Wall Street braces for Tesla's worst quarter in years — and a familiar distraction

Tesla’s second-quarter earnings are expected to be its weakest in years — falling revenue, crunched margins, and deliveries down by double digits. But on Wall Street, the big question when the company reports on Wednesday isn’t how bad the numbers will be. It’s whether CEO Elon Musk can still distract investors long enough to keep the stock afloat. 

On paper, Tesla is heading into this week’s report with a low battery, so Wednesday’s earnings report could be wild. Analysts expect revenue to land between $22.4 and $22.9 billion, down around 12% year over year. Profit is expected to slide even faster, with earnings per share forecast around $0.40 to $0.44 — which could be down nearly 25% from the same quarter last year ($0.52). And deliveries, already disclosed earlier this month, dropped 14%, Tesla’s steepest quarterly decline on record.

Margins, once a Tesla hallmark, are expected to come in well below 17%, a long fall from the company’s pandemic-era highs and dragged down by a fresh wave of price cuts, the loss of EV tax credits (in President Donald Trump’s “Big, Beautiful Bill”), and a growing reliance on discounting in key markets. 

Demand, meanwhile, continues to soften in critical markets such as Germany, where sales have slipped more than 60%, as political blowback from Musk’s alignment with far-right political figures weighs on brand perception. In China, Tesla’s EV market share is shrinking fast as domestic rivals such as BYD outpace it on both pricing and innovation. And in the U.S., the loss of federal EV credits has forced Tesla to sweeten the deal with everything from 0% financing to 18 months of free Supercharging just to maintain sales velocity.

Tesla’s stock has historically swung hard after earnings. Last quarter, it moved more than 7% in next-day trading. With volatility priced in and expectations low, this quarter’s call could offer upside — if Musk can sell the future convincingly enough. Still, the stock is down over 13% year to date (and that’s with the price buoyed by robotaxi hype).

Investor opinion over Tesla is split. UBS and JPMorgan are firmly bearish. UBS recently reiterated its “Sell” rating, calling Tesla “fundamentally overvalued” and warning that the company is leaning harder than ever on hype. JPMorgan has a $115 price target — far below current trading levels of around $330 — and says it sees no near-term catalyst to justify the premium. Meanwhile, William Blair recently downgraded the stock to “Market Perform,” warning of concerns that “may be too much for investors to bear.”

Baird analyst Ben Kallo said in a note that he’s taking “a cautious stance ahead of busy EPS report” due to risky full-year earnings estimates, indicating a “Hold” rating ($320 target). RBC analyst Tom Narayan said he thinks a lower-priced car will come this year, giving Tesla a “Buy” rating with a $319 target.

On the bullish end of the spectrum, Wedbush remains one of Tesla’s most vocal defenders. The firm maintains a $500 price target, arguing that the recent slump is a temporary dip and that the company’s long-term value lies in its AI and autonomy strategy. In a recent note, Wedbush analyst Dan Ives said the firm still sees Tesla as “a transformational AI play disguised as an auto company.” That’s the core tension in Tesla’s valuation: a company with deteriorating fundamentals and thinning margins, being treated — still — as a high-growth tech platform. At some point, the numbers and the narrative have to converge.

Under normal circumstances, a quarter like the one Tesla is expected to report might trigger a selloff. Instead, Tesla stock is holding steadier than might be expected. The reason? Musk has managed — yet again — to shift the narrative away from performance and toward potential. Specifically, autonomous potential. 

Rerouting the narrative

Last month, Tesla kicked off a robotaxi pilot in Austin, Texas, using modified Model Ys with human safety babysitters in the passenger seat. Reports from the first riders have been mixed — some smooth trips, some unnerving hiccups, including one car briefly driving the wrong way on a one-way street. But the point was the underlying message: Tesla is more than just an EV company — it’s an AI-powered platform in a shiny metal casing. And that message is what has been powering Tesla’s stock. According to a late-June note from RBC Capital Markets, Tesla’s robotaxi efforts represent about 60% of Tesla’s long-term valuation model. 

For now, investors at least seem somewhat content to buy the story, if not the fundamentals. That story, though, is getting harder to sell. 

A 2023 fatal crash involving Tesla’s FSD (Full Self‑Driving) driver-assist tech in Flagstaff, Arizona, has reemerged in headlines. The incident saw a Tesla with FSD enabled hit and kill a 71‑year‑old pedestrian who was attempting to warn traffic; sun glare blinded the car, which was traveling 65 mph and failed to brake. And in Florida, a 2019 crash in Key Largo that claimed a life just went to trial, marking Tesla's first federal liability case related to Autopilot. Tesla might be able to buy its way out — it has previously settled in at least four other fatal car crashes — but a big judgement could rattle investors.

In Austin, the stakes are rising. Videos of cars veering into occupied lanes have prompted a fresh NHTSA investigation. One report claims that hundreds of accidents and at least 51 deaths tied to Tesla’s self-driving tech have occurred since October 2024. Two of those were labeled FSD fatalities. And analysts have warned that Tesla’s robotaxi promise may be a double-edged sword: Safety failures could kill the narrative and draw regulatory heat. The robotaxi launch could someday change Tesla’s business model entirely — but for now, the only thing that is truly autonomous is the company’s stock price.

Musk, meanwhile, has spent much of the last month promoting not a car, not a robot — but a political party. His venture, dubbed the “America Party,” came amid a public feud with Trump (with the president calling Musk a “train wreck,” floating cutting subsidies to Musk’s companies, and threatening to deport Musk, who was born in South Africa but is a U.S. citizen) and breaking with the Republican Party. Musk’s political announcement immediately torched around $80 billion in Tesla’s market value. Major investors, including pension funds managing nearly $1 trillion in assets, have publicly called for Musk to devote more time to Tesla — at least 40 hours a week, by their count. Some analysts, including Tesla fanatic and Wedbush analyst Dan Ives, have floated the idea of “ground rules” on his outside commitments to rein in the “soap opera.” 

Musk’s response on X: “Shut up, Dan.”

Tesla’s board, meanwhile, remains under scrutiny. The company skated past a July 13 deadline required by Texas law for its annual shareholder meeting but recently announced a late-2025 date (November 6), leaving a window ripe for legal challenge. That annual meeting is a rare moment when shareholders can grill Tesla’s board directly. Delaying it raises the broader question: Who’s running Tesla? The second-quarter call may sidestep the courtroom drama, but pressure on the board — and on Musk’s bandwidth — isn’t going away. 

Who’s driving this thing?

And then there’s Tesla’s sales problem. Beyond the year-over-year delivery decline, Tesla’s market share is slipping in nearly every major geography. The company’s longtime head of North American sales recently left the company, and while energy and services revenue continue to grow, they’re nowhere near large enough to offset auto weakness. Tesla’s Humanoid robots are promised — but not here yet. 

And then there’s the ghost of Tesla’s long-promised lower-cost car — the mythical “Model 2,” or whatever Musk decides to call the car if it ever sees daylight. It’s supposed to be a mass-market breakthrough, a sub-$30,000 EV built on a next-gen platform that’s cheaper, faster to produce, and jammed with autonomy features. Musk has teased it for years, most recently hinting it could arrive by late 2025, but there’s still no prototype, no official design, and no confirmed factory plan — just vague talk about Mexico and a handful of PowerPoint slides. Some analysts like RBC’s Narayan still think the car is coming this year. Investors, at this point, are right to be skeptical.

The post-release earnings call will be less about the second quarter’s softness (widely expected) and more about the signal Tesla sends about the third quarter… and beyond. What comes on the call — and more importantly, how Musk presents it — will likely decide if the company’s narrative will hold or start to crack. Is the robotaxi fleet really ready for primetime or still stuck in beta? How quickly will new models come to market, and in which regions? Can Musk stem the political bleed, or will he merely apply a tourniquet? And above all, how engaged is the company’s CEO, really? 

Wednesday’s earnings are more than just an earnings test. Tesla’s fundamentals are weakening. The distractions are multiplying. And the gap between the company Musk talks about and the company Tesla actually is only continues to grow. And Wall Street is worried — because you can’t run a trillion-dollar company on cruise control forever.