‘Momentum Meets Reality,' Says Barclays About Tesla Stock

Business Insider

28-07-2025

Tesla (NASDAQ:TSLA) stock took a beating last Thursday, as Elon Musk's powers of persuasion might not be what they used to be. Despite the CEO's best efforts to convince investors that the company's future lies in its AI and Robotaxi initiatives, Wall Street focused instead on the EV leader's underwhelming Q2 results.
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Those numbers left little room for optimism. Revenue fell by 11.8% year-over-year to $22.49 billion, missing the Street's $22.74 billion forecast. Operating income slid to $0.9 billion, a 42% drop from the year-ago quarter. The end result was adjusted EPS of $0.40, falling short of expectations by $0.03.
But beyond the headline misses, what truly spooked investors were the signals about what lies ahead. Tesla now faces a growing list of challenges that could further weigh on performance. With the U.S. EV tax credit set to expire at the end of Q3, even Musk acknowledged that the company might endure a few 'rough quarters.' That outlook is further clouded by the impact of tariffs and legislative changes –particularly Trump's One Big Beautiful Bill, which eliminated penalties tied to NHTSA CAFE emissions standards. This change is expected to drag on high-margin regulatory credit sales.
For Barclays analyst Dan Levy, what's become 'abundantly clear' for Tesla over the past couple of years – particularly in the last year – is the 'widening gulf between narrative and fundamentals, with the stock increasingly disconnected from fundamentals.' This quarter 'further reinforced that gulf.'
Still, Musk isn't shying away from promoting the bigger vision. He reiterated that Tesla's future reaches far beyond cars, spotlighting AI and robotics as the company's next frontier. From Robotaxis and Optimus to a newly envisioned 'master plan' for a post-autonomy world, the CEO painted a picture of a company leading the charge in real-world AI. Musk even floated the idea of closer collaboration with xAI to bolster Tesla's technological edge.
'Alongside comments of expansion in Robotaxi,' says Levy, 'we believe the narrative remains intact.'
However, a compelling narrative can only do so much when fundamentals are shaky. As Levy pointed out, Tesla's core business remains choppy, and could worsen in the quarters ahead. Even the anticipated low-cost model, now likely arriving in Q4, may underwhelm if it's merely a simplified Model Y with limited appeal.
In the end, the earnings call seemed tailored to reassure long-term believers in Tesla's AI potential rather than to win over skeptics focused on near-term performance. The lack of new detail on Robotaxi progress didn't help, though bulls may pin their hopes on the upcoming AGM in November, which could reinforce the AI story.
'It is the long-term narrative which has kept the stock elevated,' Levy noted. 'Yet for the very near term, the air pocket in fundamentals may be a reminder that fundamentals don't matter… until they matter.'
Judging by the market's reaction, that moment may be arriving. For now, Levy assigns Tesla shares an Equal Weight (i.e., Neutral) rating, with a $275 price target, implying potential downside of 13% from current levels. (To watch Levy's track record, click here)
Looking beyond Levy, sentiment across Wall Street remains divided. TSLA stock holds a consensus rating of Hold, based on 14 Buys, 14 Holds, and 7 Sells. The average price target of $314.14 suggests shares will stay rangebound for the time being. (See TSLA stock forecast)
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