Tesla Plunges 8% Despite Record Sales... Why Did the Market Turn Away?

▲ Tesla (TSLA), Robotaxi, Humanoid Robot/AI Generated Image ©

Despite Tesla recording its highest-ever vehicle delivery performance in the second quarter, its stock price plummeted by nearly 8% during intraday trading. Analysis suggests that the market focused more on the feasibility of its robotaxi and artificial intelligence (AI) businesses, as well as its excessively high corporate valuation, rather than the performance itself, leading to a typical 'Sell the News' market.

According to investment media TradingNews on July 2 (local time), Tesla delivered 480,126 vehicles in the second quarter, significantly exceeding market expectations of 406,024 units. This represents a 25% increase year-over-year, marking a record-high performance. However, the stock price fell from the previous day's closing price of $425.30 to around $395, a decline of approximately 8% during intraday trading. The media explained that the stock price had already risen by 10-14% before the earnings announcement, reflecting pre-existing expectations, and that profit-taking sales were the reason for the sharp decline.

Furthermore, a well-known short-seller disclosing their short position in Tesla on July 1 and raising concerns about overvaluation also dampened investor sentiment. The media analyzed that with Tesla's market capitalization at approximately $1.5 trillion and its price-to-earnings ratio (PER) around 300x, the current corporate valuation reflects expectations for robotaxis and AI platforms more than its automotive business. Ultimately, while the strong delivery numbers showed a recovery in the automotive business, the market's focus shifted to AI growth potential, which failed to translate into a stock price increase.

The media also explained that the current Wall Street target prices, ranging from $25 to $600, a difference of about 24 times, reflect these divergent views. Optimists predict a significant expansion of corporate value if robotaxis and humanoid robots become a reality, while pessimists believe that the current high corporate valuation will be difficult to justify if the AI business fails to meet expectations. Thus, the market is sharply divided on whether to evaluate Tesla as an automotive manufacturer or an AI platform company.

The fundamentals of the automotive business also remain a challenge. Following the end of the US electric vehicle tax credit, US sales decreased by 15-20% year-over-year, while strong sales in Europe and China partially offset this. Conversely, the energy storage business emerged as a new growth engine, recording a high gross profit margin of approximately 39.5%. Furthermore, capital expenditure this year is expected to exceed $25 billion, and there's a possibility that annual free cash flow could turn negative due to large-scale investments in robotaxi and humanoid robot development.

The media identified the second-quarter earnings announcement scheduled for July 22 as the biggest variable for the future. It predicted that if the recovery of automotive profitability, improvement in cash flow, progress in robotaxi development, and plans for the unveiling of the humanoid robot 'Optimus 3' meet market expectations, the stock price could rebound above $450. Conversely, it stated that if profitability and cash flow fall short of market expectations or if progress in the AI business is not confirmed, the possibility of further adjustments below $360 cannot be ruled out.

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