Tesla Shares Drop by 5% as Musk Warns of 'Rough Quarters' Ahead Amid EV Policy Changes

Business News: Tesla CEO Elon Musk said on Wednesday that the US government's cuts in assistance for electric vehicle manufacturers may result in a "few rough quarters" for the company before a surge of revenue from self-driving software and services begins late next year. Shares fell nearly 5% after Musk answered questions about new US government policies under President Donald Trump during a quarterly results conference call. Musk's electric vehicle maker reported the greatest quarterly sales decrease in more than a decade, as well as a profit that fell short of Wall Street expectations, but its profit margin on car production was higher than many had anticipated.

Musk is exploring autonomous driving to power privately owned vehicles and robotaxis, which it intends to bring into production next year.

Working on a new, cheaper car

Meanwhile, it is developing a new, less expensive car, though Chief Financial Officer Vaibhav Taneja stated that production would begin next quarter but at a slower pace than expected. It had produced some initial units by the end of June. The business declined to provide an update on its full-year delivery prediction, citing the economy and the timing of the new car launch.

New model expected to boost sales

"Tesla's disappointing results aren't surprising given the rocky road it's travelled recently," said eMarketer analyst Jacob Bourne. "A truly affordable model will hit the bullseye in terms of boosting sales if Tesla can effectively position it right without detracting from its higher-priced models."

Major fall in revenue

Revenue decreased to $22.5 billion in the April-June period, down from $25.50 billion a year earlier. According to LSEG data, analysts predicted an average revenue of $22.74 billion. The adjusted earnings per share of 40 cents missed the consensus of 43 cents per share.

$7,500 tax cut for EV buyers

The automotive gross margin, excluding regulatory credits, was 14.96%, above Wall Street expectations, thanks in part to decreased costs per vehicle. Tesla's global deliveries fell 13.5% in the second quarter, missing Wall Street's expectations.  Later this year, the US government will cut $7,500 tax incentives for electric vehicle buyers.