Tesla beat estimate but stock Falls 9.7% after second-quarter earnings.

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Tesla surpassed market expectations by earning 91 cents per share in the second quarter. Despite this achievement, the stock remained relatively unchanged in after-hours trading when the financial results were released. However, following an earnings call later that day, the stock experienced a nearly 10% decrease on the subsequent day.

The primary reason for the stock's decline seems to be related to Tesla's Full Self Driving software. Despite the positive earnings, Tesla faces challenges as new car prices and profit margins continue to decline. This is expected due to the increased difficulty of selling electric cars in 2023 compared to the previous year. The entire auto industry is grappling with similar issues, as the number of electric vehicle models increases and inventories rise alongside rising interest rates.

During the earnings conference call, Tesla's CEO, Elon Musk, acknowledged the turbulent times the company and the industry are going through.

In the second quarter, Tesla reported an operating income of $2.4 billion from sales of $24.9 billion. Although these figures were strong, they fell slightly short of Wall Street's expectations, which were looking for an operating profit of $2.7 billion, earnings of 80 cents per share, and sales of $24.2 billion.

The gross profit margins in the car business, excluding regulatory credit sales, were 18.1% in the second quarter, slightly lower than the 18.8% in the first quarter of 2023. This decline was unsurprising, considering the first-quarter gross profit margins fell by 11 percentage points year over year due to significant price cuts introduced by Tesla in early 2023.

Furthermore, operating profit margins dipped below 10% for the first time since the first quarter of 2021. In the second quarter of 2022, operating profit margins were at 14.6%. The margin drop was attributed to lower vehicle prices, higher battery production costs, and a weaker U.S. dollar.

The average price of a Tesla vehicle in the second quarter was just above $45,000, slightly down from the first quarter and significantly lower than almost $56,000 in the second quarter of 2022.

Although the lower profitability is not ideal, the overall results were still considered solid. An analyst from CFRA, Garrett Nelson, described the release as uneventful in a report on Wednesday, maintaining a Buy rating for Tesla shares and a $325 price target for the stock.

It was surprising that there was no significant initial reaction in the stock price during after-hours trading on Wednesday. Historically, Tesla stock has experienced an average movement of approximately 7.5% up or down following earnings announcements in after-hours trading over the past decade. The smallest reaction was a 0.6% decline after Tesla reported fourth-quarter 2018 numbers