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Tesla (NASDAQ:TSLA) is expected to publish its Q2 2024 results on July 23, reporting on a quarter that saw the company deliver 443,956 vehicles. While the numbers were ahead of Street estimates, they still represent a decline of about 5% compared to last year. We expect revenue to come in at $24.4 billion, down about 3% year-over-year, although this would be slightly better than consensus estimates, while earnings are likely to stand at about $0.60 per share, about in line with consensus. See our analysis of Tesla Earnings Preview for more details.

Several factors have been dampening demand for Tesla vehicles. High interest rates are making it more expensive for customers to finance vehicle purchases. The effects of the aggressive price cuts Tesla has made over the past year are also likely easing. Competition, too, is mounting, particularly in markets like China, where there are a slew of compelling EVs produced by local manufacturers at attractive price points. Tesla has been grappling with a rising inventory of vehicles in recent quarters, although the company appears to have taken steps to reduce this surplus. Over Q2, Tesla produced 410,831 vehicles, about 7.5% less than the total deliveries for the month. This contrasts with Q1 when the company produced 433,000 vehicles but sold only about 386,810 units – an addition of around 47,000 vehicles to inventory. Moreover, Tesla’s global vehicle inventory, measured in days of supply, rose from 15 days in Q1 2023 to 28 days in Q1 2024. However, the metric will likely decline in Q2.

We will be closely watching Tesla’s margins for the quarter. In Q1 2024, the average price of Tesla vehicles dropped to under $45,000, down from about $47,000 in the same quarter last year, and gross margins came in at 17.4%, down by about 200 basis points compared to the same quarter last year. Things could remain tough in Q2 as well, as Tesla reduced prices of the Model Y, Models X, and S vehicles by about $2,000.

TSLA stock has witnessed gains of 10% from levels of $235 in early January 2021 to around $260 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in TSLA stock has been far from consistent. Returns for the stock were 50% in 2021, -65% in 2022, and 102% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TSLA underperformed the S&P in 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Discretionary sector including AMZN, HD, and TM, and even for the mega-cap stars GOOG, MSFT, and AAPL.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TSLA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Now, Tesla stock has seen a massive rally in recent weeks, rising by roughly 50% since early June. However, the gains in the stock are at odds with the company’s recent fundamental performance. We maintain our view that Tesla will be a big beneficiary of the long-term transition to cleaner transportation and energy generation, given its well-oiled supply chain, superior battery, and drive-train technologies, and its lead with car software and self-driving technology. That said, the company is likely to see its deliveries and earnings face pressure this year, falling well below the company’s multi-year target of 50% annual growth in revenues. High interest rates, a lack of extensive charging networks in many countries, and falling resale values for EVs are likely discouraging potential buyers. The market of early EV adopters is also likely saturating, leading to lower demand. We value Tesla stock at $177 per share, which is well below the current market price. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?

[1] Returns as of 7/10/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.