Tesla Inc (NASDAQ:TSLA) shares moved almost 10% lower following the automaker’s second quarter earnings report as CEO Elon Musk warned the company could face “a rough few quarters ahead.”
The company is facing several challenges, including the loss of the US federal EV tax credit, rising competition, tariff costs and Musk’s political activities, which has alienated some of its customer base.
Musk said that Tesla is in a transition period as it focuses on its Robotaxi services and autonomous driving technology, and expects the rough patch could last for several quarters, possibly into early 2026.
However, he expressed optimism that Tesla’s financials will improve once it scales up autonomous driving, expecting this to have a material impact in the middle to the second half of next year.
For Q2, the company posted a 12% drop in revenue to $22.5 billion and 16% decline in profit to $1.2 billion for the quarter amid a drop in vehicle sales.
Analysts at Wedbush noted that the results beat Street expectations as Tesla continues to navigate a difficult EV demand environment.
“While the company will continue to manage the business strategically to maintain a strong balance sheet during this uncertain period, the company expects to see an acceleration of AI, software, and fleet-based profits over time, which will bring higher-margin revenues to the business,” they highlighted.
“The company expects to expand its vehicle offerings to include its more affordable model expected to start volume production in the second half of 2025 with more affordable models launching in fiscal Q4 2025, which we believe will start to accelerate deliveries into the back-half of this year with the Model Y refresh and into 2026 laying the foundation for the autonomous future.”
Bullish on long-term AI prospects
Wedbush sees the upcoming quarters as crucial for Tesla on the autonomous front.
The company aims to have autonomous ride-hailing in half the US population by the year-end and bring its Robotaxi offering to Florida, Arizona, California, Nevada and more.
“We continue to believe that Tesla will begin launching its Robotaxi capabilities across multiple cities (approximately 25 cities over the next year) in the US & abroad over the next 12 to 18 months as the company goes all in on the AI vision...we believe the autonomous opportunity is worth $1 trillion alone for Tesla,” Wedbush believes.
They repeated their ‘Outperform’ rating and $500 price target on the stock.
“There are still headwinds, tariffs, and clear growth challenges for Tesla over the coming three to six months...but Musk now entering the picture as a wartime CEO to put Tesla on an aggressive AI-focused strategy represents the biggest and best possible news for Tesla investors,” they wrote. “AI future is the focus for long-term investors.”
Tesla’s shares traded down 9.3% at about $302 on Thursday afternoon, having shed about 25% in the year to date.