Tesla to Report Second-Quarter Earnings Fueled by Sales Growth

After a rocky start to the year, Tesla has returned to a feverish rate of sales growth for its electric vehicles. That growth’s cost will become evident Wednesday when the company reports second-quarter financial results. 

New-vehicle deliveries almost doubled in the April-through-June period to a record high. Still, analysts expect profit to rise just 3.4% from a year earlier after the Texas-based automaker slashed U.S. prices by more than a fifth on some offerings.

Tesla’s automotive gross margin, a closely watched measure of profitability, is expected to narrow to its lowest level in almost six years at a time when the company is preparing to boost spending to ramp up production of the Cybertruck.  

Investors have regained enthusiasm for the stock, even as Tesla confronts slowing profit growth and increased costs from expansion.

Tesla shares have more than doubled this year through Tuesday, after starting 2023 down amid jitters about whether demand was waning for its vehicles. There also was uncertainty around Chief Executive Elon Musk’s focus on the carmaker after buying social-media company Twitter late last year.

Those qualms appear to have eased since he appointed a Twitter CEO to run day-to-day operations and reported earlier this month that Tesla’s second-quarter deliveries had surged 83%.

Investors on Wednesday will be looking for the company to indicate how heavily it will lean on discounts in the second half. 

Plans to adopt Tesla’s EV charging technology, announced in recent months by General Motors, Ford Motor and other automakers, have also helped highlight Musk’s advantages in the EV market, especially as rivals show signs of swelling inventory. On Monday, Ford slashed the starting price of its EV pickup, the F-150 Lightning, by almost $10,000. 

The cut, along with falling prices more generally for EVs, has raised broader questions about the strength of demand for battery-powered cars as more companies expand their factory output. Some analysts are skeptical that they have seen the end of price cuts by Tesla. 

Musk has said he is chasing growth at the expense of profitability, betting the move will pay long-term dividends for the world’s top seller of EVs. The company has targeted production growth of 31% this year while Musk has suggested closer to 50% is possible. 

The cost to its bottom line should be evident Wednesday. Analysts surveyed by FactSet, on average, predict Tesla will report a $2.3 billion profit in the second quarter, off revenue that rose to $24.2 billion. 

So far this year, Tesla has cut starting prices across its lineup by between 14% and 28% in the U.S., depending on the model, according to The Wall Street Journal’s review of the changes on Tesla’s website. 

Analysts such as

That closely watched figure was 26% in the second quarter of 2022, while Sacconaghi expects this past quarter’s margin to have narrowed to about 16%. 

In April, Chief Financial Officer Zach Kirkhorn cautioned investors against “reading too much into” Tesla’s margins in the near term. 

“What happens to margins over the next couple of quarters only matters in the context of what that means for our ability to reinvest into 2024 and 2025,” Kirkhorn said. “We have a lot of space before that becomes something that we have to revisit—our investment plans.”

The company has signaled it is going on a spending spree in coming years as it seeks to boost production capacity to handle making 20 million vehicles annually by 2030. Last year, it made about 1.37 million vehicles. 

Over the weekend, Tesla said it had begun building the Cybertruck, a sci-fi-inspired pickup, at its Texas assembly plant outside Austin. Tesla also has sought approval to double the size of its factory near Berlin to produce up to one million cars a year, and it has announced plans for a new assembly plant in Mexico. 

So far, Tesla has said it aims to fund its expansion with cash generated from the business. 

Tesla’s free cash flow fell 80% in the first quarter to $441 million, from $2.2 billion a year earlier. That was its worst generation of free cash since the second quarter of 2020, when the company was struggling with Covid-19-related shutdowns and ramping up production of the Model Y crossover. 

Write to Rebecca Elliott at [email protected]