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Tesla’s shares soared by 10% on Tuesday amid better-than-expected car deliveries in the second quarter, despite a second consecutive year-on-year decline. Although weakened demand and fierce competition contributed to the sales slowdown, Tesla’s production of affordable cars and its energy storage segment may drive future growth.

Tesla’s Q2 EV deliveries drop less than expected

Tesla delivered 443,956 EVs in the second quarter, surpassing the Wall Street average estimate of 439,302. However, the figure represents a 4.8% drop from the same quarter last year, following an 8.5% year-on-year decrease in the first quarter. The consecutive declines mark the longest losing streak in quarterly delivery numbers since 2012.

Additionally, the Austin-based EV maker reported the production of 410,831 cars in the second quarter, a 14% decline from the same period last year, following a 12.5% yearly drop in the first quarter. Tesla attributed the slowdown to a factory shutdown in Germany due to arson and shipment disruptions following the Red Sea riot in the first quarter. However, it did not provide details about the slowdown in the second quarter.

Nevertheless, the better-than-expected delivery numbers alleviated concerns that the world’s largest EV maker might lose its crown to its Chinese rival, BYD, which reported a record car delivery number on Monday. The Chinese carmaker sold 426,000 pure electric vehicles, closing the gap between the two manufacturers. BYD surpassed Tesla in car deliveries and became the biggest EV seller in the final quarter of 2023.

Challenges of fierce competition in China

China is Tesla’s second-largest market, accounting for more than 20% of its sales revenue. However, increasing competition from local rivals and China’s economic slowdown have impacted Tesla’s growth. According to the China Passenger Car Association (PCA), Tesla’s shipments from its Shanghai plant fell by 24.2% year on year in June, marking the fourth decline this year. Meanwhile, Chinese government subsidies are encouraging consumers to shift more towards new energy vehicles (NEVs). PCA data indicates that NEV sales are expected to grow by 28% year on year in June.

Despite Tesla’s price cuts since 2023, its high-end market share has been eroded as consumers shift to more affordable EVs and hybrid vehicles made by rivals, particularly BYD. Additionally, Tesla’s lack of variety has made it less competitive than its Chinese counterparts. BYD continually launches new models to meet local household demands and upgrades its technology to reduce costs. BYD’s pure EV sales rose by 13% year on year in the second quarter. Other competitors, such as Geely, also saw their sales increase by 41% year on year in the first half of 2024.

Tesla remains the world’s most valuable EV maker

Tesla remains the world’s largest EV maker, with a market cap of $734.25 billion (€683.54 billion) as of the market close on Tuesday. While Tesla’s shares are down 7.5% this year, they have rebounded by 65% since the first quarter earnings report. Investors are optimistic about Tesla’s potential in launching affordable EVs, as CEO Elon Musk announced plans to accelerate mass production to the first half of 2025, instead of the second half.

In April, Tesla announced its plan to cut its global workforce by more than 10% amid a growth slowdown and intensifying price war in the EV industry.  

Growth in Tesla’s energy storage business has accelerated, with the segment’s revenue growing by 7% in the first quarter to a record high of $1.64 billion (€1.53 billion), and energy deployments rising to a record 4.1 GWh. Musk expects continuous growth in this division.

Additionally, Tesla’s AI training capacity nearly doubled sequentially, reaching an all-time high. At the annual shareholder meeting, Musk expressed confidence that the company’s Optimus humanoid robots could boost Tesla’s market valuation to $25 trillion (€23.27 trillion). He also projected that the weekly output of Cybertrucks could reach 1,300 units.