Tesla Q2 Results: It's Not Just Bad News.

Key performance data:
Earnings per share: 52 cents vs. 62 cents estimated vs. 91 cents in the year-ago quarter
Revenue: $25.5 billion vs. $24.77 billion expected, $24.9 billion in the year-ago quarter
Operating profit margin: 6.3% vs. 8% expected
Free cash flow: $1.3 billion vs. $1.9 billion expected
The company disclosed $622 million in restructuring charges, likely due to mass layoffs earlier this year.

There is another not simple reason why the stock price has fallen. Tesla shares have been strong since reporting better-than-expected first-quarter results in late April. As of Tuesday, shares were up about 71% since the end of April.

The move shows that investors are expecting Tesla's performance to exceed expectations by a large margin.

Latest Wall Street Views
In the report, Wells Fargo analyst Colin Langan called the Tesla results "low-quality" and noted that Tesla's regulatory credits were higher than expected. Tesla's carbon credit revenue in the second quarter was about $890 million, up from $442 million in the first quarter.
Carbon credit revenue is net profit, which brings cash flow to Tesla because the company sells more zero-emission vehicles than required. That's a good thing, but regardless of carbon credit revenue, investors want to see the automotive business bring in great profits.

Langan expects the stock to move lower on Wednesday. It gave Tesla a "sell" rating and a target price of $120.

RBC analyst Tom Narayan has a Buy rating on the Tesla with a price target of $227 per share. In his report Thursday, he noted that Tesla Motors gross margin, excluding carbon credit revenue, was about 14.6%, which was below Wall Street's consensus estimate of around 16%.

Baird analyst Ben Kallo wrote in a Thursday note that he wasn't sure how investors would react to carbon credit revenues. He also noted that Tesla has "invested heavily in artificial intelligence," leading to higher operating expenses. Increased spending on artificial intelligence could weigh on Wall Street expectations in the coming quarters.

Kallo has a "buy" rating on the stock and a price target of $280 per share.

This Key Factor Makes Tesla's Earnings Forecast Look Worse Than It Actually Are
The restructuring charge makes the analysis of Tesla's second quarter a little more complicated than usual.
The electric vehicle maker reported adjusted earnings of 52 cents per share on sales of $25.5 billion. Wall Street was expecting earnings of 62 cents a share on sales of $24.77 billion.

Although Tesla fell after hours, it was off the lowest level. This is likely due to the way Tesla handled the $622 million restructuring charge, which is likely the result of massive layoffs earlier this year. If the charge were to be withdrawn, adjusted earnings per share would be close to 66 cents, down about 27% year-over-year. Although this is still declining, it is better than the disclosed figures.

Operating profit excluding restructuring charges will be $2.2 billion, down from $2.4 billion reported in the second quarter of 2023 but up from $1.2 billion reported in the first quarter of 2024.

Tesla's Poor Performance But Good News
Investors and analysts will find some positives after taking a closer look at Tesla's worse-than-expected quarterly results.
First, Tesla's new low-priced model, commonly known as Model 2, is still expected to be delivered on time. The quarterly report says production of the model will begin in the first half of 2025.

Additionally, adjusted earnings per share came in at 52 cents, which fell short of Wall Street expectations, but included $622 million in restructuring charges, likely related to layoffs. Together with that expense, adjusted earnings per share came in at 66 cents, five cents above analysts' forecasts. This adjustment helps explain why the results fell short of expectations.

One more thing: Tesla gave North American drivers a free trial of its Full Self-Driving (FSD) driver assistance product in the second quarter. This will increase FSD's subscription revenue in the coming quarters, Tesla said. Tesla did not disclose how much revenue FSD generated.

Plus: Energy storage sales increased 100% year-over-year to $3 billion. The business's gross profit margin was close to 25%, up 6 percentage points year-over-year.

One last thing: The company ended the quarter with a cash balance of nearly $31 billion, up nearly $4 billion from the end of the first quarter.

It's not a satisfactory performance report in any sense of the word, but it's not all bad.

Something else to watch-Robotaxi launch event coming this fall
Earlier on the company's quarterly results call, Musk reiterated his belief that self-driving technology is a key differentiator for Tesla.
The highly anticipated Robotaxi launch is scheduled for October 10, and this launch event will showcase Tesla's latest progress in Robotaxi.

The event was originally scheduled for August 8.

Collated from Barron & # 39; s "Tesla Stock Falls on Disappointing Earnings. There Are Positives Though."