Tesla investors’ confidence in Elon Musk’s vision of the future is waning, with the company’s recent earnings report sending shares plummeting 8% and its market capitalization dropping below $1 trillion. The issue lies in the disconnect between Tesla’s current financial performance and its lofty promises for autonomous robotaxis, full-self driving kits, and humanoid robots.
According to a calculation dubbed “The Musk Magic Premium,” Tesla’s valuation is overstated by around $882 billion, which is roughly 29% higher than the company’s core earnings. This premium is largely driven by investors’ faith in Musk’s promises, despite the lack of concrete results.
Tesla’s Q2 report revealed disappointing auto sales, with revenue declining 16% year-over-year and net profits dropping 17%. The company’s regulatory credits revenue line, which has been a significant contributor to its earnings, is expected to dwindle due to changes in U.S. emissions standards.
The problem persists even when adjusted for special items such as regulatory credits and unrealized Bitcoin profits, leaving Tesla’s core earnings at $550 million for the quarter. This represents a significant decline from 2022’s core earnings of $12 billion.
Musk’s statements on the earnings call were particularly concerning, as he predicted that autonomous ride-hailing would become widespread by year-end, but acknowledged that the company will face “tough quarters” due to lost incentives. His comments suggest that investors need to wait until 2026 to see significant profits from Tesla’s ambitious projects.
The warning signs are clear: Tesla is facing intense capital outlays for its revolutionary products, which continue to be expensive and capital-intensive to develop. The company’s free cash flow could potentially go negative if it continues to spend more than it collects in earnings.
Investors would need a 10% annual return on investment over the next seven years to justify Tesla’s valuation of nearly $2 trillion, which translates to an astonishing 45% annual profit growth rate by mid-2032. This is a challenging goal, especially for a mature company that has already made significant investments in research and development.
As investors lose confidence in Musk’s vision, Tesla’s stock price will continue to suffer, at least until the company can deliver on its promises and demonstrate sustained profitability.
Source: https://fortune.com/2025/07/24/tesla-q2-earnings-miss-elon-musk-premium