The Highlights:
- Tesla (NASDAQ:TSLA) reported $0.52 per share, below the $0.62 forecast
- Operating profit margin fell to 6.3%, with a 45% drop in net profits
- Tesla's stock trades at over 56 times trailing earnings, despite only 2% sales growth
Tesla Inc. (NASDAQ: TSLA) has encountered significant difficulties following its latest earnings report, which fell short of market expectations. The company's stock experienced a sharp decline of 11% by mid-day on Wednesday after it reported disappointing earnings results for the second quarter.
For the second quarter, Tesla's reported earnings were $0.52 per share, missing analyst predictions of $0.62 per share. Despite exceeding sales expectations with $25.5 billion in revenue compared to the forecasted $24.8 billion, the increased sales did not translate into higher profits. This discrepancy between sales and earnings highlights a troubling trend: while revenue grew, profit margins were adversely affected.
Division Performance
Not all aspects of Tesla's business were negative. The company's energy generation and storage division, encompassing solar panels and batteries, saw a notable increase in profitability. This division achieved an 18.9% gross profit margin and doubled its sales to $1.5 billion. Additionally, free cash flow improved to $1.3 billion for the quarter.
However, automotive sales experienced a decline of 7% year over year, and total sales grew by a modest 2%, despite surpassing estimates. More concerning was a 39% increase in operating expenses during the quarter, which led to a significant contraction in the operating profit margin, falling to 6.3%. Operating profits dropped by one-third to $1.6 billion, and net profits fell by 45%.
Financial Metrics and Market Implications
The report also revealed that the $0.52 earnings per share figure was based on pro forma, non-GAAP profits. When adjusted to generally accepted accounting principles (GAAP), Tesla's profit per share was only $0.42.
With a market capitalization of $700 billion and trailing earnings of $12.4 billion, Tesla's stock is currently priced at more than 56 times its trailing earnings. This valuation might be justifiable if Tesla were experiencing rapid sales growth, as seen during the pandemic. However, with current sales growth stagnating at around 2% and a significant drop in profit margins, the investment appeal of Tesla's stock is questionable at this time.