Tesla's Earnings Fall More Than Predicted Despite Record Sales
You might expect Wall Street to be celebrating Tesla's record quarterly sales after a challenging year for Elon Musk's car company. However, there are two main reasons why they are not. Firstly, Tesla's profit decreased from the previous year and fell short of analysts' expectations. Secondly, last quarter's strong sales were largely due to customers rushing to purchase electric cars before a US tax credit expired.
Following the report, Tesla's shares (TSLA) dropped by 2% in after-market trading, ahead of an investor call scheduled for 5:30 pm ET. Despite the challenges ahead for Tesla, some investors remain optimistic, focusing on Musk's vision of a future centered on self-driving cars and robotics.
During a recent hour-long call with investors and analysts, Musk and CFO Vaibhav Taneja primarily discussed the potential of self-driving vehicles, robotaxis, and humanoid robots, rather than car sales or profits. However, investors seemed unimpressed, with shares declining by more than 3% by the end of the call.
In the third quarter, Tesla reported adjusted income of $1.8 billion, a 29% decrease from the previous year. Although the company achieved record sales of nearly 500,000 cars during the quarter, the drop in earnings was larger than analysts had predicted, with net income falling by 37%. Despite this, it was still Tesla's best quarter of the year.
The expiration of the $7,500 federal tax credit on October 1 led to a surge in electric car sales in the US, but demand is expected to decline in the fourth quarter. Tesla faces increased competition globally, particularly from Chinese automakers, with Chinese company BYD poised to surpass Tesla as the world's largest seller of EVs.
In addition to the tax credit expiration, Tesla's profitability has been impacted by the Trump administration's elimination of regulatory credit sales, which had been a significant revenue source for the company. Despite this change, Tesla reported $417 million in regulatory credit sales in the third quarter, a decrease of $322 million from the previous year.
Tesla's robotaxi service, launched with limited service in June, is set to expand to eight to 10 metropolitan areas by the year's end. Musk also mentioned plans to start production of the Cybercab, a vehicle for the robotaxi service, by the second quarter of next year. However, the service currently requires a human safety driver during rides.
During the call, Musk briefly discussed a proposed pay package that could award him stock worth $1 trillion, which shareholders will vote on at Tesla's upcoming annual meeting. CFO Taneja encouraged shareholders to support the pay package, emphasizing its importance for Musk to retain control of the company.