The chief executive managed to get investors to pay more mind to the automaker’s AI potential than its sluggish sales
The shares have been on a tear since then, despite an uninspiring set of results and the downward trend in expectations for the second-quarter figures Tesla will report Tuesday. The main rouser of a rally that added more than US$386 billion to Tesla’s market capitalization in just 11 weeks was none other than Musk.
“The real game-changer for Tesla’s valuation lies in Musk’s ability to convincingly position the company as a leader in AI and autonomous technology,” said Adam Sarhan, founder and chief executive at 50 Park Investments. “This narrative shift is critical for justifying Tesla’s premium valuation compared to traditional automakers.”
Tesla’s unpredictable shares have long been at the whims of the chief executive’s charisma and controversy, and investors appear to be bracing for more of the same heading into another set of earnings.
While Musk has confirmed that he asked for “an important design change” to the front of the vehicles, he didn’t elaborate on the alteration or say how much extra time the company needed to get the cars ready.
“Tesla’s Q2 print will likely be a tough call for investors given all the moving parts,” said Tom Narayan, an equities analyst at RBC Capital Markets who rates the shares the equivalent of a buy. “Some of this move is probably related to the upcoming robotaxi event. We expect it could help change the narrative on the stock and are big believers in the thesis, but wonder how much is already priced in.”
Musk touched off the rebound in Tesla’s stock by announcing alongside first-quarter results that the company would accelerate the introduction of new models — including more affordable vehicles — to as soon as late this year. Previously, the company had said it expected to start making next-generation EVs in the second half of 2025.
The chief executive was tight-lipped about details of those vehicles and also drew a line in the sand, telling investors they shouldn’t bet on Tesla’s stock unless they believe the company is going to “solve” autonomous-driving technology.
That said, Musk’s aggressive effort to tether Tesla’s fortunes to autonomy has had its drawbacks. When Bloomberg reported this month that the company’s robotaxi unveilling would be delayed to October, the stock fell 8.4 per cent, its biggest one-day drop since January.
“The selloff that we saw when Musk delayed the event tells me that a lot of the recent rally has been AI-related,” said Seth Goldstein, equities strategist at Morningstar.
Analysts’ average estimate for Tesla’s second-quarter earnings is roughly half what it was a year ago, though projections did inch higher in the past month, likely as a result of better-than-anticipated vehicle sales reported on July 2. The company is now expected to report a profit of 58 cents a share and revenue of US$24.1 billion, according to data compiled by Bloomberg.
While many analysts point to Tesla’s AI potential as the biggest support for the stock, investors still want Musk to revive growth at the EV business while engineers work on self-driving technology. Tuesday’s results will shed light on how the company is executing on these near and long-term objectives.
“Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” said Morgan Stanley’s Adam Jonas, who has the equivalent of a buy rating on the stock.