Are Musk and Tesla Being Underestimated…Again?

Tesla reported lots of good news in its second-quarter earnings as it finally showed the production version of its long-awaited Cybertruck. But Wall Street punished the BEV maker anyway, with one analyst declaring the company’s street value “disconnected from reality.”

A day after Tesla’s earnings call with CEO Elon Musk, the company’s share price tumbled almost 10%. The pressure on Tesla shares is coming from price cuts and therefore cuts to profit margins as inventories of BEVs are stacking up while inflation-beleaguered consumers stay on the sidelines.

The Tesla bulls, though, say Musk’s longer-term strategy should pay off – building market share with sales now and selling those customers a $15,000 autonomous-driving package later.

Elon Musk screenshot (Getty)

Indeed, Musk says on the earnings call with analysts and investors that a rival carmaker is in talks with Tesla about licensing the BEV maker’s controversial driver assistance technology, Full Self Driving (FSD). Musk, however, did not name the company involved in the discussions.

“We are very open to licensing our full self-driving software and hardware to other car companies. And we are already in…early discussions with a major OEM about using Tesla FSD. So, we’re not trying to keep this to ourselves. We’re more than happy to license it to others,” says Musk.

During the second quarter, Tesla’s revenue continued to grow, reaching $25 billion, while profits grew to $2.7 billion. But its profit margin declined to 9.6% from the lofty 14.6% during second-quarter 2022 on the heels of recent price cuts to its lineup, plus the costs of preparing the new Cybertruck for production.

Word that Tesla may license its FSD technology could be a new source of revenue and profit for the BEV maker, already strutting over both OEs and BEV-charging companies adopting the company’s North American Charging Standard, with OEs including General Motors and Ford paying Tesla for access to its charging network.

Musk, not surprisingly, maintains his faith in the FSD technology despite being linked to dozens of accidents. The death toll from accidents involving the failure of Tesla’s highly touted, but experimental, system has reached 17, according to reports compiled by NHTSA.

Tesla, however, is pressing ahead with FSD development. Musk says over 300 million miles (483 million km) have been driven using FSD beta. “That 300-million-mile number is going to seem small very quickly. It will soon be billions of miles, then tens of billions of miles. And FSD will go from being as good as a human to then being vastly better than a human,” adds Musk.

“We see a clear path to full self-driving being 10 times safer than the average human driver,” Musk says during the conference call.

“That is not to say we are approved by regulators. And I am saying that would be in the U.S. because we’ve got to focus on one market first. But I think (FSD safety) will be better than human by the end of this year,” Musk says.

Tesla has been criticized by competitors and regulators for deploying FSD without extensive computer-modeled testing before customers get behind the wheel, instead choosing to collect data in real-world driving conditions from customers.

 “I’ve been wrong in the past, I may be wrong this time,” says Musk. The CEO adds that he believes DoJo, the supercomputer designed and built byTesla for computer vision video processing and recognition is superior to any comparable system from competitorsThe data collected is used to train Tesla's machine-learning models via artificial intelligence to constantly improve FSD. Tesla is now an AI company as well as a car company, Musk says.

Grabbing Market Share

Tesla managed to reach vehicle production and delivery targets during the second quarter, “And Model Y (pictured, below) became the best-selling vehicle of any kind globally in Q1, surpassing the likes of (Toyota) Corolla and (Volkswagen) Golf. So, it was the number one vehicle of any kind, including vehicles that are sold at a far lower price,” Musk observes.

Tesla Model Y-suv_1

“And this came in spite of high interest rates and a lot of macro uncertainty,” he adds. 

Tesla expects to build 1.8 million units this year even though production will drop during the third quarter due to the need for “factory upgrades.”

During the call, Musk addresses one of the major complaints from customers: the cost of repairs following an accident.

Musk defends the company’s  “Gigacasting,” which allows for production of larger and lighter parts. Pioneered by the company, it is seen as essential for electric vehicles with heavy batteries. While it reduces manufacturing costs, so far it has proved far more expensive to customers and insurance companies when body repairs are required.

Musk, however, maintains Gigacasting will make vehicles easier and less expensive to repair in the long run, with collision repairs becoming less expensive and done more quickly.  It’s an issue, says Musk, that teams are working on.

Start Trucking

Tesla has begun rolling out the long-delayed Cybertruck (pictured, below) from its big factory outside Austin, TX.“Demand is so far off the hook, you can’t even see the hook,” says Musk.

Cybertruck screenshot

Musk concedes that the speed of the rollout is unpredictable because of lingering supply-chain issues, but he predicts Tesla will be turning out the futuristic pickup in “high volume” in 2024. How widespread demand for Cybertruck will be is unknown. It’s a polarizing design, one that will rely far more on retail discretionary buying by people who don’t actually need trucks, versus retail and commercial fleet buyers who require trucks.Wall Street and Tesla’s pickup-truck competitors are doubting the company will be as successful with the truck as it has been with its passenger cars. But then again, Musk is used to being underestimated and then laughing all the way to the bank.