Tesla's (TSLA +2.96%) recent Q2 2023 earnings report was met with mixed feelings. The company once again set new records in various metrics, such as quarterly vehicle production, deliveries, and revenue. Its flagship, Model Y, even became the best-selling vehicle globally.
While Tesla bulls won't miss these accomplishments, there're more long-term investors must explore about the electric vehicle maker's second quarter earnings. Savvy investors must keep an eye on its future growth strategies, potential diversification of revenue, and macroeconomic factors affecting the company's bottom line.
Here are the three most important things every investor should know, based on the most recent earnings report.
1. Tesla is an AI company
Tesla might be the No. 1 electric vehicle (EV) maker in the world, but the company believes the introduction of autonomous driving powered by artificial intelligence (AI) will take it to new heights. On the earnings call, CEO Elon Musk stated the potential of a future robotaxi service has near "quasi-infinite demand."
Autonomous driving is a significant challenge, but one Tesla believes it is prepared to meet, and one it plans to do on its own. Rather than outsourcing any of the four primary pillars of autonomous driving (dataset creation, vehicle hardware, vehicle software, and neural net training), Tesla reaffirmed its goals to take on this endeavor in house.
The company is perfectly suited to become a leader in autonomous driving thanks to continued expansion of its global fleet, leading to an ever-increasing amount of data points. Yet most importantly, Tesla also has access to Dojo, a supercomputer the company created that can process the massive dataset generated by its vehicles, thereby training integral neural nets faster and cheaper. Musk even mentioned that Tesla is in early discussions to license the company's full-self-driving software to other car companies.
Not only is Tesla on the forefront of autonomous driving, but it is also applying AI to other business endeavors. Progress continues to be made with Optimus, its humanoid robot designed to replace humans assigned repetitive or dangerous tasks. On the call, Musk specified that there are 10 robots at varying degrees of completion and that he believes by next year, the robots will be able to take on roles in some of Tesla's factories.
2. Growth of the energy business
While EV production and deliveries hit all-time highs, Tesla's other endeavors, such as energy generation and storage and solar, were relatively lackluster. Despite growing significantly year over year (YoY), this part of Tesla's business declined slightly since last quarter.
Perhaps the most intriguing development, outside of EV production and AI in Q2, was the onslaught of carmakers that decided to implement Tesla's renowned charging infrastructure. The North American Charging Standard (NACS) was developed by Tesla and is one of the most efficient and capable charging technologies available. Carmakers like Ford, Nissan, General Motors, Volvo, Polestar, and Rivian all use NACS, meaning owners of these vehicles can utilize Tesla charging stations.
Expansion of Tesla's NACS provides new income for the company, a sign seen in the company's Services and Others revenue hitting an all-time high in gross profit margin, and up 17% from last quarter. Continued expansion of Tesla charging stations could be only in the beginning stages of adding supplemental profits in the future.
NASDAQ: TSLA
Key Data Points
3. Short-term woes
Clearly, there is a lot to be excited about when it comes to Tesla's future, but the most recent earnings report wasn't without some concerns. Standing out most was diminished growth in gross profit margins, up just 7% YoY and only 0.49% from the last quarter.
With record numbers in production and deliveries, it would be expected that profits would have followed suit. However, Tesla's recent price cuts on vehicles to stimulate purchases and elevated costs countered the growth in deliveries.
Company officials recognized that the current macroeconomic conditions have added challenges to Tesla's bottom line in recent quarters but that the metrics that matter most, such as production, deliveries, research and development, and growth of energy solutions, remain robust and that the short-term challenges are minor obstacles to its long-term vision.
Cutting costs is one of the company's primary goals moving forward. As said on the earnings call, Tesla is "hyper-focused on near-term cost reductions." The plan is to allocate those monies freed up from cost-cutting measures to further fund research and development, the No. 1 priority for the company. In doing so, it will be able to expand AI capabilities, develop innovative energy solutions, and widen its competitive advantage.
Keeping the big picture in focus
Recent macroeconomic factors have made their presence known throughout various industries across the economy, and despite Tesla's resume of success, it isn't immune to these conditions. However, eventually, factors like inflation and rising interest rates will likely give way.
Musk recognized this, pointing to signs that inflation is actually turning into deflation. Adding to this, he highlighted that Tesla has "free cash flow in one of the most capital-intensive industries while investing massive amounts of money in new technology," calling it a "ridiculous" accomplishment.
For this reason alone, Musk claims he has very high confidence in the long-term value of Tesla, and that a path where its value increases 5x or 10x is well within reach. Recognizing that macroeconomic factors are out of the control of any one person or company, Musk reiterated that they do present challenges and are worth paying attention to, but that these turbulent times will eventually fade.
As investors and the market focuses on Tesla's limited profit growth, a rare opportunity presents itself. With shares remaining more than 30% off from all-time highs, investors today can add one of the clear-cut leaders of the future to portfolios at a tremendous discount relative to its long-term potential. Should Musk's vision of a 5x or 10x increase come to fruition, hindsight might prove that today is a rare opportunity to grab Tesla while the market remains fixated on short-term fluctuations.
