Elon Musk Braces for ‘Turbulent Times.’ Markets Seem to Be in Denial.

The one thing Musk can be sure of, though, is that it’s tough out there in the autos sector.

But Tesla has taken some initiative in these challenging times. The electric-vehicle maker has aggressively cut prices in an intense inflationary environment. Its play was to grow volume and market share, accepting that margins would take a hit.

When deflation eventually hits, other auto makers will cut prices—but, in contrast, they won’t enjoy any benefits from the margin pressure that will come with it. When the dust settles, Tesla will be in a stronger position.

While Musk warned of “turbulent times,” stock market investors don’t seem to be as concerned. The S&P 500 continued its run higher Wednesday and now sits less than 5% off its record closing high.

The index is up 18% so far in 2023, and has climbed 27% from its low point in October.

Granted, those gains have been driven by a handful of the largest mega-cap stocks—including Tesla, which is up more than 135%. However, the S&P 500 Equal Weighted Index, which gives all stocks a 0.2% weighting, is up 9% so far this year. That’s not exactly representative of turbulent times, either.

In the absence of economic answers, the stock market is drifting gently along. Sometimes ignorance is bliss.

—Callum Keown

*** Join Financial News online editor Justin Cash today at noon when he talks to a panel of guests including KPMG’s Kate Dawson, the Centre for Finance, Innovation and Technology’s Charlotte Crosswell, and Herbert Smith Freehills’ James Palmer about the City of London’s position as a global financial hub. As listings head to the U.S. and deals dry up, regulators and politicians are trying to turbocharge growth in the sector by cutting red tape and spurring innovation. But will it be enough to get investors excited about London again? Sign up here.

Try your hand at this morning’s Barron’s crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

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Tesla Beats Expectations as It Boosts EV Deliveries

Tesla’s
income rose 20% in the second quarter as vehicle deliveries soared over last year and cost reductions compensated for price reductions for many of its models in recent months. Elon Musk’s electric vehicle company is planning to expand production quickly.

• Deliveries rose 83% from the same time last year, while revenue rose 47%. Tesla’s second-quarter adjusted earnings per share of 91 cents beat expectations, as did $24.9 billion in revenue. The operating profit margin narrowed to 9.6% from 11.4% in the first quarter.

• The average price of a Tesla vehicle in the second quarter came in at just over $45,000, down slightly from the first quarter and down from almost $56,000 in the second quarter of 2022. Rivals including Ford Motor have also been slashing prices for EVs.

• Tesla executives have played up their efforts to cut spending on vehicle manufacturing in several ways, including factory automation and reducing the number of parts used.

• The EV maker is also getting a boost as it signs deals with other auto makers, which have agreed to adapt to its fast-charging technology. Tesla is also highlighting its businesses in artificial intelligence, which it uses to train its autonomous-driving features.

What’s Next: Tesla is spending money to raise output of battery cells and launch its new Cybertruck. CEO Elon Musk said the company continues to target 1.8 million vehicle deliveries this year, but production might slip slightly in the third quarter because of upgrades to its factories.

—Liz Moyer and Al Root

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Netflix Subscriber Numbers Jump on Password-Sharing Crackdown

Netflix’s
subscribers jumped 5.89 million after a crackdown on password sharing as second-quarter revenue came in slightly below expectations. The streaming giant sees third-quarter revenue of $8.5 billion, also below Wall Street’s consensus, but said sales will pick up in the fourth quarter.

• Second-quarter revenue rose 2.7%, a slower pace than the March quarter and below Netflix’s own projection. Profit was $3.29 a share, beating expectations. Operating margin widened to 22% and is projected to be about the same in the third quarter.

• The company recently eliminated its lowest-tier ad-free subscription plans in the U.S. and the U.K. The move is an effort to boost revenue in a more competitive streaming marketplace. The Netflix Basic plan, priced at $9.99 a month, will no longer be available for new subscribers.

• Netflix generates more revenue from ads and subscription fees combined than its Standard subscription model, which made the Basic model less appealing. New U.S. subscribers can now choose a $6.99 monthly ad-supported plan, a $15.49 monthly standard plan, or a $19.99 a month premium plan.

• The Hollywood strike by actors and writers means Netflix is spending less money on content this year, raising its free cash flow forecast to $5 billion from a previous forecast of $3.5 billion. The company can produce content outside the U.S.

What’s Next: Netflix wants to boost more of its revenue from advertising, a business it entered last year. The company said Wednesday it wants to “scale the business.” The number of ad-tier subscribers has doubled since the first quarter.

—Hannah Ziegler and Eric J. Savitz

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Chip Maker TSMC’s First Profit Fall in 4 Years

Taiwan Semiconductor reported its first annual fall in quarterly profit since 2019 as it grapples with a slowdown in demand for electronic devices. It’s a poor sign for rivals such as Intel, despite excitement about demand for chips to power artificial-intelligence tools.

• TSMC reported a 23% fall in net profit for its second quarter. The company’s revenue from smartphones dropped 9% from the previous quarter. It echoed rival Samsung Electronics, which is also being hit by a downturn in demand for electronic devices.

• TSMC is a key supplier to Apple and AI favorite Nvidia but hasn’t escaped a downturn in global demand. “Our second-quarter business was impacted by the overall global economic conditions, which dampened the end-market demand,” said TSMC Chief Financial Officer Wendell Huang in a statement.

• Dutch company ASML, a critical supplier to the global chip-making industry, also warned of a delayed recovery in the semiconductor sector this week.

What’s Next: While it’s true there is a market slowdown it likely won’t disrupt the tens of billions of dollars being invested in chip-manufacturing plants. TSMC is sinking $40 billion into sites in Arizona as it looks to stave off Intel, which hopes its strategy of placing its foundries around the globe could attract clients nervous about the future of Taiwan.

—Adam Clark

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Carvana Revenue Rebounds as It Restructures Debt

Carvana,
the used-car dealer, said it had its best quarter for adjusted earnings, as revenue beat expectations and it posted a narrower-than-forecast loss. It announced a $1.2 billion debt restructuring that will lower its annual interest expenses by $430 million for the next two years.

• The company’s shares surged 40% on Wednesday and are up more than 1,000% this year. Carvana reported $2.97 billion in revenue, up from $2.6 billion in the first quarter, and a net loss of 55 cents a share.

• The company’s agreement with bondholders will eliminate more than 83% of its 2025 and 2027 unsecured note maturities. It also announced plans to raise up to $1 billion by selling up to 35 million shares at the market price, according to an SEC filing.

• More Americans are facing challenges getting car loans. A survey by the Federal Reserve Bank of New York showed more than 14% of car loan applicants had their requests rejected in June—a record high.

• The data, which also showed high denial rates for mortgage and credit card loan applicants, indicates financial institutions’ caution around lending. Nearly 22% of all people who applied for any loans reported they were rejected as of June, the survey said.

What’s Next: While the number of vehicles Carvana sold in the second quarter fell 35% from last year, it has been cutting inventory to be more aligned with demand. Inventory was down 55% from last year. Carvana expects third-quarter vehicle sales to be about the same as the second quarter’s 76,530.

—Hannah Ziegler and Callum Keown

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United Airlines Beats Expectations as International Travel Booms

United Airlines
took flight on a surge in international travel during the second quarter, more than tripling its profit from last year. It raised its profit outlook for the full year, following the lead of Delta Air Lines as the aviation industry stages a postpandemic comeback.

• Profit of $1.08 billion compared with $329 million the same period a year ago. Adjusted earnings per share beat the consensus, and revenue rose 17% to about $14 billion. United now sees full-year profit of $11 to $12 a share, higher than its earlier forecast.

• United said it carried the highest volume of revenue passengers since before the Covid-19 pandemic, and it added 800,000 members to its mileage membership program. It estimates third-quarter adjusted earnings per share of $3.85 to $4.35, above analysts’ estimates.

• United stumbled at the end of June, when bad weather and a shortage of air-traffic control staff combined for gridlock at its Newark, N.J., hub. CEO Scott Kirby said the carrier will have to cut back at Newark to better manage operations there.

• United has added to its trans-Atlantic routes to take advantage of a surge in demand, and said its international profit margins are above 2019 levels. Kirby is expected to add more details to the overall outlook during the company’s conference call to discuss earnings on Thursday.

What’s Next: United is also expanding in Asia this fall, adding new flights to Manila and Hong Kong from the West Coast. Existing restrictions on flying through airspace over Russia and limits on the number of flights between China and the U.S. have affected growth in the region.

—Liz Moyer

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Phew. Emergency expenses soon may become more manageable as many employers prepare to offer emergency savings options as part of corporate retirement savings plans.

Under the recent SECURE 2.0 legislation, employers can offer workers an emergency savings account up to $2,500 that can be used at any time.

The contributions to the account will be after tax and subject to a company plan’s matching contributions. Employees may voluntarily contribute or may be automatically enrolled at up to 3% of their annual pay that’s capped at $2,500.

Here’s how the program can benefit workers.

Read more here.

—Jessica Hall

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner