Here Is Why Tesla Stock Slipped After Its Q2 Earnings

Tesla stock price slipped by over 4% in extended hours. This continued a downtrend that has been going on since May 13. At that time, TSLA peaked at $451. The stock dropped to $360.

That’s its lowest level since April 14 this year, as the earnings per share missed estimates and its cash burn continued.

Tesla Stock Fell After Free Cash Flow Turned Negative

To a large extent, Tesla had a strong performance last quarter. Vehicle deliveries jumped, while its energy business returned to growth. Most notably, its trailing twelve-month (TTM) revenue jumped to a record high of $100 billion.

However, its stock dropped by over 4% in extended hours as the company recorded a cash outflow of over $1 billion. This happened as the company boosted its capital spending to over $5.7 billion during the quarter.

The cash burn was in line with what management guided in its previous quarter. Citing the Terafab project, the company said that its free cash flow will be negative this year.

Terafab is a major project being executed by Tesla and SpaceX in Texas. Its goal is to leverage Intel’s experience in the semiconductor manufacturing industry to build chips. This will be used by the two companies. It also hopes that other companies will use the chips.

Terafab is expected to consume over $50 billion in its first phase. With this, its total costs may cross over $110 billion over time. This figure could ultimately be higher than expected because of the rising memory, server, and semiconductor costs.

TSLA stock also dropped after the company’s earnings-per-share came out short of expectations. Its EPS came in at 33 cents, lower than the median estimate of 51 cents.

Also, its gross margin dropped during the quarter as the average vehicle selling price eased. This decline also happened as the regulatory credit revenue fell.

Elon Musk is Investing for Growth

In his statement, Elon Musk said that the company was putting measures in place to maintain revenue momentum. He has started manufacturing the Cybercab model in its Texas plant.

Also, the company expects to start making the Tesla Semi in its factory in Nevada. On the other hand, the Megafactory Texas plant is nearing completion.

The company is also working on manufacturing the Optimus robots at the Fremont factory, where the company was making the Model S and X lines. It hopes that Optimus will start production later this year.

The challenge is whether the robots will see more demand from customers. A failure would be an expensive mistake for Tesla.

Recent reporting suggested that Tesla vehicles are seeing higher demand in Europe. As a result, the management is increasing capacity in its German plant that serves over 30 markets.

Still, a main challenge is that competition continues growing, with many Chinese companies gaining market share.

In addition to BYD, companies like SAIC, Nio, and Li Auto have continued to grow their market share in Europe and other countries. Chinese EV companies sold over 1 million vehicles in June.

TSLA Stock Price Prediction

The daily chart shows that the TSLA stock price has pulled back in the past few months. It fell from a high of $451 in May to a low of $360 today.

It has dropped below the ascending trendline that connects the lowest levels since April this year. Also, it has remained below the 50-day and 200-day Exponential Moving Averages (EMA).

There are signs that the stock is invalidating the forming bullish flag pattern. This pattern is made up of a vertical line and a descending channel. As such, there is a risk that the stock will continue falling in the near term. If this happens, the key level to watch will be at $300.