU7. Although orders for the Xiaomi SU7 are approaching 300,000 units, its current delivery cycle exceeds 50 weeks. Deutsche Bank observed that since the launch of the SU7, Tesla Model 3 sales in China have not been significantly impacted.

2025 Outlook: Cautious Delivery Targets, Model Y L as a Key Variable

Looking ahead to the full year of 2025, Deutsche Bank holds a cautious view on Tesla's delivery volume. The report forecasts total deliveries for the year to be 1.58 million units, lower than the market's general expectation of 1.62 million units, primarily due to the delay in the mass production process of the low-cost Model Q, which was originally scheduled for launch in the first half of 2025. Deutsche Bank currently expects it to contribute only 25,000 units in the fourth quarter.

In terms of annual profit margins, Deutsche Bank has raised its gross margin forecasts for the automotive (excluding carbon credits) and energy businesses, bringing the overall GAAP gross margin forecast for 2025 to 16.1%, but still a decrease of 170 basis points compared to the same period last year.

Barclays predicts that the total delivery volume for 2025 may be around 1.62 million units, representing a significant year-on-year decline of 10% compared to 1.79 million units in 2024. The weak performance directly leads to a sharp drop in profit forecasts. The consensus expectation for earnings per share (EPS) for the full year of 2025 has fallen from over $3.20 at the end of 2024 to currently $1.84. The EPS forecast for 2026 has also experienced a similar magnitude of downward adjustment.

Despite this, Tesla's stock price valuation remains high, at 142 times expected profits, while the Nasdaq 27 index is at 100 times.

It is worth noting that Tesla plans to launch the long-wheelbase version of the Model Y (Model Y L) this fall, with a wheelbase extended by 6 inches, offering a true three-row six-seat layout. Deutsche Bank's model expects this vehicle to contribute approximately 50,000 units in sales in the fourth quarter. Additionally, Tesla will launch a new configuration of the Model 3+ with NCM/NCA batteries in September, with a range expected to reach 800 kilometers.

Robotaxi Business: From Concept to Reality, Expansion Roadmap Emerges

Against the backdrop of pressure on its core business, Musk has positioned the robotaxi as a new engine for the company's growth. Last month, Tesla launched a small-scale autonomous taxi trial operation in Austin, Texas, utilizing about a dozen Model Y vehicles.

Barclays believes that compared to the vehicle costs of competitors like Waymo, which can reach $150,000 to $200,000, Tesla's advantage lies in its ability to achieve faster scale expansion with low-cost vehicles (around $30,000) and a technology path that does not rely on high-precision maps. **

Deutsche Bank expects that Tesla's Robotaxi expansion path will be similar to Waymo, initially focusing on expanding fleet size and operational range. In the next 6 to 9 months, the fleet size is expected to expand to over 1,000 vehicles, with operations not only continuing to expand in Austin but also entering other cities such as San Francisco, Phoenix, and even Miami.

Musk has stated that the service "could land in the San Francisco Bay Area in a month or two," but this depends on regulatory approval. However, California regulators revealed to the media this month that Tesla has not yet applied for the necessary permits to test or deploy autonomous vehicles. Investors are eager to learn about the expansion roadmap and specific progress of this business during the earnings call.

Policy Headwinds: Mixed Policy Impacts

Tesla's stock performance is largely tied to market confidence in Musk himself. As Joe Gilbert, a portfolio manager at Integrity Asset Management, stated:

"The Tesla story is about Musk. If he can convince the market that he has refocused on robot taxis and the company brand, the stock price can move."

Additionally, changes in the policy environment add uncertainty to Tesla's future.

Barclays stated that the biggest negative is the end of EV tax credits. For U.S. consumers, the federal electric vehicle tax credit of up to $7,500 will be eliminated after September 30, 2025. This will lead to a massive surge in purchases in the U.S. market in the third quarter, but sales will face significant pressure in the following fourth quarter and beyond. The report estimates that about 20% of Tesla's global sales benefit from this subsidy.

Secondly, there is the impact of tariff policies. The automotive business may benefit, while the energy business faces pressure. Barclays noted that Tesla's vehicles produced in the U.S. have up to 85% compliance with the USMCA, thus being minimally affected by tariffs on auto parts. However, its energy storage business (such as Powerwall and Megapack), which relies entirely on imported LFP batteries, will be significantly impacted by the 55% high tariffs.

Deutsche Bank ultimately reaffirmed its "Buy" rating on Tesla and maintained its target price at $345. Barclays maintained its "Hold" rating and a target price of $275, believing that there is significant uncertainty in the stock price in the short term between a strong narrative and weak fundamentals