Tesla (TSLA) Q2 earnings review: Profitability slightly below expectations, Q3 guidance is conservative.

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On July 20th, Tesla released its second quarter financial report. Tesla's total revenue for the second quarter was $24.927 billion, a year-on-year increase of 47%; gross profit was $4.533 billion, a year-on-year increase of 7%; gross margin was 18.2%, lower than the first quarter's 19.3% and the same period last year's 25%. Operating profit decreased by 3% year-on-year to $2.399 billion; operating margin was 9.6%, lower than the first quarter's 11.4% and the same period last year's 14.6%; GAAP net profit attributable to common shareholders was $2.703 billion, a year-on-year increase of 20%; earnings per share attributable to common shareholders was $0.78, a year-on-year increase of 20%.

Key Points

Tesla's Q2 profitability slightly below expectations

Tesla's gross margin for the second quarter was 18.2%, lower than the market's expected 18.8%. In the first quarter, Tesla's gross margin was 19.3%, lower than the fourth quarter's 24%; the operating profit margin for the second quarter fell below 10% to 9.6%, nearly 5% lower than a year ago.

The current macroeconomic environment is highly uncertain, and Tesla's Q3 gross margin still faces certain pressure.

Musk mentioned in the earnings call that with the rise in loan interest rates, many consumers will hesitate when taking out loans, as this also means that automobile prices will indirectly rise. If the loan interest rates continue to rise, Tesla will choose to reduce prices to make it more affordable for consumers. Currently, Tesla's gross margin still faces a short-term downward risk.

Without raising prices, Tesla's gross margin is unlikely to return to last year's level.

We estimate that without raising prices, Tesla's gross margin is unlikely to return to the level of last year. If Q3 lithium falls below 0.1 million yuan, we estimate that a 5% increase in price, no change in price, and a 5% price reduction correspond to gross margins of 24.5%, 20.7%, and 16.5% respectively.

Investment advice:

From the perspective of valuation, Tesla's current PE (TTM) is 75.7 times, nearly doubled from the beginning of the year. A large part of Tesla's current valuation comes from the unrealized AI business, and there is a certain risk of chasing high valuations.

Affected by the macroeconomic environment and high overseas loan interest rates, Tesla's gross margin has been under pressure for two consecutive months. The future profitability of Tesla will mainly depend on:

1) The future trend of the macro environment and interest rates, as well as whether Tesla will continue to reduce prices for promotional purposes.

There is a high probability that the price of lithium carbonate will fall in Q3, which is expected to drive the recovery of Tesla's gross margin.

Due to the high market attention on Tesla's stock, the short-term stock price of the company is highly dependent on event-driven factors, including: whether there will be a short-term price reduction, the progress of FSD, the progress of Cybertruck production capacity, etc. In the absence of event-driven factors, the stock trend will be heavily influenced by monthly sales data, and there will be short-term trading opportunities whenever the monthly data exceeds or falls short of expectations.

In terms of strategy, there is a certain downside risk in Tesla's stock price at the moment. It is recommended to adopt a relatively conservative investment strategy, such as Covered Call.

Risk Warning

Macroeconomic performance falls short of expectations; Economic recovery falls short of expectations; Electric vehicle sales fall short of expectations; Policies fall short of expectations.

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