A mere one year ago, Tesla stocks were an expression of sitting in the driver seat of innovation. But nowadays, the giant in the electric vehicle industry has met a reverse i.e., a stagnating demand, increasing competition, and the air of strength started to lose. Tesla is getting ready to report its Q2 2025 results on July 23, the question is how will it affect investors as the news comes in i.e., Buy, sell, or just hang on and wait?
It was a Setup of Weak Numbers
Even the bulls will have it rough going through Tesla Q2 2025 projection:
• Estimated Q2 profit: 0.40/share and an estimate of 23% y-o-y decline
• Estimated Sales: $22.61 billion, 11.3% less in comparison with the previous year
- Full-year outlook: Sales expected to rise to a full-year $94.5 billion (decline by 3.3%), and consensus EPS by 26% or $1.80
- Out of the last four quarters, Tesla has not met analyst earnings expectations three times and the standard deviation of this negative earnings surprise has been 8.3%.
It is also interesting to note that the current returns of the stock have been stale: TSILA shares are down more than 31% this year, easily outpacing competitors such as GM and BYD and the auto industry in general.
Drop in Deliveries Sets off Alarm Bells
The company sold only 384,122 automobiles in the second quarter, with 373,728 Model 3/Y and 10,394 of other models. This is a sizable 14% decrease compared to the previous year and its largest decrease ever recorded as well as the second consecutive quarter of declining sales. Even worse, Tesla had made 410,244 vehicles, accumulated stock, and indicated weaker demand instead of being supply-restricted.
General Motors, in sharp contrast, is doing very well. GM delivered more than two times as many EVs, 46,280 in the quarter. Chinese powerhouse BYD sold a staggering 606,993 battery EVs, up 42.5% on the same quarter last year and exactly the same as Tesla for the third successive quarter.
The slowdown in the EV market is not what is hurting Tesla, but the company itself is hurting. Europe was recording the sharpest sales slowdown, indicating that brand strength was eroding, an aging product line and the public persona of CEO Elon Musk was also hurting the image of Tesla in an increasingly competitive environment.
It is not only at the top line that the expected pain would stop. The car sales of Tesla revenue are likely to decline by more than 6% in this quarter. More worryingly, the sacred automotive gross margin is getting smaller, probably to 15%, a full 3% points lower than last year as increased discounts and declining demand cut into bottom lines. In the meantime, the price of innovation is skyrocketing i.e., Tesla is spending tons of money in order to increase its production, efforts in building batteries, its Supercharger network, AI, and unfinished projects, i.e., the Robotaxi.
Bright Spots are not Sufficient
In the darkness we can see traces of light. Energy Generation and Storage at Tesla continues to gather pace as it is nearly at a record deployment of 9.6 GWh in storage (compared with 9.4 GWh last year). The revenues in segments are predicted to reach above $3 billion, service and other revenue will be considered as $3.15 billion, 50% increase over the last year. However, the units continue to form a marginal fraction of Tesla in business that cannot be sufficient enough in covering losses in its core vehicle business.
Valuation and Sentiment
Despite this year’s plunge, Tesla stock is still pricey, having a forward price-to-sales ratio at 9.66 barely representing the industry average and higher than its five-year average. It is difficult to digest the premium when a company is experiencing negative growth underscored by declining margins and increasing risks.
The other side is that the outlook of Wall Street is becoming guarded. The company is yet to offer guidance on new vehicles delivery and is likely to announce the second consecutive down-turning annual sales which was an unimaginable scenario only a few years ago.
Competition Has Become the Standard
The era of domination by Tesla is officially over. It held nearly 70% of the U.S. EV market before this year as GM and Ford. The markets of Europe are shrinking and the domestic players of China such as BYD are taking the advantage of the numbers game.
Such over-hyped initiatives as the Robotaxi are bogging down. Austin launch is currently in beta, and it still requires human drivers and, most importantly, competitors that have recently shown the highest level of real-life autonomy such as Waymo and Baidu. The said innovation engine that was once a driving factor in Tesla is currently stalled under swifter and moving competition.
Where would Tesla and Investors Go Next?
The situation of Tesla is obvious: the company is not selling all cars it produces because it has an obsolete lineup and rivals are flooding the market with their new models. The punitive effects of shifts in the macroeconomic environment are not the only drivers of demand decline, but so is brand fatigue and the failure to present new and exciting features. The capital and operating costs are increasing so much to threaten the profits further.
The risk-reward profile is stretched unless you are ready to go through the bumpy ride. In case you have experienced profits recently, then this can be a time of drawing back and setting some profits. To sidelined investors, there is little reason to expect a short-term driving force that could compel Tesla to become a solid purchase.
What’s Next?
In the future, it is likely that there will still be a lot of volatility as the core business of Tesla is experiencing headwinds on all sides of the business such as increasing competition, uncertain demand, and increased costs. Even the followers of Tesla will have to say that the equation has changed. Wall Street will tend to be badly on the defensive until the company plants a new blockbuster of some kind (mass-market vehicle, Robotaxi breakthrough, margin reversal of titanic proportions), and does so quickly. In short, treat Tesla shares with a grain of salt before earnings in Q2. Wait or cut your stake, or sell short, and be ready to buy into the down-turn, when there is actual evidence of a move.
