Tesla boss Elon Musk said on Wednesday that cuts in support for electric vehicle makers by the U.S. government might lead to a "few rough quarters" for the company before a wave of revenue from self-driving software and services begins late next year.
Shares fell nearly 5% after Musk responded on a quarterly results conference call to questions about new U.S. government policies under President Donald Trump.
Musk's electric vehicle maker posted the worst quarterly sales decline in more than a decade, along with a profit that missed Wall Street targets. However, its profit margin on making cars was better than many had feared. Musk is pursuing autonomous driving to power privately owned vehicles as well as robotaxis that it plans to put into production next year.
In the meantime, it is working on a new, cheaper car, though CFO Vaibhav Taneja said that production would ramp up next quarter, slower than initially expected. It produced some initial units by the end of June.
The company did not provide an update on its full-year deliveries forecast, citing the economy and timing of the new car rollout.
"Tesla's disappointing results aren't surprising given the rocky road it's traveled recently," said eMarketer analyst Jacob Bourne. "A truly affordable model will hit the bullseye in terms of boosting sales if Tesla can effectively position it right without detracting from its higher-priced models."
The second consecutive quarterly revenue drop, with a 12% decline, comes despite the launch of a refreshed version of its best-selling Model Y SUV, which investors had hoped would help revive demand.
A 51% dive in sales of automotive regulatory credits, which other automakers who have difficulty complying with government emissions rules buy from Tesla, also hurt revenue and profit. Revenue fell to $22.5 billion for the April-June quarter from $25.50 billion a year earlier, slightly behind analyst targets compiled by LSEG. Adjusted profit per share of 40 cents lagged the Wall Street consensus.
The automotive gross margin, excluding regulatory credits, was 14.96%, above Wall Street estimates, helped in part by lower costs per vehicle. Pricing and margins are important as Tesla wrestles with demand and faces falling government support.
Tesla's global deliveries dropped 13.5% in the second quarter, and the U.S. government will later this year cut $7,500 tax credits for EV buyers.
"We probably could have a few rough quarters," Musk said when asked about the credits. "I'm not saying we will, but we could – you know, Q4, Q1, maybe Q2, but once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I think I'd be surprised if Tesla's economics are not very compelling."
Tesla had said in April that it would start producing the more affordable model by the end of the first half, and sources had told Reuters that the vehicle, a stripped-down version of its Model Y SUV, would be delayed by at least months.
Tesla did not disclose any details of the model, including the number of units it had produced or its pricing, on Wednesday.
Musk responded to a question of what the vehicle would look like by saying, "It's just a Model Y," joking that he "let the cat out of the bag there."
Tesla's lineup is relatively old, despite a recent refresh of the flagship Model Y, and it faces rising competition from cheaper EVs, especially in China, and a persistent backlash against Musk's far-right political views.
The company also said it continued to expect volume production of its custom-built robotaxi – called the Cybercab – and Semi-Truck in 2026.
Much of the company's trillion-dollar valuation hangs on its bet on its robotaxi service – a small trial of which was started in Austin, Texas, last month with about a dozen Model Y SUVs – and on its development of humanoid robots.
"Autonomy is the story," Musk said on the conference call, describing plans to roll out autonomous ride-hailing to about half of the U.S. population by the end of this year.
Tesla is seeking regulatory approval for robotaxi services in the San Francisco Bay Area, Nevada, Arizona, Florida, and other locations, he said, and the company is close to obtaining regulatory approval for supervised Full Self-Driving driver assistance software in the Netherlands.
The robotaxi business was likely to have a material impact on financials around the end of next year, Musk said. Investors are concerned about whether Musk will be able to devote enough time and attention to Tesla after he locked horns with Trump by forming a new political party this month. He had promised weeks earlier that he would cut back on government work and focus on his companies.
A series of high-profile executive exits, including a longtime Musk confidant who oversaw sales and manufacturing in North America and Europe, is also adding to the concerns.
