BREAKINGVIEWS-Tesla drifts away from benchmark status

By Jonathan Guilford

NEW YORK, July 23 (Reuters Breakingviews) - Despite reshaping the car industry, Tesla TSLA.O is becoming even less of an automaker for investment purposes. Uninspiring second-quarter results reinforce the idea that Elon Musk probably will keep driving the $1 trillion company toward self-driving taxis, humanoid robots and energy storage. With electric-vehicle sales slipping and only half-baked promises of an affordable car on offer, its benchmark status will fade further in the rear-view mirror.

The financial results released on Wednesday were as glum as broadly expected. Musk’s political adventure alienated Tesla’s typical conservationist buyers and his increasingly divided corporate duties have left the company falling behind rivals including China’s BYD 002594.SZ. Operating profit tumbled 42%, to $923 million, on a 12% decline in sales during the three-month stretch.

Some of the damage was probably inevitable. Despite being in a relatively solid position to withstand President Donald Trump’s barrage of mercurial tariffs, Tesla will suffer from other policies that slash support for electric vehicles in an already-stalling U.S. market. The administration's moves threaten sales of regulatory credits that effectively drop straight to the bottom line.

The toxic combination of factors significantly slows a company that had cracked the profitability code in an industry renowned for its struggles to do so. Tesla’s 15% gross margin in autos, excluding credits, ticked up from last quarter’s nadir, but remains at half its 2022 peak. Its broader 4% operating margin now trails the 7% generated by General Motors GM.N. Progress on cutting costs per vehicle sold has stalled. Chances of a Model Y update revival look slimmer. The Cybertruck has peaked.

Although a more affordable EV is inching toward production, Musk’s throttled ambitions suggest a sub-$30,000 price tag looks less likely. At this point, Tesla truly hinges on other ventures, based on its valuation of 145 times estimated forward earnings, according to LSEG. Even there, however, Alphabet’s GOOGL.O Waymo unit and others have raced ahead in self-driving. Once-breakneck sales growth for batteries big enough to back up power grids has sputtered for four consecutive quarters. The company is split between playing defense and catch-up.

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CONTEXT NEWS

Electric-car maker Tesla said on July 23 that it generated $22.5 billion of revenue in the second quarter, down 12% from the same period a year earlier.

Revenue in Tesla’s core automotive business fell 16% from the same three-month stretch in 2024, to $16.7 billion, with the unit recording a gross margin of 15% after adjusting for the sales of regulatory credits.