Elon Musk warned of difficult times ahead for Tesla Inc. following one of the carmaker’s worst stretches since it first started producing electric sedans over a dozen years ago.
Tesla will be in a transition period for the next year or more, losing electric vehicle incentives in the US and needing time to roll out autonomous vehicles, the chief executive officer said.
“We probably could have a few rough quarters,” Musk said. “But once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I would be surprised if Tesla’s economics are not very compelling.”
Tesla shares fell as Musk spoke after the close of US trading. The move carried over into Thursday, with the stock dropping as much as 9.5% shortly after the open.
Musk’s comments were his starkest yet on the fallout for Tesla from the tax bill President Donald Trump signed this month. In addition to phasing out $7,500 tax credits for EV purchases, the law gutted federal fuel-economy standards that have generated significant revenue for Tesla over the years.
The Tesla CEO’s blasting of the bill — he called it a “disgusting abomination” — solidified Musk’s break from Trump days after he left a prominent role in the president’s administration.
Tesla on Wednesday reported adjusted earnings of 40 cents a share, missing Wall Street’s already lowered estimates. Revenue fell 12% to $22.5 billion, the steepest decline since 2012. Vehicle deliveries slumped and the average selling price of Tesla cars dropped.
Using Imagination
The results were “noisy,” with clear challenges in the near term and no formal guidance beyond that, Truist Securities analyst William Stein said in a note.
“The company offered remarkably little detail on some of the most important factors,” including a lower-priced model and humanoid robot, Stein said. That makes “our outlook lean more on imagination than realistic targets.”
Tesla also reported falling sales at its energy generation and storage business, and said costs from tariffs increased around $300 million. The impact of the levies is expected to grow in the coming quarters, Chief Financial Officer Vaibhav Taneja said.
The company’s car business is struggling in the face of rising competition and continued fallout from Musk’s political activities. Investors have largely been willing to look past sales declines and toward the CEO’s promises related to artificial intelligence, robots and self-driving technology.
This quarter, however, Musk put more emphasis on the amount of turbulence standing in the way of Tesla starting to see payoff from these investments.
“There are some teething pains as you transition from a pre-autonomy to a post-autonomy world,” Musk said.
On the conference call, executives spent relatively little time discussing the EV business, instead talking about plans to expand Tesla’s recently launched robotaxi service, a new diner opened in Los Angeles, and whether the company may invest in xAI, Musk’s AI startup.
‘Go Crazy’
The CEO also reiterated his desire for greater control of Tesla, suggesting his ownership stake should be higher to guard against any activist investor attempt to oust him. His multibillion-dollar Tesla payout was gutted by a Delaware judge last year, leading the company to appeal and move its incorporation to Texas.
“I think my control over Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can’t be thrown out if I go crazy,” Musk said.
Tesla’s brand has become increasingly polarizing following Musk’s once-emphatic support of Trump. During his brief stint in the administration, Musk’s attempts to slash government spending generated criticism from many of Tesla’s traditionally left-leaning consumers, while some investors worried the project was a distraction.
Revenue from the regulatory compliance credits Tesla sells to rival carmakers fell to $439 million in the second quarter. That’s down 26% from the first quarter and 51% from a year earlier.
This revenue stream is under threat after the tax law Trump signed this month eliminated penalties automakers faced for failing to meet federal fuel-economy standards. The administration has also moved to terminate California’s EV sales mandate and sweep away federal limits on tailpipe emissions.
Affordable Model
Tesla executives said the company started producing a more affordable EV in June, but the company will hold off on bringing it to market until after tax credits cease at the end of September. The model, which Musk said would resemble the Model Y, is seen as crucial to buoying sales.
Regarding the robotaxi, Tesla said it aims to further improve and expand its service, which began this summer in Austin. The company is seeking regulatory approval to launch in the San Francisco Bay area, Nevada, Arizona, Florida and several other places, Musk said.
“We’ll probably have autonomous ride-hailing in about half the population of the US by the end of the year,” Musk said. “That’s at least our goal, subject to regulatory approvals.”
Gene Munster, managing partner at Deepwater Asset Management, said that while Tesla’s comments on areas such as its driver-assistance systems and robotaxis were positive, investors are looking for more near-term specifics.
“All eyes are on how Austin is going to play out, and we didn’t hear much,” Munster said. “Investors were hoping to hear something and they didn’t hear it.”