Tesla (TSLA) shares are falling after its second quarter adjusted earnings and free cash flow fell below Wall Street’s expectations. RBC Capital Markets global autos analyst Tom Narayan joins Market Domination Overtime to break down the EV maker’s earnings and its robotaxi plans.
Narayan notes that while gross margins appeared like a beat, a major piece of Tesla’s second quarter earnings came down to regulatory credits. He notes that if regulatory credits were not considered, Tesla’s earnings would likely look different. With former President Donald Trump recently vowing to remove incentives for the auto industry, he explains, “the bigger issue is if they go after the IRA (Inflation Reduction Act) in the $7,500 credit, that would be a problem.” He states that the number one factor turning consumers away from EVs was pricing, which led Tesla and other EV makers to rely on IRA credits in order to see their deliveries rise. He adds, “it’ll be really difficult for any administration to neuter the IRA. It’s a lot of jobs… it’s also law. It’s very difficult to overturn a law like that.”
As investors wait to hear more about Tesla’s robotaxi plans after delaying the launch to October, Narayan argues, “I know they said it had some design issues, but I do wonder and many investors wonder if it has to do with them trying to get regulatory approvals to launch a service similar to, let’s say, Waymo or Cruise have.” He says that investors “want something real” on this front, rather than “a bunch of PowerPoint slides.” He continues, “When they eventually unveil this, I think they’ll want details on timing, profitability, and they’ll want something within six months to a year, not ten years down the road.”
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On today’s segment of Good Buy or Goodbye, host Julie Hyman is joined by Barron’s associate editor Al Root to discuss the best and worst stock picks within the auto sector.
Root recommends buying Ford (F), citing notable relative share performance and successful business re-segmentation. He highlights the Pro business’s “consistency of profits… with service and sales” and points to a recovering auto market, stating, “Things should continue to get better.” However, he cautions investors about two primary risks for Ford: continued EV losses and business execution challenges.
On the other hand, Root advises investors to avoid Tesla’s (TSLA) stock. He expresses concern over the company’s high valuation, stating, “I don’t see how… this stock has a tremendous second half of 2024.” Root also worries about Musk overpromising on projects like robotaxi and lower-priced EVs, warning that unfulfilled promises could lead to “a big disappointment for the market.” Despite these concerns, Root acknowledges an impressive robotaxi event could positively impact the stock.

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