This year has shown Elon Musk's ability to navigate Tesla Inc.’s stock through both turbulence and recovery. Even by Tesla's own high standards, this period has been particularly volatile. The CEO has sought greater control over the company, abandoned a $25,000 electric vehicle initiative, and ordered significant layoffs. By April 23, the day of Tesla’s last earnings announcement, these upheavals led to a staggering 43% drop in stock price. Yet, since then, Tesla's shares have rallied, despite disappointing company performance and dwindling expectations for second quarter data to be released on Tuesday.
In just 11 weeks, Tesla's market value increased by $386 billion, largely driven by Musk’s influence. He successfully shifted investors' focus towards Tesla’s potential in an AI-driven future, rather than its current sluggish sales and earnings. Musk's keen sense of market expectations and relentless promotion will be put to the test shortly, as the company faces a potential second consecutive quarter of declining revenue and a fourth straight quarter of reduced profits. Adam Sarhan, founder and CEO of 50 Park Investments, notes that “the key factor changing Tesla's valuation is Musk’s ability to convincingly position the company as a leader in AI and autonomous driving technology. This narrative shift is critical to justifying Tesla's premium over traditional automakers.”
Tesla's stock price has long been affected by Musk's personal charisma and controversies, and investors seem poised for a similar wave of reactions following the upcoming earnings report. Options trading suggests an estimated 8% volatility in Tesla’s stock price based on the second quarter's results. Additionally, discussions are circulating regarding delays in the planned August release of Tesla’s autonomous taxi prototype. Musk has confirmed he requested “significant design changes” for the vehicle but has not provided specific details or a timeline for completion.
RBC Capital Markets analyst Tom Narayan states that “given all the variables, Tesla’s second quarter performance may be challenging for investors,” maintaining a buy rating on Tesla stock. He believes these developments are tied to the forthcoming autonomous taxi event, which could reshape perceptions of the stock, although it's unclear how much of this is already priced in.
Amid the turbulence, Musk also announced earlier this year that Tesla would accelerate the rollout of new, more affordable models expected by year-end, sparking a bounce in stock price. The company has indicated it anticipates starting production of the next-generation electric vehicle in the second half of 2025. However, Musk has kept tight-lipped about details, stating that investors should not bet on Tesla unless they believe the company will “solve” its autonomous driving challenges.
Tesla's high price-to-earnings (P/E) ratio—approximately 94 times expected earnings—indicates significant investor confidence in Musk's ability to fulfill his autonomous vehicle promises. In contrast, General Motors and Ford have P/E ratios in the single digits. Nevertheless, Musk’s effort to tie Tesla’s future to autonomous driving poses risks. Reports indicated a delay in the release of the autonomous taxi, leading to an 8.4% drop in stock price, the largest single-day decrease since January.
Morningstar strategist Seth Goldstein remarked that the sell-off after Musk’s announcement reflects how recent rallies have been largely driven by sentiments around AI. Analyst projections for Tesla's second quarter earnings are about half of what they were a year ago, although expectations have improved somewhat, likely due to better-than-expected vehicle sales reported on July 2. Currently, analysts anticipate earnings per share of 58 cents and revenue of $24.1 billion.
While many analysts underline Tesla’s AI potential as the stock's strongest support, investors still hope that Musk will revitalize electric vehicle sales growth alongside ongoing efforts in autonomous driving technology. The upcoming earnings report will reveal how the company is managing these immediate and long-term objectives. Adam Jonas from Morgan Stanley added, “Tesla possesses the characteristics to be viewed as a beneficiary of AI, but the company must first stabilize the negative earnings revisions in its automotive business.”
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