Finimize - ⬇️ Tesla dropped

What’s going on here?

Tesla reported record deliveries and revenue for the second quarter, but investors are biting their nails about the firm’s future profitability.

What does this mean?

Tesla had already spilled the beans on its car deliveries for the last quarter – a record 466,000 – so the suspense was all about the profitability of those impressive sales. And given that Tesla’s been slashing prices and selling less profitable models, it wasn’t a total shocker when overall margins dipped to 9.6%. That said, the auto division’s gross margins – that’s the selling price of a car minus the direct cost to make it – were 18.2%, a smidge better than Wall Street’s crystal ball had predicted. So maybe it was Elon Musk’s hint at more price cuts that gave investors the jitters and sent shares down after hours – or maybe wily shareholders just decided to quit while they were ahead.

Why should I care?

Zooming out: The bar was sky-high.

Tesla’s shares have already rocketed up 130% this year, so the firm would’ve needed an outright blockbuster for its stock to pop even higher. And while it didn’t quite hit that mark, let’s not forget that Tesla smashed its target of delivering 50% more cars each year and continued to snatch market share – even with a flood of competitive EVs hitting the scene. Against that backdrop, the 6% dip isn’t exactly a big red flag.

The bigger picture: Software but a hard sell.

Musk’s not sweating about profit margins in the short term: he’s all about shipping as many cars as possible, even if that means trimming prices. See, he’s banking on Tesla drivers shelling out for pricey self-driving software when it’s ready to roll. In theory, those software margins will balance out any price cuts, revving up the firm’s overall profitability. But that depends on drivers being ready to kick back and let their cars do the driving – and the jury’s still out on that one.

What’s going on here?

American Airlines’ revenue took off last quarter, but flight-phobic investors stayed grounded.

What does this mean?

After rival firms United and Delta posted strong earnings last quarter, it was American Airlines’ turn in the spotlight on Thursday. And the carrier rose to the occasion: a strong start to the peak travel season and a surge in international vacations had the cash registers ringing. And that pushed American’s revenue up by a better-than-expected 5%, hitting a record $14 billion. Plus, with jet fuel prices taking a 30% nosedive, American pocketed over $1 billion in cost savings. The upshot was that the airline didn’t just meet profit expectations – it flew past them instead.

Why should I care?

Zooming in: Teetering trajectory.

Despite the record-breaking quarter, the reaction from investors was pretty frosty, and that’s probably down to the forecast. The airline raised its profit outlook for the year, sure, but it only just scraped by analyst expectations – partly because of a new contract set to boost pilots’ pay by over 40% in four years. And ticket prices have been on the slide lately, with June marking the third straight month of decline – and American’s forecast predicts a further dip in pricing power. That makes sense: after all, airlines now have a lot more capacity than in recent years, which is good news for travelers but bad news for profit margins.

For markets: Preparing for landing.

Airline stocks have been flying high, with summer vacation hopes pushing American, Delta, and United stocks up 38%, 50%, and 51% respectively this year. But some analysts think the rest of the year could be harsher – and the strong rally has even led some investors to adopt a bearish stance on the sector. If they’re right, airline stocks could descend from their lofty heights and come back to cruising altitude.