Why Tesla's auto biz still has 'some fundamental challenges'

Shares of Tesla (TSLA) continue to fall on Wednesday morning after the company posted its second quarter results, with earnings missing estimates for the fourth straight quarter. CEO Elon Musk, on the company conference call, said that more affordable EVs are on track for 2025 debut.

Citi US autos & auto parts analyst Itay Michaeli joins Catalysts to give insight into Tesla's recent performance, how the company might turn it around, and how the auto sector may play out moving forward.

Michaeli says that gross margins for the autos business, excluding credits, fell short of analyst estimates, serving as "a reminder that the auto business does still have some fundamental challenges."

When asked if the robotaxi can be a saving grace for the company, Michaeli responds: "I think it's all about the level of credibility in the actual deployment plan for Tesla. If the event is reminiscent of the 2019 Autonomy Day, that could receive some some pushback and disappointment. But if the company is able to actually leverage its advantages, which we think are really a low-cost robotaxi platform, the hardware costs, as well as, of course, their end-to-end AI capabilities, which are very strong into a credible deployment plan for robotaxi and other mobility services that could actually be perceived well."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video Transcript

Let's get to some trending takers shares of Tesla moving to the downside, the company missing analyst expectations really across the board.

And Ceo Elon Musk, confirming the delay of an event that's meant to showcase Robo taxis on that latest earnings call.

So here to discuss, let's bring in city us auto auto parts analyst that t thank you so much for being here.

So I know you kept your neutral rating on the stock, but you lowered your price target.

What would it take?

What is the single thing that you would be looking at to bump up that price target again on the stock?

Yeah, we're trying to be very tactical with Tesla and thank you, of course for having me where we're looking for a couple of things.

First, we'd like to see consensus estimates come down.

We have been uh below consensus, uh really all year and we want to see an opportunistic entry point protection with the stock heading into some important events.

You know, with Tesla today, it's a lot of push and pull between the core auto business and EV business that has had some struggles and, and fundamental headwinds again, some of the really exciting opportunities are coming up.

Both the the new EV models you mentioned as well as the robot day in October and other A I opportunities.

The stock has had a pretty good run here into the quarter, had to gain momentum off the Q two delivery date.

We did learn last night that the auto gross margin excluding uh credits was below expectations with a reminder that the auto business does still have some fundamental challenges.

So for us, it's really about kind of setting up the stock price relative to consensus in anticipation of on these important events, particularly the October Robo Taxi Day.

Uh But right now we are still neutral the stock.

It.

Do you think the robot tax day is gonna be a catalyst here for the soccer or is it gonna be more of a show me story at this point in the cycle just given the fact that it has been delayed?

And now there's lots of questions about whether or not even a timeline that Musk laid out last night, whether or not that's even realistic.

Yeah, that's a great question.

I think it's all about the level of credibility in the actual deployment plan for Tesla.

If the event is reminiscent of the 2019 Autonomy Day, that could receive some some pushback and disappointment.

But if the company is able to actually leverage its advantages, which we think are really a low cost Robo Taxi platform, the hardware cost as well as of course, their end to end a capabilities which are are very strong into a credible deployment plan for Robo taxi and other mobility services that could actually be perceived.

Well, the question is, is there a credible deployment plan that that we think they could actually undertake?

And the answer is yes, it published a report back in June.

We did articulate opportunities for Tesla to deploy A V in easier domain, not like urban uh you know, Robotaxis, but areas where they can leverage their lower cost to deploy these domains.

And the bottom line is if we are able to get a more credible deployment plan, and investors can say, I see how the next couple of years this can uh lead to incremental high margin revenue and and new mobility services for the overall Tesla ecosystem that actually could be taken as a positive.

I want to switch gears a little bit itty and talk to you about Ford expected to report their second quarter results after the bell here.

What are you going to be watching in those earnings?

Absolutely.

Yeah.

So we are expecting strong results.

Uh We got uh good numbers from, from GM yesterday.

Uh Ford also did have some good news recently uh in terms of the necessary super duty capacity expansion plans.

Um And so we, we do expect strong Q two and A and a stronger outlook.

I think one of the things we, we talked about in the last several weeks is for both automakers.

The second half outlook as compared to the first half outlook does compare, create some optics where the second half uh is gonna be a bit weaker uh for seasonality and some other factors.

I think that sort of has hurt uh GM stock yesterday and, and this morning as well.

And so there are some tricky optics into the setup uh for the quarter.

But overall, we do expect a strong result and, and, and a favorable outlook really on our underlying call for us auto demand, uh the real strong uh trends we're seeing and have been seeing for a very long time in the pickup truck market as well as some, some of Ford's internal execution as well.

We're watching the Ford Pro segment very closely that had a very, very strong QQ one.

We're expecting good results here in Q two as well and of course, kind of, you know, taking a look at what the second half output with the articulate will end up looking like.

All right, it always great to get your insight.

Thanks so much for joining us here, city's us, autos and auto parts analyst.

Thanks so much.