Elon Musk is still being graded on a curve

• Wall Street was tough on auto stocks after second-quarter earnings.

• For years, Tesla has managed to garner valuations more akin to tech than automotive stocks.

• Musk knows how much weight his promises hold.

It's a tough time to be a car company on Wall Street — unless, of course, you are Elon Musk.

Several major automakers reported second-quarter and first-half financial results this week, and regardless of the results, investors were hard on everyone.

General Motors posted a significant beat Tuesday, only for its stock price to close down more than 6% that same day. Ford's financial results were dinged significantly by higher-than-normal warranty costs, and a significant earnings miss sent its stock price down 13% immediately following those results.

Tesla, meanwhile, reported a mixed quarter. Musk's electric car company missed analyst expectations on earnings-per-share but beat on revenue, sending the stock price down around 7% that evening.

While all three companies were experiencing a stock bounce back Friday afternoon, the difference comes down to one thing: valuation.

On a per-share basis, GM made $3.06 in profit, and Ford $0.47. Those stocks were trading at $44.12 and $11.24, respectively, Friday afternoon.
Tesla, on the other hand, made a similar $0.52 per share yet maintains its lofty $220 stock price as it has for years, thanks to grand promises and industry-leading tech.

Why valuations matter, and how Musk uses Tesla's to his advantage

Legacy automotive executives and some industry experts have long bemoaned the imbalance in their valuations versus Musk's, particularly in the days before Tesla started turning a consistent profit.

It makes for an uneven playing ground between massive global car companies. With less money from investors, legacy car companies struggle to raise enough capital to invest in the futuristic technology and software innovations that these same investors are clamoring for.

While Tesla has a few unique advantages over its competitors, looking at the hard numbers can leave one wondering: how long can Musk keep investors on the hook?

You can see the difference in valuations in how each of these companies talked about their future technology on earnings calls this quarter.

While Tesla focused on non-autos revenue streams in the second quarter, Ford spent much of its earnings call reassuring investors about the future value of its EV business despite big losses — $2.5 billion in the first six months of the year — even as its EV sales soared.

Barclay's Adam Jonas, a longtime Tesla bull who also has an overweight rating on the Blue Oval, accused CEO Jim Farley of being overly optimistic about future EV profitability.

"Tesla struggles to make a positive profit in EVs. Why does Ford think it can?" Jonas wrote in a Thursday note to clients.

Tesla also continues to dangle a future robotaxi business and the value of its AI technology. In contrast, GM continued its pull-back on investments in its own Cruise robotaxi business, canceling production of the Cruise Origin autonomous vehicle to focus on the existing Chevrolet Bolt-based robotaxis.

GM blamed the decision on a complex regulatory environment, which Musk disputed on Tesla's quarterly earnings call.

"GM can't make it work," Musk said. "Waymo is doing just fine in those markets, so it's just that their technology is not far."

Musk's promises on robotaxis and AI technology have largely reversed a stock slide that hit the company earlier this year following poor sales results and a pushed-out timeline for its long-awaited affordable vehicle.

Despite any real timeline for this technology, as is typical for Musk, the promise alone is enough for his most ardent supporters.

Following Tesla's Tuesday earnings call, longtime Tesla bull Dan Ives of Webush wrote in a note to clients that Tesla's rescheduled robotaxi day in October "will unleash the beginning of the AI story at Tesla which we value at $1 trillion alone over the next few years."

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