Instant Reaction: Tesla's Earnings Miss Wall Street Expectations

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1:50Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios, podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Tesla said it's moving forward with its RoboTaxi and affordable vehicle plans while reporting second quarter earnings that fell short of Wall Street's estimates. Adjusted earnings, 40 cents per share. That was just below the average analyst estimate. Revenue fell 12 % to$22.5 billion. That was also lower than expectations and the sharpest decline in at least a decade.

2:32Gross margin, which is a measure of profitability, was higher than anticipated. Right now, shares down about six-tenths of 1%. Tesla did say many of its key initiatives remain on track, quote, despite a sustained uncertain macroeconomic environment resulting from shifting tariffs, unclear impacts and changes to fiscal policy and political sentiment. Let's bring in Bloomberg Intelligence Global Autos and Industrials Research Manager Steve Mann joining us once again from New Jersey. You gave us a great preview earlier in the afternoon. Now we have the numbers. Anything surprise you? Yeah, I think if you look at the stocks down after hours a bit, I think the most important thing there is they haven't given us enough visibility into the future, what their outlook is going to be.

3:19I mean, the numbers, they miss consensus. But if you kind of dig into a little bit more and look under the cover, it's actually not bad. If you look at automotive gross margin, excluding credits, it's actually 15 percent better than last quarter of 12 and a half and better than consensus estimates. And then if you look at free cash flow, the reason why it's down versus the first quarter is because they spent an extra$900 million on CapEx, which is not a bad thing given that they're launching the cheaper model and the cyber cap. So if you exclude that$900 million of additional CapEx, their free cash flow is actually over a billion, more than$660 million in the first quarter.

4:05So that's good? That's good. I mean, spending CapEx, given what their product launches are, is not a bad thing. They're investing into the future. And look, they're also expanding internationally. We've seen over the quarter improvement, higher sales in South Korea. They announced entry into India, and then they're launching the extended version of the Model Y in China. So it's a good thing. But look, we do want to hear what Elon Musk has to say in terms of not just the robo taxi, but how are they going to face the headwind, the challenges we're seeing in the U.S. market, which is critical. It's one of the largest markets in their portfolio.

4:55So we'll have to hear more on the call. How do you think Tesla's RoboTaxi stands up to the other autonomous vehicle solutions that are out there right now, namely Waymo? Well, I think the market can be very big, especially in the U.S. If we're not talking internationally, there's definitely room for multiple players. You know, my perspective is that, you know, Tesla is using an all camera system. uh that actually is gives them a greater flexibility and greater scalability with with that system uh waymo and others use a combination of radars lidars and camera system cameras just are just cheaper right to to to build and uh you know and and so it's a lot easier to scale cheaper to scale for Tesla.

5:54But then again, I think the market's big enough. I think there's going to be users that want an all-camera system. I think there's going to be users that don't feel comfortable with that and want the redundancy of LiDARs. So, for example, Uber is partnering with Waymo. So I got to go back to wait. All right. So I'm looking at the FA function on the Bloomberg, We just talked about free cash flow. And so it's$146 million versus$664 million in the first quarter of 2025, as our live blog says, dropping 89%. I know what you're saying about it's good that they're spending for the future, right? Because you said to us earlier that the best way to get to that$1.56 million unit delivery for the year, right, that's a consensus estimate, is that they've got to launch that cheaper vehicle, right?

6:43So they've got to bring stuff out. Do we have to be worried, though, about that low number or they're going to be fine? Well, it's I mean, it's it's technical. And I said if free cash flow is over a billion, obviously, the more the better it is down. Yeah. You know, compared to a year ago, two years ago. But look, like if you look at the Model Y, if you look at the gross margin, you know, excluding credits, it is up. Right. that actually tells you that the new model Y is likely able to build it at a lower cost. The issue is, like I said in the preview, is they just don't have enough volume. Yeah.

7:27So if they can expand volume with the existing Model Y, not just in the U.S., but in the international markets, and as well as introduce the cheaper model, which is supposed to be built within the existing capacity, there could be a lot of upside in terms of margin, in terms of free cash flow. So it's really execution at the moment, and that's what we want to hear from Elon Musk. Where is the cheaper model? They said the initial production has started in June, but you know it could take some time right before they launch and have to get all the kinks out uh but you know you want to hear about india india is a huge market right and uh where are they taking india uh you know definitely robo taxi is important and then the cyber cap you know we need a little bit more details all right details are certainly near-term details near-term details all right great setup um steve mann thank you so much uh we're going to look forward to reading your research in the after hours and certainly into tomorrow's trade.

8:38Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Manager, joining us from BI headquarters in Princeton, New Jersey. I want to go right now and bring in Ross Gerber. He's president and CEO of Gerber Kawasaki Wealth and Investment Management. As of the end of last year, had about$3.4 billion in assets under management. Longtime outspoken Tesla bull. More recently, expressing concerns about the company as he did three months ago after the last quarter earnings report. According to the Bloomberg Terminal, Gerber Kawasaki still owns about$78 million worth of Tesla stock. Ross, good to have you with us this afternoon.

9:16What have you been doing to your Tesla position over the last quarter? Just before we get your take on the numbers. We've been selling for years and I've continued to sell. We have so much stock and we have a lot of clients that really believe in the Tesla story. And we've kept some stock, obviously, in our portfolios. But in my ETF, I'm out of Tesla completely, out of my GK ETF. And it's mostly because the business is declining. And these earnings results continue to show that the business continues to decline, and in some kind of troubling ways. So as much as the previous guest is bullish on many of these things that Elon talks about.

9:57Nobody wants to talk about the truth that nobody wants to buy Elon's products. Until that gets addressed, there's a huge elephant in the room that nobody seems to want to point at because it's Elon. And so he's the innovator behind all of the things that are great about Tesla. But he's also the sort of villain that's created so much animosity around him that nobody wants to buy his products. We've got a great cover story by the team of Max Chafkin and Ed Ludlow in Bloomberg Businessweek, the new issue coming out, the August issue. It'll soon be on newsstands. It's already on the Bloomberg. But, you know, the whole idea, Ross, as you know, since you understand this guy, this company so well, you never kind of count Elon out.

10:39And so I do wonder, you know, if he does get it right, if he maybe, I don't know, we'll see what happens in terms of his involvement in politics, because it does seem like he still wants to stay according to the SpaceX filing. But I mean, there is always that caveat when it comes to Elon, right, that he sometimes pulls it out or he often pulls it out. Yeah, and I think that's been true in the past. And I'm very grateful that he pulled it out five years ago when it really mattered. And Tesla was almost on the verge of bankruptcy and it has become a very successful company. But it doesn't mean he's going to do it again.

11:16And this idea that, you know, these kind of entrepreneur rock star people don't fall is actually not true. In fact, it's very common to what we call the rise and fall story. That's all the stories you see on Netflix and the documentaries. So, you know, this might be a rise and fall story and things don't rise forever, per se. And I always remind people, I don't think most people even know who invented the television, But the television was invented in the United States by a company called RCA, which was like the hottest stock of the 50s. Well, how many TVs are made in the United States today? And the answer is zero.

11:54So the very same thing could happen in the EV business. But that said, Elon can fix the company. It's solely broken because of him. He can certainly fix the company if he wants to do what's necessary to improve his image. And in a year, people forget and Tesla might be back. But he just doesn't seem to care about fixing his image. And he doesn't seem to be in understanding the responsibility goes to him on why sales are down so much. So why even have any Tesla stock right now? I think the reason I hold personally still some Tesla stock is for the same hope that we all have, that they are definitely focused on a future.

12:34And especially for me, a climate activist, you know, it's a green future that I'm pushing And Tesla still is the leader in green transportation and energy. And I think it's an incredibly important company to succeed, hence why I'm out here banging on Elon all the time. It's not for any other reason than wanting to see Tesla succeed because it's crucially important to climate change. But this robo-taxi business is not crucially important to anybody. So I think Tesla's main business is selling EVs and energy storage. and they should be focused on repairing that main business. And I think their other future endeavors are interesting.

13:16And that's why it's a reason to hold the stock. But it also trades at 150 times earnings that are going down. And so, you know, you have to weigh that too. In the past, you've talked about how nice it is to drive a Rivian, for example. Are you willing to now invest in any other EV company that you've turned on Tesla? No. You know, I've lost a lot of money in EV businesses over the last five years that I've hoped would succeed, including Rivian and many others. And unfortunately, many of the EV operators are now having all the incentives taken away from them, as well as traditional car companies, along with tariffs and everything else.

13:53It's just really a horrible setup to be a car company. The car company we own is Ferrari, actually, which has no problem selling their cars at 40 % margins that make Tesla look like chump change. So, you know, truthfully, it's just tough to be in a global auto business on a great day, let alone with Trump as president. So it's a very tough time for the businesses. And I'm just not recommending that right now versus a stock like Trane Technology that makes, you know, clean energy air conditioning units where the demand for air conditioning is off the charts. And that's been a wonderful green energy investment, along with GE Vernova, which we also own.

14:33That's been a wonderful green energy investment. but it's not EVs. Hey, listen, I do want to go back to, we've got the Tesla Live blog going on and just tracking everything that's coming out of the earnings. Ardana Hull, who covers Tesla and Elon, says page 12 of the shareholder deck shows the Tesla ecosystem, which includes Optimus, we know the robot, pushing a baby stroller. You know, Ross, when it comes to Tesla and the world of Elon, there are so many different moving parts. There's, you know, the shining beacon of SpaceX, right? That that's a really great business. There's all the AI stuff that's going on.

15:09There's so many different moving pieces. What else do you want to know, you know, from the Elon universe? Well, I think the most important thing in my mind that has the biggest opportunity to help Tesla is this low cost vehicle they keep talking about. They have so much excess capacity in their factories now because they're not selling more cars that they need a new vehicle. And also for addressing other markets, whether it be India, China, and Europe, you need a small vehicle that's inexpensive to compete against the other EV players and regular traditional car companies. And they need to do this now.

15:46And the sooner they do this, the better. And that's the most important thing. I know we like to talk about the day a robot is pushing my kid around in a stroller, but that day is long in the tooth from coming, nor does anybody in the world would trust some big robot made by Elon Musk. Ross Gerber, always appreciate you finding time for us.

16:09When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com slash risk mitigation.

16:45Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. As industries evolve faster than ever, companies need an environment that accelerates strategic growth, and Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan. Pure opportunity.

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