Elon’s $1.3 Trillion Dilemma? Tesla Faces Its Toughest Earnings Call Yet

When Tesla reports earnings on Wednesday, all eyes will be on whether Elon Musk’s empire can pull off another historic rally or if the stock’s recent flatline performance is the new normal.

After soaring more than 60% earlier this year to a $1.3 trillion valuation, Tesla’s stock has taken a 5% tumble over the last month. Turns out, being pals with President Trump and surfing the deregulation wave isn’t enough to keep the hype machine humming. Investors are starting to ask, “What have you done for me lately?”

Tesla’s potential knight in shining armor (or, more accurately, aluminum and steel) is its long-teased $25,000 electric vehicle. Set to roll off production lines by mid-2025, this cheaper model is Tesla’s shot at clawing back market share from fierce competitors like China’s BYD. Barclays analyst Dan Levy made it clear as mud: this lower-cost EV is essential for Tesla to hit its ambitious 30% delivery growth target.

But there’s a twist in the plot (as always). Will this new EV qualify for the $7,500 federal tax credit under the Inflation Reduction Act? With Trump-era policies potentially scrapping subsidies, that “affordable” $25K price could suddenly balloon to something closer to $32,500. Not exactly the deal of the century.

And the challenges don’t stop there. There’s real concern about cannibalization…could Tesla’s new “budget” EV steal sales from its own Model Y? David Wagner at Aptus Capital Advisors isn’t ruling it out, warning that Tesla might end up competing with itself instead of the competition.

There’s an even bigger piece of the pie to consider… Tesla’s stock is priced like it’s going to change the world… again. At 125 times expected earnings, Tesla’s valuation dwarfs even the biggest tech names like Microsoft (35x) and Alphabet (26x). For context, General Motors trades at just 5x earnings. Investors are essentially betting that Tesla will dominate not just EVs but also AI, robotics, and anything else Musk dreams up between tweets.

The divide among analysts reflects the uncertainty. Piper Sandler, one of Tesla’s most bullish fans, raised its price target to $500, citing “new-age opportunities” like the Optimus humanoid robot and advancements in Full Self-Driving (FSD) software. Visible Alpha’s consensus price target lands at $353, showing they haven’t fully drunk the kool-aid. At the same time, Barclays keeps things conservative with a $260 target, citing challenges with competition and execution risks.

Tesla’s Full Self-Driving (FSD) software has been a lifesaver, padding profit margins last quarter thanks to features like the “Actually Smart Summon.” But there’s a catch… without new, groundbreaking updates, FSD adoption might lose momentum.

For Wednesday’s earnings, analysts expect Tesla to report an automotive gross margin of 16.2% (excluding regulatory credits), down from 17.05% last quarter. Deliveries are projected to hit 2.1 million vehicles this year, a 16% increase from 2023 but below Musk’s once-lofty promises.

Seth Goldstein of Morningstar highlights that while FSD and lower production costs are expected to support margins, Tesla faces tough competition in China and Europe, where legacy automakers and startups are gunning for its market share.

Tesla’s earnings call on Wednesday is a make-or-break moment. The $25K EV could redefine Tesla’s trajectory, but only if it avoids subsidy issues and cannibalization risks. With analyst price targets ranging from Piper Sandler’s bullish $500 to Barclays’ cautious $260, the stakes couldn’t be higher. Can Musk deliver on his promises, or has Tesla’s magic started to fade?

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Stock.News has positions in Tesla, Microsoft, and Alphabet.