Tesla Reports Huge Miss on Earnings for Second Quarter

[00:00:00]You think about what we heard from Tesla adjusted EPS coming in at 30-3 cents, that is well below the analyst expectation of about $0.51 on average.

[00:00:10]It's not often that you see a miss of that magnitude for a company as mature and as large as Tesla.

[00:00:17]So back this out for me and sort of make the math work.

[00:00:22]Hey, Katie.

[00:00:22]I think it's it's compounded in the they beat the top line revenue by close to $3 billion.

[00:00:29]So you have a massive top line beat and then you have this bottom line huge mess.

[00:00:34]And in the car business that's pretty straightforward math.

[00:00:38]They are falling to the temptation of feeding the top line, which is a beast to continue to keep growing with discounts.

[00:00:47]And when you discount in the form of price and in the form of the APR that people are paying and they've done both, you see what happens to margins.

[00:00:56]They can, they can have a huge top line beat because of course people are going to buy a less expensive product or below market price product.

[00:01:03]But then the profitability falls dramatically.

[00:01:06]And in this case, they missed EPS by more than 1/3.

[00:01:08]And I think that's the story here.

[00:01:09]This is not an AI investment story.

[00:01:11]This is a story in the base business and the base business, I think it's giving hints that the the product lineup is older, it's dated and in in order to move that product, you've got to discount it.

[00:01:23]And that hits that hits the bottom line.

[00:01:25]And that's exactly, I think what we're seeing here in these earnings.

[00:01:27]Yeah, absolutely a big tension there.

[00:01:29]And you think about the issues that they are having when it comes to their base business, the car business.

[00:01:35]How much of A set back is that for some of the ambitions that we know that the stock has been valued on?

[00:01:41]When you think about AI, autonomous vehicles, robotic, the list goes on.

[00:01:46]Well, I think the, the original plan was you've got a cash flowing auto business that's going to fund you to the future of autonomous cars, robot taxis and robots, But you got to have that cash flow and that cash flow has to be healthy.

[00:02:00]And to the extent that your base business isn't funding the future, now you've got to go out and either fund it through equity or debt on top of this.

[00:02:08]And so I think that's the question for investors is to look forward and, and, and to really try to determine how much capital is going to take to get to that future and then where that capital is going to come from.

[00:02:20]I think we see this across industries.

[00:02:22]It's one of the reasons we formed Vista shares is because the, the market tends to focus on end producers like Tesla and the, the, the money's actually made in the supply chain.

[00:02:32]The supply chain has doubled the profit margins that Tesla has in the end.

[00:02:36]And so although Tesla's getting squeezed by the end market, their supply chain is likely much healthier and that's probably where investors want exposure versus betting on Tesla's and in producer here.

[00:02:47]But I mean, I, I but don't they kind of go on hand in hand, John and I, and I mean, you raised an issue here about kind of the staleness, my words, not yours of of their product lineup.

[00:02:56]And from at least what we know, it doesn't appear to be anything a major on the horizon unless Elon Musk is holding back on us.

[00:03:03]We're also supposed to see the robo taxi roll out mid year.

[00:03:06]I don't see any real mention of that in the earnings statement itself.

[00:03:10]So what is that sort of flywheel from the actual production of cars to these other ancillary areas?

[00:03:19]Romaine, you're, you're right.

[00:03:20]And I think you nailed it.

[00:03:21]What they would say, I think and probably what they're going to be talking about in the earnings call is trying to get the investors to focus on robotaxi as that flywheel.

[00:03:31]Robotaxi is the next car product.

[00:03:33]Robotaxi is the bridge into the robotic future that they see.

[00:03:37]The challenge is as you said, they haven't had much luck rolling out robo taxi.

[00:03:41]It's a very small number.

[00:03:42]It's much smaller than they've originally protect projected, much fewer vehicles, much fewer cities and lower capability.

[00:03:51]And so I think it would be helpful if they could provide an honest assessment of where they are, where they see the rollout, because the the the car business really depends on the robo taxi business to get Tesla into the robot business, which is their optimist robots.

[00:04:09]Well, well, let's talk a little bit more about they do actually mention that here.

[00:04:12]But I think at least based on what we know publicly, that still seems a long way off.

[00:04:17]And we talked about the some of your ETF.

[00:04:19]So obviously a focus on robotics, but also space.

[00:04:21]And I do want to kind of get to the elephant in the room, which is that a lot of investors seem to be a speculating and even betting on this idea that Tesla will be folded into SpaceX in some way or another.

[00:04:32]What the time frame for that would actually be if it were to happen.

[00:04:36]But if it was just to talk hypotheticals here, John, is Tesla additive to SpaceX or does it actually detract from what SpaceX is trying to do?

[00:04:48]I think it's it's highly complimentary.

[00:04:50]If I'm sitting in Elon's chair making that decision of thinking about a couple of things.

[00:04:53]I #1 as you know, he's a, he's a fan of simplification.

[00:04:58]So running one public company is easier than running 2 for sure.

[00:05:02]The second is, is the, is the AI assets that are now sitting within SpaceX really are much closer line to the Tesla business.

[00:05:13]Robo taxi is an AI business.

[00:05:14]Robots are actually an AI business and and so those assets should be closer to each other.

[00:05:22]I think the third problem that solves on Elon's list is control.

[00:05:26]He's always been concerned about control share at Tesla.

[00:05:30]He doesn't have it.

[00:05:32]He does at SpaceX.

[00:05:34]And a combination of the current valuations of SpaceX and Tesla would mean that he would now have the control he sought for so long at Tesla.

[00:05:42]So I think if you put yourself in his shoes and the problems that are front and Center for him, this makes a lot of sense both from simplification, from the cap table in control and from the proximity of the assets, just having teams not have to cross companies to work on things like Robo taxi.

[00:06:01]So, John, before we let you go, and this broadens it out beyond Tesla, but when we got there, that last earnings report out of NVIDIA, Jensen Wong talked a lot about kind of this physical AI, sort of the next stage of this AI cycle.

[00:06:14]And there was a big focus on robotics.

[00:06:15]And obviously, Elon Musk and Tesla are trying to be a part of that as well.

[00:06:19]But when I look at your ETF, your R2 ETF, which is focused on robotics, I'm struck by one thing.

[00:06:25]And it's something that someone raised when Jensen Wong talked about this, how so many of the robotics companies, at least the ones that seem to be poised to really take advantage of this, aren't based in the US.

[00:06:35]And some of your largest weightings in there are companies based in Asia.

[00:06:39]In fact, I was going down the list, you can correct me if I'm wrong, but the first US company, at least in terms of your waiting was Rockwell Automation.

[00:06:46]Why are we seeing so many non-us companies sort of at the top of the list?

[00:06:51]Why are they ahead of the United States in that race?

[00:06:55]Gosh, Romain, it's a really good insight on your part and a good question that is because China is the largest supplier of robots in the world, the largest deployer of robots in the world and not far behind them is Korea.

[00:07:08]So you've got a corner of the world that is really focused on robotics and executing at a very high level and executing at volumes far greater than the US.

[00:07:17]So as we wouldn't and comb the world before the supply chain in which stocks we wanted to have in that ETF, you're absolutely right.

[00:07:23]It turns out to be a lot of Asian exposure and some European exposure as well, but mainly Asian exposure because the end producers are there and therefore the supply chain is there.

[00:07:34]And that's really where the action in robotics has been for the last five to 10 years.

[00:07:38]And it's been quiet like we haven't paid a lot of attention to this in the West.

[00:07:42]We're starting to pay attention to it now, of course.

[00:07:45]But but those two areas in terms of China and and Korea, they're, they're the countries to beat as it comes to a robotic sport and robotics race to the finish line.