NEW YORK

Tesla, the electric vehicle giant, is poised to report its second-quarter financial results on Tuesday, with analysts anticipating the company's automotive gross margin to hit its lowest point in over five years. This expected dip in profitability comes as Tesla navigates a challenging landscape of price cuts, inventory clearance, and increased competition in the electric vehicle market.

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According to a poll of 20 analysts by Visible Alpha, Tesla's automotive gross margin, excluding regulatory credits, is projected to have slipped to 16.27% in the April-June period. This figure represents the lowest margin since the first quarter of 2019 and a significant decline from the 16.36% reported in the previous quarter and the 18.14% recorded in the same period last year.

The margin pressure stems from a combination of factors, including discounts to clear inventory, price cuts, and various incentives such as cheaper financing options offered to boost EV sales. These measures, while aimed at stimulating demand, have inevitably squeezed Tesla's profitability over the past two years. Additionally, sales have been impacted as customers have shown signs of fatigue with the company's ageing model lineup.

In response to these challenges, Tesla has already taken steps to streamline its operations, including a 10% reduction in its global workforce, as revealed in a memo in April. However, as the company grapples with these near-term hurdles, investors are increasingly focused on Tesla's strategic pivot towards self-driving technology and artificial intelligence (AI) products.

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CEO Elon Musk is expected to use the earnings call as an opportunity to double down on the company's ambitious plans for robotaxis and AI ventures. These initiatives are seen as potential game-changers that could once again set Tesla apart from traditional automakers and reignite the kind of investor enthusiasm that propelled the company's stock to record highs in 2021.

Earlier this year, Musk had announced plans to unveil Tesla's robotaxi on August 8. However, he recently signalled that the automaker would need more time to incorporate design changes, following reports of a potential delay to October. This development has only heightened investor interest in understanding Tesla's roadmap for self-driving technology and its potential to transform the company's business model.

While some investors view Tesla's robotaxi ambitions as a significant opportunity with little competition in the U.S. market, others point to potential challenges. These include regulatory hurdles, technical complexities, and emerging competition, particularly in China, where companies like BYD and others are rapidly advancing their own driver-assistance systems.

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Paul Marino, Chief Revenue Officer of GraniteShares, which offers funds related to Tesla's stock, commented on the situation, saying, "AI and robotaxi is such a huge opportunity over the next two, three, five years. So if you're a long-term believer, you're going to take the margins like your medicine."

Beyond the focus on AI and robotaxis, investors will also be keen to hear updates on Tesla's vehicle development strategy. In April, the company announced a shift towards introducing "new models" by early 2025 using existing car platforms and production lines, a departure from previous plans for entirely new model designs.

Despite the anticipated margin pressure, some analysts expect Tesla's profitability to bottom out by the end of this year and begin to recover in 2025. This optimism is partly based on the expectation that costs associated with the production ramp-up of the Cybertruck will ease over time.

In terms of deliveries, Tesla managed to surpass analyst expectations in the second quarter, although the numbers were still about 5% lower than the same period last year. To match its 2023 delivery record of 1.81 million vehicles, Tesla needs to deliver at least 977,815 vehicles in the second half of this year.

Gene Munster, managing partner at Deepwater Asset Management, offered his perspective on Tesla's delivery outlook: "I think deliveries will grow fractionally for full year 2024 and grow around 15% in calendar 2025. The most important part is that they talk about September deliveries returning to growth."

As Tesla prepares to release its Q2 results, the company finds itself at a critical juncture. While facing short-term margin pressures and delivery challenges, it is simultaneously pushing forward with potentially transformative initiatives in AI and autonomous driving. The upcoming earnings report and accompanying commentary from Elon Musk will be closely scrutinised by investors and industry observers alike, as they seek to gauge Tesla's ability to navigate these complex dynamics and maintain its position at the forefront of the evolving automotive and technology landscape.