Earnings Soar, Margins Dive in Tesla’s Q2 Rollercoaster

Tesla, the renowned electric vehicle manufacturer, revealed impressive sales and revenue figures for Q2 2023, yet it’s not all sunny skies for the automotive giant. The firm reported the construction of a massive 479,700 electric vehicles in the quarter, managing to deliver 466,140 of them. These sales generated a robust $21.3 billion in revenue, marking a year-on-year surge of 46 percent.

Despite these impressive numbers, it’s not all good news as the automaker’s formerly robust margins have taken a hit, prompting a five percent dip in Tesla shares.

The total revenue for Q2 reached $24.9 billion, up 47 percent from the previous year. Notably, Tesla’s solar panel and battery storage segment witnessed the highest growth of 74 percent year-over-year (YoY), amounting to $1.5 billion.

In the context of storage, Tesla deployed less in Q2 than Q1 2023, but the 3.7 GWh figure still represents a whopping 222 percent YoY increase. A decline in solar panel installations was attributed to increased interest rates.

Service revenue also showed a robust growth of 47 percent YoY, reaching $2.2 billion. This category comprises Tesla’s Supercharger network, which likely benefited from agreements with competing automakers, including Ford, General Motors, Volvo, Rivian, and Polestar. These companies signed on to use Tesla’s charging plug, granting their customers access to the Supercharger network.

The quarter, however, saw a reduced contribution to Tesla’s bottom line from selling emission credits to other automakers. With just $282 million accrued, it was significantly less than half the amount garnered in Q2 2022, and nearly half of what was generated from credits in Q1 2023.

Margins also suffered. The total GAAP gross margin fell from 25 percent in Q2 2022 to 18.2 percent in Q2 2023. Operating margins experienced a similar reduction, dropping from 14.6 percent to 9.6 percent YoY.

On the flip side, Tesla did increase its Q2 R&D spending from $771 million to $943 million. Most of this surge in spending is directed towards the company’s AI projects. A new supercomputer, as Tesla CEO Elon Musk stated, will help the company fulfill its previous, unmet promises of achieving autonomous driving.

Musk acknowledged his past unfulfilled promises on the call, stating “I know I’m the boy who cried FSD,” before asserting a functional system would be ready by the end of 2023.

Interestingly, he reportedly claimed that another automaker is considering licensing Tesla’s contentious FSD system for their own vehicles.

Despite the exciting revenue figures, Tesla loyalists anticipating news about new models were left wanting. The much-anticipated Cybertruck is just starting its production journey, with only preproduction prototypes currently being assembled.

Musk cautioned about Tesla’s typical challenges in ramping up production of new models, assuring that Cybertruck deliveries are slated to start in 2023, with mass-scale deliveries kicking off the following year.