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Tesla’s (TSLA) Q2 results are further evidence that legacy auto is running out of gas

(Credit: @Tobeywankanobi/Twitter)

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The final numbers from Tesla’s intense end of quarter delivery blitz are in, and they were far better than Wall Street’s estimates. The electric car maker delivered over 90,000 vehicles in Q2 2020, in the middle of a pandemic, and at a time when its main vehicle production facility in Fremont, California was shut down for several weeks during the quarter. 

Loup Ventures Managing Partner Gene Munster recently published a note stating that Tesla’s June 2020 deliveries are further proof that the electric car maker has all but backed traditional automakers into a corner. Munster added that over the next two years, other OEMs may very well struggle to gain any measurable ground on Tesla’s dominating EV share in the United States, which stands at 80% today. 

Ultimately, it appears that Tesla’s second quarter deliveries, despite being around 5% less than its Q2 2019 numbers, still represent a widening gap between traditional auto. Tesla’s 5% YoY drop, after all, is significantly less than the dips that were experienced by legacy carmakers this quarter due to the pandemic. 

General Motors, for example, reported a drop of 34%, Fiat Chrysler took a 39% hit, and even Toyota, the Japanese automotive juggernaut, showed a decline of 35% year over year. This shows that at a time like today, where the world is reeling from a pandemic, car buyers may very well be looking towards vehicles that are a step above those that are offered by traditional automakers. Tesla’s electric cars are just that, both in their buying experience and their use. 

With such Q2 results, Munster noted that some concerns about Tesla and its profitability may soon fade away. “Based on the just reported June quarter delivery numbers, we expect the company to report better than expected earnings, potentially near a profit despite the shutdown, and favorable details on continued profitability trends driven by the Shanghai factory and Model Y,” Munster wrote. 

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Amidst Tesla’s rise and strong second quarter deliveries, it is becoming clear that it will be quite challenging for traditional automakers to catch up to Tesla. This is particularly notable since Tesla is now entering the crossover market with the Model Y, which Elon Musk expects will outsell the Model S, Model 3, and Model X combined. Munster stated that as Tesla scales further to meet demand, the company’s price performance gap against other carmakers will widen since legacy auto will likely be producing EVs at sub-scale. 

“If traditional auto releases a car with features and range at parity and sells the car at cost, it will be priced 10-25% higher than a comparable Tesla. This will soften demand and lead to further market share loss. If traditional auto subsidizes vehicles to gain market share they will lose money with limited margin cushion. The more they sell, the more money they lose. Taking it to the logical end, we believe car companies that have been around for 50+ years will eventually (10 years from now) be forced to restructure or go out of business,” Munster wrote. 

Tesla’s goal is to accelerate the world’s transition to sustainability. With demand for electric cars seemingly getting proven and highlighted by Tesla’s Q2 results, it appears that a shift is now happening in the auto market. The Loup Ventures Managing Partner, for his part, noted that the shift to electric vehicles is actually just beginning, with EV deliveries likely to see a growth of about 40-50% per year over the next 10 years. 

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

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Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Investor's Corner

Tesla tailwinds could drive momentum-filled finish to 2025: analyst

Tesla is heading toward some momentum to finish out the year, one Wall Street firm believes.

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Credit: @heydave7/X

Tesla has some tailwinds that could drive it toward a momentum-filled finish to the year, one Wall Street analyst is predicting.

The tailwinds are joined by some minor risks that have impacted the broader electric vehicle market, but overall, this firm believes Tesla has many catalysts moving forward.

Emmanuel Rosner of Wolfe Research believes that Tesla has plenty of things that could drive the stock upward as we approach the end of the year. With Q3 well underway, Tesla has about five months of catalysts to rely on to erase the roughly 18 percent drop in stock price it has so far this year.

At first glance, it is easy to see the things that would have investors bullish on Tesla for the rest of 2025 and even beyond. Initially, the Robotaxi launch and expansion, which spread to Northern California last night, provide potentially huge tailwinds for the company moving forward.

Tesla expands Robotaxi operation to California’s Bay Area

Along with that, and slightly related, are the advancements in Full Self-Driving that the company has made over the past few months.

This includes the potential launch of the FSD suite in regions like Europe and Australia, where the company believes it will make some progress on regulatory approval in the coming months.

Finally, Wolfe says the company’s Optimus project, which is expected to enter scale production sometime next year, is the third catalyst for Tesla moving forward.

With these three projects in motion, Tesla truly can begin to work on rebounding from a rough 2025 on the market.

Rosner writes:

“This name trades more around the narrative than the numbers. And net-net, we tactically see an improving narrative from here. Tesla has several catalysts coming up w/r/t FSD and Robotaxi, including an expansion of their AV service into several new U.S. markets (San Francisco, Nevada, Arizona, Florida, etc.). The company plans to unlock hands-free/eyes-off autonomy for FSD owners in select U.S. locations by YE25. Supervised FSD in China and Europe is expected to launch over the next ~12 months. And, Optimus is expected to enter scale production in 2026.”

Tesla is currently trading around $310 at around 3:20 p.m. on the East Coast.

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Investor's Corner

Tesla Robotaxi execution should lead to valuation ‘far exceeding current levels’: analyst

RBC Capital bumped its price target on Tesla stock slightly from $319 to $325.

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Credit: @TerrapinTerpene/X

Tesla’s Robotaxi platform is the primary focus for the automaker currently, and based on what has been outlined by the company as goals for the project, one firm is saying that the company’s valuation should “far exceed even current levels.”

The Robotaxi is a self-driving ride-hailing service that Tesla plans to implement in current and future vehicle builds. CEO Elon Musk and other executives have said that “the vast majority of the Tesla fleet that we’ve made is capable of being a Robotaxi,” thanks to its development of Over-the-Air software updates that increase the capability of the vehicle with a simple download.

Currently, the Robotaxi platform is only active in a portion of Austin, Texas, but Tesla is expanding to other markets, including California, Nevada, Arizona, and Florida. California will be the next market to open its doors to the Tesla Robotaxi platform.

But the name of the game is execution, and that’s what Tesla is aiming for in a timely fashion. If it can come through on all of its current goals, its valuation could explode, and one firm is holding steady on that narrative as Tesla continues to work toward expanding Robotaxi.

On Tuesday, RBC Capital analysts bumped their price target on Tesla shares (NASDAQ: TSLA) to $325 from $319, primarily due to the Robotaxi expansion and its success:

“Should Tesla be successful on all of its goals, its valuation could far exceed even current levels. The Austin Robotaxi launch has been better than many feared, and the company is looking to expand in more cities.”

There are some risks to Tesla’s narrative, but they fall outside the scope of what the company can control. In relation to Robotaxi, regulatory hurdles remain. Some regions may be slower than others to give Tesla the proper licensing to operate in their jurisdiction. This could slow the pace of Robotaxi expansion, bringing some overhang to the story.

Additionally, Tesla is fending off narratives of slowing demand, and the White House’s decision to revoke the $7,500 EV tax credit from consumers could temper sales past Q3.

Nevertheless, Robotaxi is where Tesla’s true value seems to be focused. Successfully launching a driverless ride-sharing platform is where the company is putting all of its eggs, and revolutionizing passenger travel is where the focus lies.

RBC Capital’s note continued:

“Regulatory hurdles remain, however. Further, we expect the end of IRA credits and high levels of used EV inventory to pressure the auto business for the next several quarters.”

The slight price target bump puts RBC Capital’s expectations near where the stock is trading, as it is currently priced at around $320 at 9:54 a.m. on the East Coast.

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Investor's Corner

Elon Musk shares details on Tesla AI6 production deal with Samsung

Tesla is already laying the groundwork for the ramp of its next-generation products.

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Credit: Tim Zaman/Twitter

Elon Musk has provided some details about Tesla’s AI6 production deal with South Korean tech giant Samsung. As per Musk, Samsung’s upcoming Texas fabrication facility will be dedicated to the production of Tesla’s AI6 chip.

Musk’s update suggests that Tesla is already laying the groundwork for the ramp of its next-generation products like the Cybercab and Optimus.

Samsung AI6 production reports

On Sunday, Bloomberg News claimed that Samsung will be producing semiconductors for Tesla in a $16.5 billion deal. As per the report, Samsung is currently producing Tesla’s AI4 chip, and the deal will help the South Korean tech giant gain some ground back from competitors in the semiconductor market.

Elon Musk confirmed the news on X, stating that the $16.5 billion is actually just the bare minimum. As per Musk, the deal with Samsung will likely be “much more than that.” And in a later comment, Musk clarified that the actual output of Samsung’s Tesla AI6 plant will “likely be several times higher” than what has been reported.

Musk shared a critical detail that would likely allow Samsung to maximize its AI6 output. “Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,” Musk wrote in his post.

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Elon Musk on AI5 and AI6

Tesla currently produces vehicles with its AI4 chip, which is produced by Samsung. As per the CEO, Tesla’s AI5 chip, which just finished its design, will be produced by TSMC. The AI5 chip will be produced initially in Taiwan, and then in Arizona, the CEO noted.

Elon Musk’s comments about AI6 and Samsung’s output suggest that Tesla is really preparing to enter a stage in its growth that involves production at a scale that’s never been seen before. Tesla’s speed is quite notable, though it seems safe to assume that the actual rollout of AI6 will still be a few years away. 

In a few years, Tesla will probably be mass producing the Cybercab and Optimus, as well as more affordable vehicles that will likely see more adoption from mainstream customers. This means that Samsung’s AI6 ramp will likely be just in time to support Tesla’s outputs for its Optimus bots, its Cybercabs, and its mass market affordable cars.

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