Last update - 20 July 2023 By James Woods

While not a current holding with Rivkin’s portfolio, Tesla (TSLA) commands attention by global investors and on Wednesday after the market closed, presented hopeful yet mixed set of results.

The iconic electric vehicle maker exceeded the average analyst estimate, achieving adjusted earnings per share of 91 cents against an expected 81 cents. Revenue rose 47% to $24.93 billion, just ahead of the anticipated $24.51 billion, despite a challenging economic climate marked by slow EV purchases and burgeoning inventories. While the headline numbers are overall in line with analyst estimates, the stock has fallen -4.29% in after-hours trading, with investors likely adjusting expectations given a 136% surge in the share price for the year-to-date, outperforming the S&P500 by 117%.

In a dynamic environment, Tesla’s capital expenditure swelled by 19% year-on-year, reaching $2.06 billion, exceeding the estimate of $1.97 billion. The firm’s bold commitment to cost reduction and new product development drove this growth, even as gross margins fell slightly short of predictions, at 18.2% versus the anticipated 18.8%. Operating margin, a key measure of its profitability, fell to 9.6% in the Q2, a significant dip from 14.6% a year earlier.

The goal of a 20% automotive margin for the year has remained elusive so far amid a broader slowdown in EV buying. Despite the setbacks, the company remains resilient. Tesla continues to see the production of about 1.8 million vehicles for the year, nearly matching the estimate of 1.88 million. Elon Musk has bet big on a strategy of price cuts to bolster sales and profits in a competitive market with weak economic sentiment, and while the Q2 results are not a clear win, show signs of progress.

Amid this backdrop of challenges, a development has been a concern for investors, increasing inventory of Tesla cars, now at 16 days globally, up from just four days a year earlier. Measures to mitigate this, including hefty markdowns and perks like free charging, echo the pressing need to translate inventory into sales. Analysts, remain cautious, pointing out that Tesla’s price cutting strategy has led to a decline in operating margins, raising concerns about the long-term sustainability of this approach.

Nonetheless, Tesla’s ambitious roadmap remains intact. It is on track with the production of its highly anticipated Cybertruck, the initial roll-out expected later this year.  Additionally, the company is optimistic about acceleration in AI, software, and fleet-based profits, and plans to license its driver-assistance software to other automakers, further diversifying its revenue stream.

Regardless of the challenges, Tesla’s focus on advanced projects, such as its “full self-driving” software, and its relentless pursuit of production and sales targets reflect a forward-looking strategy. Amid the current market headwinds, Tesla to push ahead with its goal of revolutionizing the world of electric vehicles, and its progress will undoubtedly continue to attract attention from investors.

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