Tesla Just Hit a Fork in the Road—Could the Bulls Lose Control?

Key Points

• Tesla shares were down more than 6% in Thursday’s pre-market session after their Q2 earnings report. 
• Revenue and margins improved from Q1, but weren’t strong enough to justify the stock’s 50% rally since April.
• However, a near-term pullback may set up a strong entry point for long-term bulls who still believe in the Tesla story.

Shares of Tesla Inc. NASDAQ: TSLA had been grinding higher into Wednesday night’s earnings, up nearly 15% over the past two weeks and more than 50% since April. That kind of run can easily put investors on edge, as they know a lot is going to be riding on the company’s next earnings report. With Tesla’s previous two earnings reports delivering big misses, Wall Street was hoping for a change of tone this time around. 

On paper, the electric vehicle (EV) giant delivered. Revenue still declined nearly 12% year-over-year, but not as badly as expected, and non-GAAP EPS came in at $0.40, which was solidly in the black. Deliveries were up compared to Q1, and margins also saw some improvement, reinforcing the view that Tesla may well be entering recovery mode after a rocky start to the year. But for now, at least, it doesn’t look like this was enough.

The Report Was Better, But Not Good Enough

With the stock’s price-to-earnings (P/E) ratio looking quite frothy around the 180 mark, Tesla would have known in advance that expectations were sky-high. Anything short of a beat-and-raise quarter was going to be a letdown, and that’s exactly how the post-release price action looks to be playing out. Shares were down more than 6% ahead of Thursday’s open, confirming investor sentiment is turning cautious, at least in the short term.

It’s a reminder of just how high the bar has become for Tesla, and how little margin for error there is right now. Even with improving fundamentals, the recent rally looks to have gotten a bit ahead of itself.

There’s Still a Bull Case Here

However, for longer-term investors on the sidelines, this pullback could be the opportunity we’ve been waiting for. In between the headline numbers were plenty of reasons to stay bullish. CEO Elon Musk reiterated that plans for a lower-cost vehicle remain on track for the second half of 2025, while forecasting that the company’s robotaxi rollout will reach half the U.S. population by the end of the year. That’s a big claim, and one that reinforces the innovation engine still driving the Tesla story and makes bulls so excited. 

It also pays to remember that the company rallied nearly 70% after last quarter’s miss, which was far worse than this one. If anything, Q2’s report, while not spectacular, showed progress. And that should be enough to support the next leg of the uptrend once the dust settles.

Analysts Still Back the Long Game

Backing up the theory that this could be a buy-the-dip opportunity, earlier this week, the team over at Wedbush reiterated their Outperform rating and $500 price target on Tesla shares.

Not only is this pointing to a targeted upside of some 50%, it also echoes the similarly bullish calls from the likes of Cantor Fitzgerald and Mizuho earlier this month. 

While Tesla remains one of the most hotly debated stocks on the market, there’s no denying that many on Wall Street, who are still backing its longer-term prospects, will be licking their chops today. 

Yes, there are headwinds. Regulatory scrutiny, rising costs, and weak free cash flow all remain overhangs. But the roadmap is still intact, and the market tends to look forward, especially when a company with Tesla’s brand power is showing signs of stabilizing.

A Pullback, Then a Reset

Still, with shares looking likely to fall after last night’s earnings, a short-term correction is likely. A move back towards the $290 level would be a healthy test of support and could give the bulls room to regroup. This is still a stock to watch closely, and a sell-off doesn’t mean the rally is over; just that it might be on pause. 

If investor sentiment can reset around Tesla’s improving deliveries, growing margins, and product innovation, the stock could soon be up for another strong run through the rest of Q3.