Earn Big with Tesla: Tools for Maximum Gains

In the latest quarterly report, total revenue from the automotive business reached $19.9 billion, slightly above the market consensus of $19.7 billion.

Notably, the primary driver behind the automotive revenue exceeding expectations was the sale of regulatory credits. As part of government incentives for environmental measures, electric vehicle manufacturers are allowed to sell their excess emission credits to traditional automakers that fail to meet standards, thereby generating additional income. Although this non-core business has brought considerable short-term revenue to the company, demand for such credits is expected to gradually decline in the long term as traditional automakers increasingly enter the electric vehicle market.

In Q2, Tesla delivered 443,956 vehicles, surpassing market expectations. However, Tesla's vehicle deliveries have declined year-on-year for two consecutive quarters. With the global new energy vehicle market growing by over 20% year-on-year in Q2, Tesla's market share in China, Europe, and the United States has shown a downward trend, indicating a continuing deterioration in the fundamentals of its car manufacturing.

Figure: Tesla's Automotive Sales Market Share

Source: Company Announcements

The company's current inventory levels are still high. Notably, as of the end of the second quarter, Tesla's inventory was the second highest in its history, second only to the first quarter. This situation suggests that even though there has been recent progress in reducing inventory, Tesla still faces significant challenges.

High inventory not only ties up the company's capital but may also exert pressure on Tesla's pricing strategy and profit margins in the near future. To maintain competitiveness and stimulate sales, Tesla might need to adopt more attractive pricing, which could compress its profit margins.

Figure: Changes in Tesla Inventory Levels

Source: Bloomberg

In Q2 2024, Tesla's average selling price per vehicle (excluding carbon credits and leasing) continued its downward trend, falling to $42,000, approximately 2% less than the previous quarter. This decline is mainly attributed to Tesla's pricing strategy in the Chinese and U.S. markets. In China, price reductions for the Model 3/Y, and price adjustments for models other than the Model 3 in the U.S., have directly impacted the average revenue per vehicle.

Looking ahead to the second half of the year, the outlook for the new energy vehicle markets in Europe and China remains challenging, while the U.S. market is expected to benefit from interest rate cuts in the latter half of the year.

Figure: Changes in Tesla's selling price per Vehicle

Source: Bloomberg

Tesla's energy business demonstrated strong growth momentum in Q2 2024, with revenue primarily derived from the sales and leasing of its innovative energy products and services, including the Powerwall (home energy storage system) and Megapack (ultra-large energy storage system for large commercial and industrial customers).

In Q2 2024, Tesla made significant progress in its energy storage products, with the AI boom driving electricity demand expected to propel the energy storage business. Energy storage revenue reached $3 billion in Q2, a 100% year-over-year increase, significantly exceeding the market expectation of $2 billion. The deployment of energy storage products in Q2 was 9.4 GWh, more than double the 4.1 GWh in the first quarter, setting a new record for a single quarter's deployment volume.

Figure: Tesla's Energy Storage Business (GWh)

Source: Company Announcements

The gross margin for the energy storage business reached 25% in the second quarter, significantly higher than the automotive business's 15%, demonstrating the high profitability of this segment. Thanks to economies of scale and improved cost control, Tesla's energy storage business has seen rapid growth in gross margins over the past few quarters, contributing significantly to the overall improvement in the company's profit margins.

The Shanghai energy storage factory is expected to start production in 2025, with an annual capacity of 10,000 units and a storage scale of nearly 40 GWh. The growth of the energy storage business helps reduce Tesla's reliance on the electric vehicle business, providing performance support and enhancing the company's overall profit margins.

Additionally, other Tesla businesses such as FSD (Full Self-Driving), Robotaxi, and Optimus robots are not expected to have a significant short-term impact on Tesla's earnings but rather enhance its valuation. The market is more focused on whether Tesla can launch more competitively priced models to meet consumer demand and drive the company's performance growth.

Tesla’s rise since April can be attributed to the resolution of Elon Musk’s compensation issues, which injected more speculative potential related to AI. Compared to actual performance, the price increase was more event-driven, while fundamentally Tesla still faces challenges in automotive sales and high valuation. Going forward, investors should focus on the launch of new models and further developments in energy storage and AI business.

Since the earnings report was released, Tesla's stock price has fallen by more than 12%.

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