q2 in review

Tesla reports falling profit, sales drop despite price cuts and low-interest loans

The Texas company said Tuesday that it made $1.48 billion from April through June, less than the $2.7 billion it made in the same period of 2023. Photo courtesy of Tesla

Tesla's second-quarter net income fell 45 percent compared with a year ago as the company's global electric vehicle sales tumbled despite price cuts and low-interest financing.

The Austin, Texas, company said Tuesday that it made $1.48 billion from April through June, less than the $2.7 billion it made in the same period of 2023. It was Tesla's second-straight quarterly net income decline.

Second quarter revenue rose 2 percent to $25.5 billion, beating Wall Street estimates of $24.54 billion, according to FactSet. Excluding one time items, Tesla made 52 cents per share, below analyst expectations of 61 cents.

Shares of Tesla fell about 8 percent in trading after Tuesday’s closing bell. The shares had been down more than 40 percent earlier in the year, but have since recovered most of the losses.

Earlier this month Tesla said it sold 443,956 vehicles from April through June, down 4.8 percent from 466,140 sold the same period a year ago. Although the sales were were better than the 436,000 that analysts had expected, they still were a sign of weakening demand for the company’s aging product lineup.

For the first half of the year, Tesla has sold about 831,000 vehicles worldwide, far short of the more than 1.8 million for the full year that CEO Elon Musk has predicted.

The company’s widely watched gross profit margin, the percentage of revenue it gets to keep after expenses, fell once again to 18 percent. A year ago it was 18.2 percent, and it peaked at 29.1 percent in the first quarter of 2022.

Tesla said it posted record quarterly revenue “despite a difficult operating environment.” The company’s energy-storage business took in just over $3 billion in revenue, double the amount in the same period last year.

CEO Elon Musk, who has tried to portray Tesla as an autonomous vehicle, robotics and artificial-intelligence company, told analysts on a conference call that the company's “Full Self Driving” system should be able to run without human supervision by the end of this year, although he acknowledged that his predictions “have been overly optimistic in the past.”

At present, “Full Self Driving” is being tested on public roads by some Tesla owners. The company says it cannot drive itself and human drivers must be ready to intervene at all times.

For many years Musk has said the system will allow a fleet of robotaxis to generate income for the company and Tesla owners, making use of the electric vehicles when they would have been parked. Musk has been touting self-driving vehicles as a growth catalyst for Tesla since “Full Self Driving” hardware went on sale late in 2015.

But in investigative documents, the U.S. National Highway Traffic Safety Administration said it found 75 crashes and one death involving “Full Self Driving.” It’s not clear whether the system was at fault.

Later, Musk said he did not think approval by government regulators would be a limiting factor in deploying robotaxis. “If you’ve got billions of miles that show that in the future, unsupervised FSD is safer than humans, what regulator could really stand in the way of that?” he asked.

Musk told analysts he postponed the company’s August robotaxi unveil until Oct. 10 to make changes to improve the vehicle. He also said Tesla will show off a “couple of other things” at the event.

Musk said he expects Tesla to begin limited production of the Optimus humanoid robot early next year for use by Tesla. The robot already is doing work at a factory. In 2026, production would ramp up more to send robots to outside customers, he said.

Musk also said the company is on track to deliver its new more affordable vehicle in the first half of next year.

The company, he said, wants to wait until after the U.S. presidential election before deciding whether to build a new factory in Mexico. Republican nominee Donald Trump has threatened to slap tariffs on autos made in Mexico, so it wouldn't make sense to build there in that case, Musk said. Musk has endorsed Trump.

Morningstar analyst Seth Goldstein attributed the large stock drop to Tesla giving little new specific information on vehicles or tangible financial targets. “Maybe some investors are saying ’you know, we didn’t get more details from management,'” Goldstein said.

Although the next scheduled catalyst that could move the stock is now the robotaxi event in October, Goldstein said Musk could share details of new products on X, his social media platform. “Elon Musk could share details of Tesla’s progress,” he said. “That could be a catalyst for the stock on any given day.”

During the quarter, Tesla's revenue from regulatory credits purchased by other automakers who can’t meet government emissions targets hit $890 million for the quarter, double Tesla’s amount of most previous quarters.

The company reported $622 million in “restructuring and other” expenses for the quarter, when it laid off over 10 percent of its workforce.

Tesla said in a note to investors that it’s between two major growth waves, with the next one coming through advances in autonomous vehicles and new models. But the company reiterated caution that its sales growth “may be notably lower than the growth rate achieved in 2023.”

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A View From HETI

Corpus Christi is a major energy port. Photo by Roberto Schmidt/Getty Images

In parched southern Texas, a yearslong drought has depleted Corpus Christi's water reserves so gravely that the city is scrambling to prevent a shortage that could force painful cutbacks for residents and hobble the refineries and petrochemical plants in a major energy port.

Experts said the city didn't expect such a bad drought, and new sources of reliable water didn't arrive as expected. Those problems arose as the city increased its water sales to big industrial customers.

“We just have not kept up with water supply and water infrastructure like we should have. And it's decades in the making,” said Peter Zanoni, the city manager since 2019.

Corpus Christi, a city of about 317,000 people that also supplies water to nearby counties, is closely tied to its oil and gas industry. The region makes everyday essentials like fuel and steel and ships them to the world.

Zanoni said it is highly unlikely the city will run out of water, but without significant rainfall or new sources, residents may face forced cutbacks and industry may have to do with less. At a time when the Iran war is already raising gas prices, the shortage is hitting an area that produces 5% of the U.S. gasoline supply.

Droughts are common, but this one has dragged on for most of the past seven years. Key reservoirs are at their lowest point ever. The quickest fix is different weather.

“We are actively praying for a hurricane,” former city council member David Loeb said, half in jest. Loeb doesn't want anyone injured, but after wrestling with previous droughts in his time on the council, he feels the lack of rain acutely.

The drought isn't expected to lift by summer, leaving officials scrambling to tap more groundwater to avoid an emergency.

Lessons from last time

After the last drought in the early 2010s, the city approved a pipeline extension to bring in more water from the Colorado River and promoted conservation. In the years that followed, water use actually fell. The city, seeing opportunity, added a petrochemical plant and steel mill to its long list of industrial customers.

City officials had allowed for drought in their calculations — just not this kind of drought, Zanoni said. It has hit especially hard because reservoirs never fully recharged after the last one.

And it's come at a bad time.

After many years, the pipeline extension finally delivered its full capacity only last year. Meanwhile, discussion of building a desalination plant that would remove salt from seawater — a potentially drought-proof solution recommended in 2016 — bogged down over concerns about costs as high as $1.3 billion and environmental impact.

“If the then-city council had followed through on that, we would have had that plant up and running by now,” Zanoni said.

It's an industry town

Corpus Christi has followed its long-established plan for reducing water use. Stage 1 seeks voluntary actions from citizens like taking shorter showers and limiting how often they can water. Currently, the city is in Stage 3, which means pauses on many outdoor water uses.

Many residents are angry that they can’t water their lawns, that their bills are set to rise sharply and that they may face fines, said Isabel Araiza, co-founder of a grassroots group active on water issues. Some don’t feel industry will be asked to share in the pain, she said.

The city's drought plan allows for charging residents and businesses extra if they use lots of water. But big industry, which Zanoni says consumes as much as 60% of the city's water, can opt to pay a permanent surcharge to avoid the possibility of having a much larger fee added in times of drought.

Araiza calls it a bad system. Once industry pays the surcharge, she said, they have no incentive to conserve water.

The city has defended the system, saying in a statement that industry does not “get a pass on water conservation” or forced curtailment. The statement said the business surcharges have raised $6 million a year.

It is wrong to suggest industry isn’t helping, said Bob Paulison, executive director of the Coastal Bend Industry Association. Companies have stopped landscaping, they recycle water for essential cooling needs and they are looking for alternative water sources, he said.

The city hasn't imposed extra costs on anyone yet.

But Zanoni said water rates may eventually double as the city invests roughly $1 billion on infrastructure — costs that some argue will disproportionately benefit industry and make life for residents more expensive.

What's the way out?

The city is in a water emergency when it has 180 days before water supply can't keep up with demand. Officials have run through different scenarios for getting new water and the drought easing, and have said an emergency could come as early as May, as late as October, or not at all.

The city has tapped into millions of gallons of new groundwater, and it hopes to get even more.

The biggest unknown is the Evangeline Groundwater Project, which involves a pipeline and about two dozen wells that could add enough water to head off an emergency. It still needs state approval but the city hopes water could be flowing as soon as November. New sources come with drawbacks – some have raised water quality concerns, and there are worries too much pumping could deplete groundwater.

If the city has to declare a water emergency, it would be able to more aggressively curtail water use – mandatory reductions that would apply evenly to all industry and residents. That is a sensitive decision and is likely to be a “knock-down drag-out bloodbath,” Loeb said.

Because residents on average have already reduced their water use, future mandatory cuts are likely to fall heavier on industry.

“It’ll be an unbelievable disaster,” said Don Roach, former assistant general manager of the San Patricio Municipal Water District that has lots of industrial customers in the area. “When you cut the cooling water off to most of these industries, they just have to shut down. There’s no other way around it.”

Paulison said companies that produce fuel, polymers, iron and steel “have the least amount of flexibility in just cutting water usage.” He added, however, that companies remain optimistic they can reduce usage, adapt and continue operations.

Zanoni said the city's plans should buy time to avert the worst.

“We are hoping we don’t get there, but we don’t work on hope,” he said.

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