Tesla's Q2 deliveries far exceeded expectations, setting a historic record, but why did the stock price plunge 8%, its biggest drop in a year?

Tesla's global vehicle deliveries in the second quarter significantly exceeded market expectations, but the stock price immediately plunged after the announcement, confirming the market logic that the previous days' gains had already priced in the good news.

The company delivered 480,126 vehicles in the second quarter, up 25% year-over-year, far surpassing the Bloomberg-compiled analyst average estimate of less than 400k units.

Despite this being Tesla's strongest second-quarter performance ever, the stock price still fell 8.2% during New York trading on Thursday, recording its largest one-day drop in nearly a year—Tesla's stock had previously risen for four consecutive trading days, gaining about 8% on Monday alone.

Haris Khurshid, Chief Investment Officer at Chicago-based Karobaar Capital LP, said:

"When the news actually arrived, the market had little reason left to stay excited."

At the same time, Tesla still lags behind China's BYD in electric vehicle deliveries. The latter leads globally with 557,090 pure electric vehicle sales. Multiple analysts believe this delivery beat was primarily driven by the Chinese and European markets, and demand resilience after the US subsidy withdrawal exceeded expectations.

China and Europe market efforts drive delivery beat

Garrett Nelson, equity analyst at CFRA Research, said Tesla's delivery data was "much stronger than expected, primarily driven by the Chinese and European markets."

Bloomberg Intelligence analyst Steve Man pointed out that the data may reflect strong export performance. He said, "After the elimination of the $7,500 US purchase subsidy, demand recovered faster than expected," and added, "As subsidies ended, US competitors scaled back their business due to weakening demand, while strong sales in markets like South Korea and Japan likely boosted Tesla's deliveries."

Jed Dorsheimer, analyst at William Blair, also said this was a quarter where Tesla "hasn't beat expectations by such a wide margin in a while," a positive sign of sustained competitiveness in the automotive business. He estimated that sales in all three major markets—North America, Europe, and China—were better than expected, and this quarter might be the last benefiting from a "last-chance sales" effect for the Model S and Model X.

RBC Capital Markets analyst Tom Narayan also gave a positive assessment, calling the performance "strong," and noting that other US automakers refocusing on gasoline vehicles and rising fuel prices in Europe could bring additional tailwinds for Tesla.

Narrowing product lineup, significant capex expansion

Tesla currently offers only three models to retail customers, with the Model Y and Model 3 accounting for almost all sales. Demand for the Cybertruck remains weak; without SpaceX bulk-purchasing thousands of pickups since the end of last year, overall delivery numbers would have been worse.

Tesla halted production of the Model S sedan and Model X SUV in May, with Musk redirecting capacity from the Fremont, California plant to produce the Optimus humanoid robot. While Tesla expects to start ramping up production of the Semi truck and Cybercab this year, the former is aimed at commercial customers and the latter is only in the initial stages of public road testing.

In terms of capital expenditure, Tesla plans to spend over $400k this year, roughly triple last year's amount, mainly allocated to projects like the Optimus robot and autonomous Cybercab. Morgan Stanley analyst Andrew Percoco noted that this quarter marks Tesla's highest automotive business growth rate since the third quarter of 2023.

Energy storage business recovers, analyst expectations diverge

Tesla's energy storage business has recovered after a slump earlier this year. Energy storage product deployments in the second quarter reached 13.5 GWh, up 53% from the first quarter.

However, opinions on the energy storage business are divided. William Blair's Dorsheimer pointed out that while the energy storage business recovered, it still fell short of the firm's expectations, though he maintained his view on the demand environment, believing Megapack storage batteries will remain an important part of AI data centers and power infrastructure construction.

TD Cowen analyst Itay Michaeli also believes the energy storage performance was below consensus expectations.

In contrast, Morgan Stanley sees the energy storage business as better than expected and expects storage demand to remain robust. Tom Narayan emphasized that Tesla's energy storage business is likely to benefit continuously from structural tailwinds driven by AI-powered electricity demand growth.

AI and autonomous driving become core valuation drivers

Despite the delivery beat, multiple analysts believe the market's focus has shifted from delivery numbers to progress in AI, autonomous driving, and robotics.

Truist analyst William Stein, while maintaining a "Hold" rating, raised the price target from $400 to $430 and increased the 2027 EPS estimate from $2.83 to $3.09.

However, he also noted that "vehicle deliveries clearly exceeded market expectations, but Tesla did not release progress on AI projects and new models," emphasizing that "investors should pay more attention to AI projects, especially FSD intelligent assisted driving—AI development is more important to Tesla's long-term cash flow and stock performance than vehicle deliveries."

He described the progress in autonomous driving as "positive, but still not perfect."

Tom Narayan also believes that with the Model S and Model X ceasing production at the end of the first quarter of 2026, Tesla is shifting its strategic focus toward Robotaxi and humanoid robot businesses, further downplaying the role of traditional car manufacturing.

TD Cowen's Itay Michaeli stated that Tesla's and Rivian's results jointly support the firm's view that "the US electric vehicle market is about to recover."

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