Biggest one-day stock drop in 4 years

Tesla shares plunged more than 12% on Wednesday after its earnings disappointed expectations. It was the biggest one-day drop in the giant's share price since 2020, wiping around $300 billion off its market capitalisation, which now stands at around $700 billion. Although total revenue rose 2% year-on-year to $24.9 billion, slightly beating market expectations, net profit fell more than 45% to $1.48 billion. *  The subject of concern also was a 7% decline in car sales and shrinking profit margins. Gross margins fell to 14.7% from 18.1% a year ago, below analysts' expectations, who had forecast 16.3%. The high costs are the result of cutting prices to boost sales, providing incentives to maintain demand, but also investing massively in artificial intelligence, just like other big Nasdaq companies.

Zdroj: Investing.com*

Competition is breathing down Tesla's neck

During his speech, Elon Musk touted products such as humanoid robots and autonomous taxis, but these are far from being something that could generate profits in the near future. Tesla is, after all, mainly an EV company, but we haven't heard about the new more affordable mass-produced models it so desperately needs for a long time. While the electric car maker hasn't lost its leadership in the sector and still sells the most EVs in the U.S., it has been feeling the pressure of increasing competition from both domestic and foreign firms for some time. According to data from Cox Automotive, Tesla saw a 9% year-on-year decline in sales of fully electric cars in the US in the first half of 2024, while competitors' sales increased by an average of 33%. The firm is probably not helped by its boss's ever-increasing meddling in politics, as this may also largely influence consumer preferences. For example, according to Pew Research surveys, the Republican Party followers, which Elon Musk supports, are much less interested in electric cars (13%) than the Democratic voters (45%).

The decline in technology stocks has caused problems for the broader market

Tesla's shares have a lot of weight in the market and that's why their fall has resonated through the entire technology sector. However, it is also on thin ice at the moment because of the uncertainty surrounding the return on billions of dollars of AI investment. Last week, Google's parent company, Alphabet, also announced its earnings, which, although they came in broadly as expected, the outlook for the next few quarters made investors uncomfortable, with shares falling by more than 5% in response. On Wednesday, the Nasdaq Composite index fell by 3.6%, while the S&P 500 index lost 2.3% on the day. Despite a slight increase during Thursday's trading, the US markets ended the day with further losses. * This week, the earnings of Microsoft and Amazon are expected, which will provide a broader insight into possible future developments.

Macroeconomic factors

Unfavourable market situation occurred also in connection with the latest macroeconomic data in the US, namely the deterioration of manufacturing sector conditions, as the value of the Flash Manufacturing PMI unexpectedly fell to 49.5 points, compared to the consensus estimate of 51.7 points. At the same time, on Thursday, the quarterly GDP growth was surprisingly high with a 2.8% year-on-year growth rate, while the expected growth was at 2%. Adding to market uncertainty are political developments in the US ahead of the upcoming presidential election.

Conclusion

Tesla continues to hold its place at the top as the world's largest EV maker, but with increasing competition and an inability to launch a mass product that generates consistent profits, the company may soon lose its position in the market. Humanoid robots or autonomous taxis are undoubtedly interesting concepts, but they are still only in the 'experimental' phase. The technology industry is, after all, about what its name suggests - the development of new technologies. Giants such as Microsoft, Alphabet, NVIDIA or Tesla have risen to the top thanks in large part to their fearlessness to innovate, which carries the considerable risks.

Source: Investing.com*

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*Data relating to the past is not a guarantee of future returns.

Sources:

https://ir.tesla.com/#quarterly-disclosure

https://www.investing.com/news/stock-market-news/tesla-q2-earnings-miss-as-deliveries-slip-3532005

https://www.investing.com/news/stock-market-news/tesla-slides-as-bleak-profit-margins-exposes-need-for-affordable-evs-3532970

https://www.cnbc.com/2024/07/23/tesla-tsla-earnings-q2-2024.html

https://www.investing.com/news/stock-market-news/us-stock-futures-limp-higher-after-tech-rout-batters-wall-street-3535250

https://tradingeconomics.com/united-states/manufacturing-pmi