Tesla’s Q2 margin is projected to reach a five-year low, as indicated in the upcoming Tuesday report. CEO Elon Musk is anticipated to emphasize the company’s robotaxi initiatives and AI product developments.

To stimulate EV sales, Tesla has implemented discounts for inventory clearance, price reductions, and incentives such as affordable financing options. However, these strategies have resulted in margin compression over the past two years, coupled with declining sales due to customer fatigue with the existing model lineup.

In April, an internal memo disclosed the company’s decision to reduce its global workforce by 10%.

At this juncture, investors are eager to gain further insights into Tesla’s strategic shift towards self-driving technology. They anticipate how this pivotal move will differentiate the company from its competitors in the automotive industry and potentially reignite the remarkable stock rally that propelled Tesla to unprecedented heights in 2021.

Earlier this year, Mr. Musk made an announcement regarding the unveiling of Tesla’s robotaxi, scheduled for August 8th. However, recent developments indicate that the automaker will require additional time to incorporate a design modification. This decision was prompted by a media report suggesting a delay in the launch until October.

Based on the consensus of 20 analysts surveyed by Visible Alpha, Wall Street analysts project a decline in Tesla’s automotive gross margin, excluding regulatory credits, to approximately 16.27% for the April-June period. This represents the lowest margin since the first quarter of 2019.

The gross profit margin for vehicle sales, excluding regulatory credit sales, was 16.36% in Q1 and 18.14% in Q2 of 2023.

Bernstein analyst Toni Sacconaghi noted in a recent report that Tesla’s discounted financing during a period of high interest rates can be seen as a subtle form of price reduction.

This cost will be “realized gradually over the life of the loan, effectively pushing out margin pressure into future periods,” he said.

Margins are likely to bottom by the end of this year and start to increase next year, analysts said, as costs associated with a production ramp-up of the Cybertruck eases.

“AI and robotaxi is such a huge opportunity over the next two, three, five years. So if you’re a long-term believer, you’re going to take the margins like your medicine,” said Paul Marino, Chief Revenue Officer of GraniteShares, which offers funds related to Tesla’s stock.

ROBOTAXIS

Certain investors hold the belief that Tesla faces limited competition within the United States robotaxi industry. They point to Tesla’s extensive fleet of vehicles on the road, which could potentially be converted into robotaxis through software updates, as a significant advantage over other automakers and ride-sharing platforms.

However, it is important to note that Tesla may encounter competition in China from BYD, the country’s largest electric vehicle manufacturer, as well as numerous other companies that have introduced driver-assistance systems tailored to navigating densely populated urban areas.

Tesla has divulged few details about its self-drive strategy.

“They might continue being a little bit quiet about it they are in the negotiations with OEMs for licensing but I think eventually FSD adoption rates and other numbers will be broken out,” said Jamie Meyers, senior analyst at Tesla shareholder Laffer Tengler Investments.

The commercialization of fully autonomous vehicles may encounter significant delays due to regulatory hurdles, according to experts in the field of self-driving cars and regulations.

Companies like General Motor’s Cruise have encountered technical and regulatory challenges in their pursuit of self-driving technology. The introduction of robotaxis could present additional complexities for Elon Musk, who recently expressed support for Donald Trump in the US presidential election.

“Biggest hurdle for FSD and robotaxis will be getting regulatory approvals. Trump administration could help to move that along quickly,” said Dennis Dick, equity trader at Triple D Trading said, who has a long position in Tesla.

AFFORDABLE CARS, DELIVERIES GROWTH

In April, Tesla made a significant change in its vehicle development strategy. Instead of creating an entirely new model, the company will introduce “new models” by early 2025 using existing car platforms and production lines. This shift deviates from previous plans for a completely new model.

“Investors are looking for a really positive outlook into the future, with some near-term surprises that can be implemented quickly and I think with the new lower cost model, they’re going to want to see progress on that,” GraniteShares’ Marino said.

Tesla’s vehicle deliveries to customers exceeded analysts’ projections for the quarter ending in June. However, deliveries experienced a moderate decline of approximately 5% compared to the previous year. Analysts generally anticipate a modest increase in deliveries for the current year compared to 2023.

To achieve its 2023 delivery record of 1.81 million vehicles, Tesla must deliver a minimum of 977,815 vehicles during the second half of this year.

“I think deliveries will grow fractionally for full year 2024 and grow around 15% in calendar 2025. The most important part is that they talk about September deliveries returning to growth,” Gene Munster, managing partner at Deepwater Asset Management, said.