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On Wednesday, Tesla Inc (NASDAQ:TSLA) is scheduled to deliver its Q2 earnings ending June 2025. Given Elon Musk’s political exposure over the year, analyst expectations are now much lower than in Q2 ‘24, at $0.28 earnings per share (EPS) vs $0.42, respectively, per Zacks Investment Research forecasting based on 11 analyst inputs.
Year-to-date, TSLA stock is down 13%, currently priced at $327, which is still above the 52-week average of $299.19 per share. Moreover, Tesla’s price-to-earnings (P/E) ratio is still extraordinarily high, at 166. For comparison, Chinese BYD (SZ:002594) has a P/E of 51.8 while Ford’s P/E is only at 9.88.
This once again shows that investors don’t view Tesla as a car company, but one that is expected to deliver disruptive, high-growth innovations in the realms of autonomous driving, energy products, humanoid robotics and robotaxis. Likewise, Tesla’s brand is inextricably linked with Elon Musk’s public persona and his considerable weight across social media. But ahead of Q2 earnings, how should investors play TSLA exposure?
Macro (BCBA:BMAm) Considerations for Tesla’s Stock Price
In early July at the European Central Bank Forum, Fed Chair Jerome Powell explicitly confirmed that the central bank would have already cut interest rates if it weren’t for President Trump’s tariff push.
“We went on hold when we saw the size of the tariffs and where, and essentially all, all inflation forecasts for the United States went up materially as a consequence of the tariffs.”
President Trump is a long-standing fan of a lower rate regime, to the point where it is often speculated that he will fire Powell for not doing so. On June 12th, Powell found himself the target of Trump’s namecalling because “We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here [and says] ‘I don’t see enough reason to cut the rates now.’”
Most recently on June 30th, President Trump detailed his stance further on Truth Social, noting that the United States should have an interest rate below 1.75% from the present 4.50%. Unfortunately, his expectation is out of sync with Federal Open Market Committee (FOMC) expectations, where the lowest rate is at around 2.5% in 2026.
Of course, Elon Musk is also a fan of rate cuts, as they would reduce borrowing costs and stimulate demand for Tesla cars.
Not only would consumers get cheaper financing, but Tesla could better manage debt, finance its R&D, gigafactories and potential expansion. In Q1, Tesla reported having $44 billion in total liabilities, of which $29.4 billion is current.
However, given that the latest core CPI inflation report showed an annual increase of 2.9% in June, up 0.1% from May, Powell is still in the wait-and-see mode. At the moment, fed fund futures indicate expectations of two rate cuts this year, with a 55.9% probability in September and 48.2% in October, which would pull the interest rate down to a 4% – 4.25% range.
OBBBA’s Carbon Clobbering
Another consideration for Tesla investors is the company’s loss of carbon credits with the passing of the One Big Beautiful Bill Act (OBBBA). During 2024, Tesla generated $2.76 billion revenue by selling ZEV (Zero Emission Vehicle) credits. To satisfy states’ environmental regulations, automakers are required to sell a certain percentage of EVs.
But given the fact that Tesla only sells EVs, the company has excess ZEV credits which it then sells to other automakers. The OBBBA significantly upends this revenue source by phasing out clean vehicle credits after September 2025, removing federal penalties for car companies. In short, Tesla is looking at a ~$2 billion annual revenue shrinkage.
Although the European Union (EU) market maintains its strict emission regulation, Tesla is facing headwinds as Chinese automakers enter the market. Likewise, the EU’s mainstream media apparatus is strictly regimented, so the negative fallout on the Tesla brand from Elon Musk’s political exposure is even greater.
Tesla’s Energy, Robotics, and Robotaxis
With the loss of carbon credit revenue, suppressed branding in Europe, and ever-penetrating Chinese EVs, investors are looking at Tesla’s unrealized potential. The rollout of robotaxis in Austin, Texas is a mix of positive and negative feedback, further clouded by the amplification of each depending on the sides of the ideological spectrum.
Speaking of which, Elon Musk’s “America Party” has considerable potential to serve as a leverage mechanism and to shore up the company’s domestic branding. The latter is further boosted by hyping up Tesla’s humanoid robot Optimus, recently showcased serving popcorn. According to Musk, “This will become normal in a few years.”
However, investors should be wary of such proclamations given that FSD suffered a multi-year delay from each announcement for SAE level 5 autonomy. On the other hand, Tesla’s energy division has shown impressive growth, having added 154% capacity year-over-year in Q1, to a total of 10.5 GWh, with more deals on the way.
As we covered previously, robotaxi rollout is Tesla’s main valuation driver. If the accumulated FSD data shows reliability improvement with each ride, this will be a clear sign that the robotaxi business model is robust enough to be deployed at scale. In that scenario, Cavenagh Research projects $14,125 annual profit per Tesla car, assuming a partnership with either Uber (NYSE:UBER) or Lyft (NASDAQ:LYFT).
Accordingly, this could add $1.3 trillion to Tesla’s enterprise value by 2030. In the meantime, the average TSLA price target is below the current price, at $313.66. Most analysts are divided between buying and holding TSLA shares, at 20 vs 20, while 11 analysts are bearish and recommend selling at the current price range of $327 per share.
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