Tesla Beats Earnings Estimates. This is why the stock has gone down.

Tesla beat the Street with second-quarter earnings of 91 cents a share. Shares of the electric vehicle maker were little changed in early after-hours trading, but the stock fell after management spoke to investors.

Tesla’s full self-driving software is most likely the culprit.

Despite Tesla’s pulse, things haven’t been easy for the EV leader. New car prices and profit margins fell again. This decline is expected because it will be more difficult to sell electric cars in 2023 than in 2022. And Tesla’s (ticker: TSLA ) results highlight the difficulty of moving electric vehicles as the number of models swells and inventories rise along with interest rates.

“We’re in turbulent times,” CEO Elon Musk said on the company’s earnings conference call.

In the second quarter, Tesla reported operating income of $2.4 billion on sales of $24.9 billion. Wall Street had expected an operating profit of $2.7 billion, earnings per share of 80 cents and sales of $24.2 billion.

Gross profit margins in the auto business, excluding regulatory credit sales, came in at 18.1%, compared to 18.8% in the first quarter of 2023. Wall Street had expected margins to fall between 18% and 19%. This is not surprising.

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First-quarter gross margins fell 11 percentage points year over year amid steep price cuts implemented by Tesla as early as 2023.

Operating profit margins fell below 10% for the first time since the first quarter of 2021. Operating profit margins for the second quarter of 2022 were 14.6%. Lower vehicle prices, higher costs of battery production and a weaker US dollar have contributed to the decline in margins.

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The average price of a Tesla vehicle came in above $45,000 in the second quarter, down a touch from the first quarter, and down from nearly $56,000 in the second quarter of 2022.

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Lower profits aren’t the best news, but the results are still solid. CFRA analyst Garrett Nelson called the release inconsistent in a report Wednesday. He rates the stock a buy and has a $325 price target on the stock.

Shares closed down 0.7% at $291.26 in regular trading, while the S&P 500 rose 0.2%. The Nasdaq composite is flat.

The lack of initial stock price reaction after hours trading was actually a big surprise. Tesla shares have moved up or down an average of 7.5% over the past decade. A slight reaction to earnings after Tesla reported fourth-quarter 2018 numbers was down 0.6%.

But the second-quarter reaction won’t set a record for low volatility. Shares fell 4% after the earnings conference call. Musk said two things that have caught the attention of investors. He said the production in the third quarter will be slightly lower than the production in the second quarter. Normal summer shutdowns to upgrade equipment are to blame, but it’s a little worse than Wall Street is currently projecting.

He also said that selling more cars is more important than profit per car. Musk believes that Tesla will make a lot of money by selling autonomous driving software across Tesla vehicles. It may come to pass, but investors still want a profit on new cars sold. Musk’s Margin Comments “Out of Sync with Investors’ Expectations”

Future Fund Active ETF (FFND) co-founder Gary Black said Baron’s.

Third-quarter production and margin comments, for now, overshadow Tesla’s impressive first half. The price cuts worked and “pain is close to long-term gain,” Wedbush analyst Dan Ives wrote in a recent report. Tesla delivered about 423,000 vehicles in the first quarter and 466,000 vehicles in the second quarter. Both are a feat when reported.

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Deliveries in the first half of 2023 totaled 889,015 units, up about 57% from the previous year.

“Right now it’s about margins tanking, no more price cuts, and solid residual demand with some Model Three and Y updates likely on the horizon following the drumroll for the Cybertruck later this year,” Ives added.

Tesla produced the first Cybertruck over the weekend at its plant in Austin, Texas. The next expansion of Tesla’s product line and the pace at which Tesla ramps up production will be important for investors in the second half of the year.

“The Cybertruck has a lot of new technology,” Musk said on the conference call, adding that Tesla will begin mass production of the truck by 2024.

Cybertruck enters a crowded market for electric trucks. Ford Motor ( F ) and Rivian Automotive ( RIVN ) now sell pickups.

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General Motors (GM) expects to deliver its all-electric Chevy Silverado to commercial customers in the coming weeks.

Through Wednesday trading, Tesla stock has added 137% year to date. Deals with other automakers to open supercharging networks to non-Tesla EVs and optimism about artificial intelligence-related businesses have helped the stock recently. Tesla uses AI to train its autonomous driving features.

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A lack of early reaction and a late-day decline could take some profit after an epic year-to-date rally. Investors will have to wait and see what happens to stocks on Thursday.

Write to Al Root at [email protected]

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