San Francisco Frontiers - Tesla shares dip after profit misses expectations

Elon Musk's electric vehicle maker reported second-quarter profits of $1.1 billion, down about five percent from the year-ago level. That translated into 33 cents per share compared with analyst estimates of 53 cents per share.

Revenues rose 26 percent to $28.2 billion.

Tesla had impressed market watchers earlier this month when it released higher-than-expected second-quarter auto sales, due in part to a recovery in European markets.

But the company's earnings press release said profitability was dented by lower vehicle sales prices, lower revenue from regulatory credits and an unspecified "vendor cell issue" that led to an increase in "energy warranty-related charges."

Tesla described its expansion initiatives as in line with plans, saying it began production of its "Cybercab" vehicle in Texas and that the Tesla Semi production "remains on track" for this year.

In another closely watched item, Tesla reported gains in subscribers to its "FSD" driver-assistance program, boosting revenues.

Musk is expected to face questions on Wednesday's conference call over Tesla's massive capital spending plans. Tesla has said it plans to spend more than $25 billion on ambitious initiatives in autonomous transport, humanoid robotics and artificial intelligence.

"Tesla is in its largest and most exciting period of investment," the company said. "From here, there remains much hard work as we aim to revolutionize transportation, energy and productivity through our leading real-world AI. Scaling will be non-linear, and we are focused on long-term value creation."

- Merger with SpaceX? -

Wednesday's report is Tesla's first earnings announcement since Musk successfully launched SpaceX as a publicly traded company in June, temporarily lifting Musk's fortune to over $1 trillion when shares of the rocket and satellite company soared in its initial sessions.

Shares of SpaceX have cooled in the ensuing weeks, but the company's valuation at around $1.5 trillion has been viewed as a potential means to transact a combination between SpaceX and Tesla. That topic has generated significant speculation among Wall Street investors.

SpaceX President Gwynne Shotwell said in June that a combination "might make Elon's life a little easier," telling CNBC, "There's no question that there are synergies between Tesla and SpaceX in our futures."

"It's sort of the elephant in the room surrounding the company," said CFRA analyst Garrett Nelson, who doesn't expect substantive comment from Musk or others on the question.

Nelson expects questions on when Tesla's massive capital spending campaigns will pay off.

"The concern is that this is the start of a multi-year spree of capital spending," Nelson said. "They just haven't been very transparent with the Street on the expected return of the dollars that have been spent."

In recent weeks, Tesla's technology has come under renewed scrutiny after a June car crash in which a Tesla Model 3 crashed at high speed into a home in Katy, Texas, killing a resident.

Local authorities have charged the driver with manslaughter.

There have also been persistent questions about when Tesla's autonomous driving systems will be adopted broadly. Musk has a history of making predictions of imminent widespread use that have consistently proven unrealistic.

A recent note from Deutsche Bank described the rollout of Tesla's robotaxi service as "slower than expected" this year in Austin, Texas.

The "main issue we have been observing is wait time which is perhaps linked to vehicle availability," Deutsche Bank said.

Tesla shares dropped 2.4 percent in after-hours trading.

E.Walker--SFF