Tesla‘s sales decline over the past 18 months has been a stark contrast to its previous performance, with the company facing significant challenges ahead. The electric vehicle giant is set to report its second-quarter financial results after the market closes, and investors are bracing for more bad news. Tesla’s sales plunged 13.5% in the second quarter compared to the same period last year, marking the second consecutive quarter of double-digit sales declines.
One of Tesla’s most pressing issues is the decline of regulatory credit sales, which have been a substantial source of revenue for the company. The Republican tax and spending bill passed earlier this month removed financial penalties for automakers violating emissions rules, effectively eliminating the market for these credits. Since 2019, Tesla has generated $10.6 billion from selling these credits to gas-powered carmakers. Without this revenue stream, Tesla would have lost money in the first three months of the year.
Tesla also faces challenges from tariffs on imported parts and raw materials. The company builds all its cars in the US, avoiding 25% import car tariffs, but it still depends on imported materials like Chinese graphite used in its batteries. Last week, the tariff on Chinese graphite increased by 160% from last year, adding to Tesla’s costs. Furthermore, the $7,500 tax credit for US EV buyers will expire in October, which may force Tesla to cut prices and reduce profit margins to support sales.
Tesla CEO Elon Musk is likely to focus on the company’s plans for robotaxis and humanoid robots to offset these concerns. However, it’s uncertain when these ventures will generate significant revenue. Tesla started a robotaxi service in June, but it’s currently limited to a portion of Austin, Texas, and has an employee sitting beside the empty driver’s seat.
Tesla’s financial performance has been underwhelming, with analysts estimating a 24% decline in net income for the second quarter. The company’s gross profits were down 6% year-over-year in the fourth quarter of 2024, despite selling more regulatory credits. Tesla’s earnings per share (EPS) are expected to be $0.73, missing the consensus estimate of $0.77.
Tesla’s stock price has been volatile, dropping 5% after the company’s fourth-quarter earnings report in January. The stock has since recovered some losses. Investors are eagerly awaiting the second-quarter earnings report, which may shed light on the company’s future prospects.