Inside Tesla: All eyes on the margin line
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Tesla (NASDAQ:TSLA) opened up trading on Thursday with a 5.42% swing lower as the big drop in margins during Q2 caused some concerns about whether the back half of the year will see further weakness due to lower pricing and cost pressures.
Total GAAP operating margin fell to 9.6% in Q2 from 11.4% in Q1 and 14.6% a year ago. The same margin metric was at 20.8% two years ago. Gross margin came in at 18.2% in Q2 vs. 25.0% a year ago. Adjusted EBITDA margin also went in reverse, dropping to 18.7% in Q2 from 22.4% a year ago.
The margin line is critical to Tesla (TSLA) because part of the bullish thesis has been the automaker's track record of smashing the industry average and the potential for the scaling up of the Gigafactories in Berlin and Austin to leverage down many operating expenses.
Roth MKM analyst Craig Irwin noted that Elon Musk and gang withdrew guidance for operating margins to "remain among the highest in the industry." That cautious commentary leaves the door open for what the firm sees as probable second-half price cuts on several models. "Competition is intensifying and ~100 new EVs are launching this year, likely further pressuring sales velocity," warned Irwin. Meanwhile, Baird analyst Toni Sacconaghi said the firm struggles to see an obvious path for material operating margin improvement for TSLA over the next one to two years.
During the earnings call, Elon Musk danced around a question on if investors can expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts. "Whereâs that crystal ball, again? If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture," he replied.
On Seeking Alpha, analyst Growth at a Good Price noted the 23.13% gross margin, 14.8% EBIT margin, 13.7% net margin, and 2.85% free cash flow margin are not particularly high for a tech company.
EV sector: Rivian Automotive (RIVN) fell 1.88% in early trading, while Fisker (FSR) dropped 4.55%. Nio (NIO) was down 3.54% and Lucid Group (LCID) shed 3.18%.
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