Tesla shares sank more than 7% in extended trading hours following its disappointing second-quarter results on Tuesday, as its electric vehicle (EV) sales continued their annual decline. Meanwhile, Alphabet's shares fell 2% in the after-hours market due to a miss on YouTube ad revenue. The two major tech earnings are pressuring Wall Street, with futures pointing to a lower open on Wednesday. The souring sentiment may ripple through the European markets as LVMH also failed to cheer investors with its performance scores.
Tesla faces growth bottlenecks in the EV markets
Tesla reported earnings per share of $0.52 (€0.48) on overall revenue of $25.5 billion (€23.5 billion), compared with the estimated $0.62 and $24.6 billion, respectively. While the total revenue rose by 2% from a year earlier, its core business, automotive sales, fell by 7% from last year, extending a decline for the second consecutive quarter. Its net income came to $1.8 billion (€1.66 billion), down 42% year on year.
Tesla benefited from a record regulatory credit revenue of $890 million (€820 million) in the second quarter, which may have helped its gross profit to increase by 1% from last year. However, despite a better-than-expected car delivery number of 443,956 EVs, the figure still pointed to a 4.8% drop year on year, extending the second consecutive quarterly decline. Price cuts and other incentives have also squeezed the profit margin, with the adjusted earnings margin falling to 14.4% from 18.7% in the same quarter last year.
The bright spot is that its energy generation and storage revenue has doubled compared to last year, amounting to $3 billion (€2.75bn) in the second quarter. This implies that Tesla is seeking new areas to accelerate its growth as traditional automotive sales slow amid fierce competition.
Tesla has delayed unveiling Robotaxis until 10 October from the originally scheduled date of 8 August. Robotaxi is part of its broader strategy to develop fully autonomous vehicles using FSD, which is seen as a new area to compete in the AI race. CEO Elon Musk said these AI-led products, including Robotaxi and the Optimus humanoid robots, will be manufactured at the Austin factory. In April, Musk indicated that Optimus would be able to take on tasks in the factory by the end of 2024.
The company expects a better current quarter for car deliveries than it did in the second quarter and said the Cybertruck will start to be profitable this year. Tesla's shares are down 10% year-to-date after the decline on Tuesday, as the EV maker failed to satisfy investors with the development in the AI businesses like Robotaxi and humanoid robots, while its EV sales demonstrated a continuous slowdown.
Alphabet tops earnings expectations but misses on YouTube ads
The Google parent company Alphabet reported total revenue of $84.74 billion (€78.12 billion) during the second quarter, up 14% from last year. Earnings per share came to $1.89 (€1.74), compared with the estimated $1.84 (€1.69).
The key business, Google Cloud, generated revenue of $10.35 billion (€9.54 billion), up 28% sequentially, and for the first time surpassed the $10 billion (€9.18bn) threshold. CEO Sundar Pichai said: "Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud."
Google advertising revenue was recorded at $64.62 billion (€59.34 bn), up 11% from the same quarter last year. However, another key metric, YouTube, reported advertising revenue of $8.66 billion (€7.98 billion), up 13% from a year ago but short of the expected $8.95 billion (€8.22bn). The company has set a target to achieve a combined Google Cloud and YouTube annual run rate of more than $100 billion (€91.83bn) by the end of 2024. This figure suggests that it may not be able to fulfil its ambition.
Alphabet has continued investing heavily in AI building, with capital expenditures reaching $13.2 billion (€12.17 billion), higher than the estimated $12.2 billion (€11.2bn). Chief Investment Officer Ruth Porat said: "We’ve certainly seen the benefit of our strength in AI, AI infrastructure, as well as generative AI solutions for cloud customers."
Notably, the company’s self-driving car division, Waymo, reported revenue of $365 million (€336 billion) on a loss of $1.13 billion (€1.04 billion) in the second quarter, which was higher than the estimated loss of $1.07 billion (€980m). Porat called for a new $5 billion (€4.6 billion) multiyear investment in Waymo at the earnings call on Tuesday.
To summarise, Alphabet's performance exceeded expectations but did not offer a big surprise, as investors were expecting a significant AI advancement from the tech giant. Nonetheless, Alphabet remains one of the best performers among the Magnificent Seven stocks, with its shares up 28% this year due to the AI boom.
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