Tesla Shares Slide 15% After Q2 Earnings Miss, Despite Wall Street’s $412 Average Price Target

Key Points

• Tesla shares fell about 15% Thursday after the company reported a 57% drop in second-quarter operating income.

• The average analyst price target sits near $412, about 29% above where the stock closed.

• The consensus rating on the stock is still a buy.

Tesla (NASDAQ: TSLA) shareholders faced a challenging session on Thursday as shares of the electric vehicle manufacturer dropped approximately 15% following the release of its second-quarter financial results, settling at $319.69—near the lower end of the 52-week range spanning $298 to $499.

Despite the steep decline, Wall Street’s outlook remained largely unchanged. The average analyst price target on the stock hovers around $412, representing roughly 29% upside from Thursday’s closing price. Across 44 analysts covering the company, the consensus rating continues to reflect a buy recommendation.

Image source: Tesla.

Driving Through the Downturn

Tesla’s second-quarter performance showcased a mixed picture. Revenue climbed 26% year-over-year to reach $28.2 billion, supported by record deliveries of 480,126 vehicles—the strongest second quarter in the company’s history. This marked an improvement from the 16% growth seen in the first quarter and propelled Tesla beyond $100 billion in trailing twelve-month revenue for the first time.

However, profitability took a sharp turn. Operating income plummeted 57% year-over-year to $398 million, reducing Tesla’s operating margin to 1.4%, down from 4.1% in the prior year. Adjusted earnings per share came in at $0.33, an 18% decrease compared to the same period last year. With record-breaking revenue, only a fraction translated into actual profit.

While automotive sales maintained relatively stable margins—with Tesla’s automotive gross margin slipping slightly to 16.9%—the broader financial health was impacted by significant investments in emerging technologies including artificial intelligence, robotaxis, and the Optimus humanoid robot project. Additionally, regulatory credit revenue—a consistent contributor in previous quarters—declined sharply by 67% to $146 million.

For the first time in several years, Tesla reported negative free cash flow, burning through $1.1 billion as capital expenditures surged past $5.8 billion.

Evaluating the Upside Potential

The current average price target of $412 reflects analysts’ confidence in Tesla’s long-term prospects rather than its immediate financial standing. These projections are largely based on anticipated advancements in high-margin software services, the expansion of autonomous ride-hailing networks, and returns from substantial AI investments.

At present, Tesla trades at approximately 300 times its earnings, a valuation that suggests much of its future potential has already been factored into the share price. Even with a 15% drop, the stock remains expensive relative to traditional valuation metrics given its current operating margin of just 1.4%.

Recent developments do hint at progress in non-core segments. Services and other revenue grew 50% year-over-year, while energy storage deployments increased 41% to 13.5 gigawatt-hours. However, these areas still represent a small portion of Tesla’s overall business and have yet to meaningfully impact profitability.

Given the disconnect between current performance and market expectations, investors should approach the implied 29% upside cautiously. Analyst estimates often lag behind market movements, and continued downward revisions may narrow this gap without a corresponding rise in share price.

Although Tesla’s innovative pipeline holds promise, realizing those ambitions will require sustained execution and improved margins before justifying today’s valuations.

Daniel Sparks holds client positions in Tesla. The Motley Fool recommends and owns shares of Tesla. The Motley Fool maintains a disclosure policy.

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