Shares of Tesla (NASDAQ: TSLA) were sinking after the electric vehicle (EV) maker reported disappointing second-quarter results and offered a muted outlook for the rest of the year. Following the sell-off, the stock is now down about 12% year to date.
Let's take a closer look at the company's most recent results and whether investors should consider buying or selling the stock.
Weak automotive sales
For Q2, Tesla saw a marginal 2% rise in revenue, year over year, to $25.5 billion. Adjusted earnings per share (EPS), however, plunged 43% to $0.52, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) declined 21% to $3.7 billion. The profitability metrics were hurt by a 39% increase in operating expenses and a slight decline in gross margins from 18.2% to 18%.
Automotive revenue fell 7% to $19.9 billion, as Model 3/Y deliveries dropped by 5% to 422,405 vehicles. Other models, including its Cybertruck, saw deliveries increase 12% to 21,551 vehicles.
Total vehicle production in the quarter, meanwhile, fell 14% to 410,831. Model 3/Y production slumped 16%, while other model production rose 24%.
The company said that vehicle volume growth would be notably lower than in 2023, as it is in between two major growth waves. The first was the global expansion of its Model 3/Y platform, while the forthcoming one will be from its advancements in autonomous driving. Earlier in July, the company pushed back the unveiling of its robotaxi from August to October due to design changes. However, CEO Elon Musk said he would "be shocked" if the company's first robotaxi ride did not happen next year.
Tesla noted that the plan for more affordable models to begin production remains on track for the first half of next year. However, it said the vehicles will use a combination of aspects from both its current platform and next-generation platform. This will lead to less cost reduction than it had previously anticipated.
Outside of autos, the company's other businesses were performing well. Its energy generation and storage segment saw revenue double to $3 billion, while service and other revenue rose 21% to $2.6 billion. Megapack and Powerwall both achieved record deployments in the quarter. Service revenue, meanwhile, was helped by the continued expansion of its Supercharging network.
Musk continued to hype the potential of Tesla's Optimus humanoid robot, saying it is already performing tasks in its factory. It expects limited production of several thousand robots next year that it will use for itself in Tesla factories as it works out the kinks. It then expects to ramp up production and begin selling the robots to customers in 2026.
Image source: Getty Images.
Is it time to buy or sell the stock?
Tesla has been seeing demand for its electric vehicles wane, as people remain wary about transitioning to them. In a recent American Automobile Associatin (AAA) survey, respondents cited worries over price, charging options, and vehicle driving ranges, while 30% of respondents noted an inability to install charging stations where they live. This is a big issue for people who live in large cities, as well as in apartments and condos. In the survey, only 18% of U.S. adults said they were likely to buy an EV as their next car, down from 23% in last year's survey.
With demand for EVs seeming to have flattened out, Tesla is looking toward things like robotaxis and Optimus to power future-year results. The problem is that the market and business models for these ventures are still not proven out, which adds a lot of risk. For a company like Alphabet (NASDAQ: GOOGL), its robotaxi unit Waymo is more of a call option that investors get for virtually free, while for Tesla some level of future success appears already priced into the stock.
A forward price-to-earnings (P/E) ratio of over 63 based on 2025 analyst estimates is not the proper valuation for a maturing EV maker with 18% gross margins and an auto business whose growth is starting to stall. Compare that to automobile companies General Motors (NYSE: GM) and Ford (NYSE: F), which both trade at under 7 times multiples. This shows the premium that Tesla stock gets based on Musk's reputation and vision.
TSLA PE Ratio (Forward 1y) data by YCharts.
That said, I wouldn't bet against Musk, as he's proven doubters wrong in the past. At the same time, I wouldn't be paying a premium valuation on an unproven business model with other well-financed competitors in the fold. Waymo, backed by Alphabet, is already offering autonomous driving services in Phoenix and San Francisco, so Tesla will have competition right out of the gate.
As such, I'd stay on the sidelines with Tesla, given its valuation and the slowing demand for EVs.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
