Elon Musk's Tesla Suffered Its Worst Week Since 2022, Wiping Out $130 Billion of His Fortune. Is the Stock Still a Buy?
Key Points
CEO Elon Musk's personal wealth took a big hit when Tesla's stock price dropped after its quarterly earnings report.
Tesla brought in more revenue, but its margins dropped, and expenses rose.
Tesla plans to increase its capital expenditures in the second half of the year and through 2028.
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Let's get to the bad news first. Tesla (NASDAQ: TSLA) posted a disastrous second-quarter earnings report, sending the stock down 18% to a 52-week low. The week following Tesla's July 22 report was its worst since 2022, and the stock drop reduced CEO Elon Musk's net worth by $130 billion.
But on the other side of the coin, Tesla stock seems to have found a bottom and has risen 8.7% since hitting that low. Is this a good time to purchase the leading electric vehicle stock, given that it is apparently heavily discounted?
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Tesla CEO Elon Musk. Image source: The White House.
Why did Tesla's stock fall?
On the surface, Tesla's earnings report didn't look horrendous. Revenue was $28.23 billion, up a solid 26% from a year ago. Automotive revenue was strong, at $20.51 billion, up 23%. Tesla also reported delivering 480,126 vehicles, up 25% from last year.
The problem for Tesla, however, came in the company's rising expenses and falling margins. Operating expenses soared 47% from a year ago to $4.35 billion. Operating margins were nearly wiped out. Earnings per share were $0.33, badly missing consensus expectations of $0.54, as compiled by Yahoo! Finance.
On top of that, Tesla disclosed that its cash and investments dropped $1.2 billion in the quarter, and it reported negative free cash flow of $1.1 billion. CFO Vaibhav Taneja said capital expenditures more than doubled sequentially, and capital expenditures (capex) will increase in the second half of the year to more than $25 billion. Tesla will also borrow up to $30 billion for capex and plans to increase its capital spending over the next two to three years, Taneja said, adding:
We believe this is the right strategy to position the company for the next era. We'll always make such investments in a very capital-efficient manner. The path to amazing abundance is ever challenging and requires making bold bets. Our progress will be nonlinear. The future is going to be great. We are ready to rise to the occasion.
Will investors come back to Tesla?
One thing was abundantly clear from this earnings season: The market is rewarding companies that invest in AI when they deliver results. That's why Amazon, which raised its capex budget to $220 billion but showed massive gains in Amazon Web Services and its chips business, saw its stock price jump 20%.
Tesla isn't at that level yet. It's still working on full self-driving technology, and unsupervised drives are only available in a handful of cities. Musk has high hopes for the company's planned Optimus robots, which he plans to deploy in factories and as household assistants, but that technology also appears to be a long way from commercialization.
Autonomous driving and robot personal assistants are much longer-duration bets than Amazon's investments in semiconductors, data centers, and AI computing capacity. Tesla will struggle to deliver near-term results, and that will likely continue to pressure the stock. This might be a stock to avoid for now.
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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.
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