For the second quarter, ended June 30, Tesla (TSLA -2.04%) reported revenue of $24.9 billion and adjusted earnings per share of $0.91. Both figures handily beat Wall Street estimates. And at that point, the stock was up an impressive 137% in 2023. 

But since that earnings announcement on July 19, it's been a completely different story, as shares of the electric vehicle (EV) company were down 21% as of Aug. 16. Clearly, shareholders are disappointed about something. 

Does this pullback present investors with a worthwhile opportunity to buy Tesla on the dip?  

Investors aren't happy 

Tesla's sales were up 47% year over year in the second quarter, with vehicle deliveries increasing 83%. On the surface, that's definitely tremendous growth given the uncertain economy. Investors weren't hung up on these metrics, to be sure. 

What shareholders got caught up in was the fact that gross profit only rose 7% and operating income declined 3%. Consequently, Tesla's margins were crushed versus the second quarter of 2022. This shrinking profitability, something no investor wants to see, is the result of numerous price cuts that the company has implemented in the past several months. 

Making matters worse was Tesla's recent announcement to introduce cheaper versions of its high-end S and X models. Customers can buy shorter-range versions of these cars for $10,000 less than the more expensive versions. Moreover, the business is also in intense price wars in China.  

The rationale for these strategic moves makes sense, though. CEO Elon Musk wants to expand unit volume so that Tesla can continue to increase its market share. And with more cars on the road, the company can keep collecting data that can help improve its full self-driving (FSD) capabilities.  

But engaging in price wars will further pressure profitability. And it's a clear indication of just how ridiculous the competition has become in EVs, which Tesla helped bring to the mainstream. 

The long-term bull case 

Long-term believers in the stock are less concerned with near-term margin trends and more focused on Tesla's potential to generate copious amounts of profit and cash flow in the future. The company is working on an artificial intelligence supercomputer called Dojo that it believes can help bring about FSD vehicles by improving its ability to train neural nets to bolster the software's decision making in various driving environments. This could completely change the financial picture. 

If FSD becomes a reality, Tesla could execute on its plan to introduce a global fleet of robotaxis that could drive passengers around 24 hours a day and seven days a week, producing more revenue for the business than it gets today.

This is what Ark Invest's Cathie Wood thinks will happen. It sounds outrageous, but her bull case argues that the company could be worth $7.9 trillion by 2027. 

An expensive stock 

Even after the more than 20% pullback, the stock looks expensive, trading at a forward price-to-earnings ratio of 66. This demonstrates that investors are still extremely optimistic about the business. Also, Tesla's market capitalization, which is over $700 billion, makes it one of the largest companies in the world. This enormous value could limit further upside for shareholders, discouraging some investors from owning the stock. 

On the other hand, it's hard to deny Tesla's truly innovative and game-changing potential. If Musk can finally make good on his word and introduce FSD capabilities across its range of models, then the value that's unlocked could certainly propel the business and the stock price to new heights.

Investors have to weigh the possibility of this actually happening, though, before deciding to buy shares today.