Tesla Shares Plunge 8% on Weak Q2 Earnings Despite Musk Magic Premium

Tesla’s shares plunged 8% in the wake of a disappointing Q2 earnings report, yet the so-called “Musk Magic Premium” remains a dominant force in the company’s valuation. The report, released after the July 23 market close, highlighted a 16% decline in auto revenues compared to the same quarter in 2024, driven by weak sales in China and Europe despite aggressive discounts. Total revenue fell by low-double-digit percentages, with GAAP net profits dropping 17% to $1.17 billion, far below the $3.75 billion recorded in Q2 2024 [1]. The results sent Tesla’s market capitalization below the $1 trillion mark, closing at $989 billion on July 24 [1].

Analysts and investors have long debated how much of Tesla’s valuation is tied to its core operations versus speculative bets on Elon Musk’s futuristic promises. A custom metric dubbed the “Musk Magic Premium” (MMP) attempts to quantify this split. By stripping out non-core earnings—such as regulatory credit sales and Bitcoin-related gains—the company’s “core” profits for Q2 were calculated at $550 million, down from $338 million in Q1 and far below the $12 billion annualized core profits recorded in 2022 [1]. Over the past four quarters, core earnings totaled $3.66 billion. Applying the S&P 500’s 29.3 price-to-earnings (PE) ratio to these core figures yields a valuation of $107 billion, leaving the remainder of Tesla’s market cap—$882 billion—as the MMP [1].

This premium reflects investor faith in unproven ventures like autonomous robotaxis, full-self-driving kits, and the humanoid Optimus robot. Despite the Q2 selloff, the MMP remains robust, albeit slightly lower than its March level. However, skeptics argue that sustaining such a premium requires unrealistic growth. For Tesla’s valuation to justify a 10% annual return over seven years, the company would need to achieve $55 billion in annual profits by 2032—a 45% annual growth rate that seems improbable for a maturing automaker [1].

Musk’s optimistic projections during the earnings call further complicated the narrative. He claimed autonomous ride-hailing could reach half the U.S. population by year-end and hinted at exponential vehicle growth. Yet he also warned of “tough quarters” due to fading U.S. tax incentives and regulatory shifts. The company’s CFO added to the uncertainty by revealing $5 billion in capital expenditures for the remainder of 2025, exceeding cash generated from operations in Q1 and Q2. This raises concerns about negative free cash flow and the sustainability of expansion [1].

The tension between Musk’s grand visions and Tesla’s financial realities is stark. While the CEO paints a picture of a transformative future, investors are recalibrating their expectations. The sharp drop in stock price reflects waning confidence in long-term profitability, yet the MMP persists—proof that many still view Tesla as more than a carmaker. Whether this premium will endure depends on how quickly Musk’s promised innovations materialize and whether they can offset declining core earnings. For now, the market remains divided between believers and skeptics, with Tesla’s stock serving as a barometer of both optimism and caution.

[1] Source: [title: Tesla’s stock fell 8% after its poor Q2 report, but the ‘Musk Magic’ premium is still sky-high] [url: https://fortune.com/2025/07/24/tesla-q2-earnings-miss-elon-musk-premium/]