<div id="readability-page-1"><p><strong>Tesla </strong><span>(TSLA<span> 3.49%</span>)</span> issued another disappointing earnings report on Tuesday.</p> <p>The leading electric vehicle (EV) maker finished the after-hours session down 5%, but the sell-off could have been worse. The company reported a decline in both sales and profit. Revenue was down 12% to $22.5 billion, and adjusted net income was down 23% to $1.39 billion, or $0.40 per share.</p> <p>Those numbers actually topped a muted revenue estimate at $22.13 billion, while the bottom-line consensus matched the results at $0.40.</p> <p>Tesla's problems have been well-documented at this point. CEO Elon Musk's turn in the political spotlight seemed to backfire after his relationship with President Donald Trump went sour. Due in part to Musk's involvement with politics, the brand has become unappealing in the eyes of some potential buyers, leading to a 16% decline in automotive revenue. Sales have plunged in Europe, and the company is losing ground to more affordable Chinese EVs. </p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MjY0OTYvbmV3bW9kZWx5Xzc5LmpwZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="393" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MjY0OTYvbmV3bW9kZWx5Xzc5LmpwZyZ3PTcwMA"/></p><p>Image source: Tesla.</p> </div> <h2>One seemingly bright spot</h2> <p>Musk has a long history of overcoming weak results by telling investors what they want to hear on the earnings call, including making big promises about its robotaxi network and other initiatives in autonomy like its Optimus robot.</p> <p>He seemed to do that again on the latest earnings call, with some comments about the more affordable model he has long promised, which some have dubbed the Tesla Model 2.</p> <p>Musk said that the company started production of the vehicle in June and is ramping up production now. He added: &#34;The goal with those products was not to negatively impact revenue or gross margin, but just to make a car that everyone loves and wants at a more affordable price.&#34; </p> <p>Musk has long argued that price competition was one of the biggest headwinds facing the company, but the brand crisis seems to have overshadowed that. By introducing its own lower-priced model, Tesla may end up cannibalizing its more expensive vehicles. Customers may be choosing between a more expensive Tesla and that lower-priced model, rather than another brand.</p> <p>The new vehicle is just a cheaper Model Y, rather than a brand-new vehicle model.</p> <h2>The robotaxi initiative</h2> <p>The biggest reason Tesla has maintained its premium valuation even as sales and profits have tumbled is that investors believe that Tesla's robotaxi network could go mainstream, fulfilling Musk's long-term vision.</p> <p>However, the robotaxi has gotten off to only a modest start after launching in June, and it seemed to get less attention on Tuesday's earnings call, though Musk reminded the audience: &#34;As you can tell, autonomy is the story.&#34;</p> <p>Management said that robotaxis in Austin, Texas have topped 7,000 miles with no significant safety interventions. The company is aiming to launch the robotaxi in the San Francisco Bay Area next. </p>  <h2>Tesla needs growth in its core business</h2> <p>Investors have bid up Tesla stock on hopes for its initiatives in robotaxis and more affordable vehicles, but the company needs to return to growth in selling EVs for the stock to be successful over the long term.</p> <p>The decline in EV sales is a reflection of a backlash against Tesla's brand. The company is also expected to struggle over the next few quarters due to the elimination of the EV tax credit and a change in other federal policies that supported EV adoption. The company also faces a $300 million effect from tariffs. </p> <p>Tesla could get back on track, especially if the robotaxi network takes off. But the current valuation in the stock leaves little room for upside if it does, especially given the persistent challenges in EV sales. While a more affordable vehicle might be a step in the right direction, it seems more likely to undercut demand for Tesla's more expensive vehicles, rather than competing with alternatives.</p>                                                                            </div>

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<p>Tesla's recent earnings report revealed a 12% drop in revenue to $22.5 billion and a 23% decline in adjusted net income to $1.39 billion. The company faces challenges, including a 16% decrease in automotive revenue and increased competition from affordable Chinese EVs. CEO Elon Musk announced the production of a more affordable model, but concerns arise that it may cannibalize sales of higher-priced vehicles. Despite hopes for growth through initiatives like robotaxis, Tesla must address its declining EV sales and brand perception to ensure long-term success.</p>

- Tesla reported a disappointing earnings report, with revenue down 12% to $22.5 billion and adjusted net income down 23% to $1.39 billion.  
- The company faces challenges including a decline in automotive revenue, backlash against its brand, and competition from affordable Chinese EVs.  
- While CEO Elon Musk announced the production of a more affordable model, concerns remain that it may cannibalize sales of Tesla's higher-priced vehicles rather than attract new customers.

A More Affordable EV Won't Save Tesla