• Tesla reports earnings on July 23 after market close

• Weak numbers expected despite stronger Q2 deliveries

• Valuation goes through the roof after latest stock rally

Tesla was among the ten worst performing stocks of the S&P 500 just a few weeks ago, with its shares being down around 40% since the beginning of the year, while trading at their lowest level since early 2023. However, the stock managed to erase its year-to-date slide and even turn positive on the back of a stronger-than-expected Q2 deliveries report.

Despite beating estimates, Tesla's vehicle deliveries declined year-on-year for the second consecutive quarter and production reached its lowest point in seven quarters. Also, competition in the EV sector from both traditional automakers and new entrants has heated up, leading to Tesla’s share of US electric vehicle sales dropping below 50% for the first time in history. Thus, the latest rally might prove to have short legs.

Given the stagnating EV business both in terms of growth and profitability, Tesla is under pressure to provide fresh clues over its self-driving software technology. On Monday, Elon Musk hinted that Tesla’s robotaxi event will be postponed from August to probably October to allow the production of more prototypes. He also mentioned that this delay would give Tesla the opportunity to showcase additional features.

Moreover, investors will also focus on any updates on the firm’s plan to launch an affordable model by the end of 2025, which is currently expected to spark the next wave of deliveries. Finally, Tesla will reveal its progress on the energy generation and storage business, a segment that is anticipated to increasingly contribute to Tesla's overall profitability in the coming years.

The lack of growth coupled with narrowing margins are going to be reflected in the quarterly financial performance. Specifically, Tesla is on track for a 0.82% annual decline in its revenue, which could reach $24.72 billion, according to LSEG IBES data. Meanwhile, earnings per share (EPS) are forecast to fall from $0.91 in the same quarter last year to $0.62, posting a 32.04% drop.

Tesla’s valuation seems excessive even when compared to the leading AI firms. The carmaker’s shares are currently trading at almost 86.7 times what analysts expect earnings to be next year, while both its growth and profitability are expected to remain under severe pressure as competition in the EV market is unlikely to dissipate soon.

Moving forward, the successful launch of the autonomous driving software seems to be the only wildcard Tesla can play to turn things around. Nevertheless, as there is still uncertainty over the proper completion of this project, there seems to be significant room to the downside for Tesla’s stock if financial figures keep disappointing.

Tesla’s stock jumped above both its 50- and 200-day simple moving averages (SMAs) following its stronger-than-expected Q2 deliveries report. Although the price posted a fresh 10-month high last week, the rebound seems to be on hold in the past few sessions as markets are bracing for the firm’s Q2 earnings release.

In case of upbeat financials, the stock could advance towards the recent 10-month high of $270.00. Even higher, the September 2023 peak of $279.00 could curb further upside attempts.

Alternatively, disappointing results and bearish actions could send the price lower towards the recent support of $233.00. Should that barricade fail, the August 2023 support of $212.00 could act as the next line of defence.