Tesla's weak earnings rattle Korean retail investors holding $22b in shares

Tesla's weaker-than-expected second-quarter profitability is casting a shadow over South Korean retail investors, who hold more of the electric vehicle maker's shares than any other foreign stock. Korean investors' Tesla holdings exceed $22 billion, according to the Korea Securities Depository. Analysts warn that mounting costs from AI and robotaxi investment could weigh on the share price for now.

Tesla reported second-quarter earnings Wednesday (local time), posting sales of $28.24 billion — up 26 percent year-on-year and above the Bloomberg consensus estimate of $25.71 billion. Global vehicle deliveries rose 25 percent from a year earlier to 480,126 units, a record for any second quarter. However, net profit under generally accepted accounting principles fell 5 percent year-on-year to $1.11 billion, and adjusted earnings per share came in at $0.33, well short of the $0.51 market estimate. Tesla shares fell about 3 percent in after-hours trading after the results, reflecting investor disappointment.

The market's frustration stemmed from profit and cash generation failing to keep pace with revenue growth. Surging research and development costs and capital expenditure pushed the operating profit margin down to 1.4 percent, the lowest in eight quarters. Capital expenditure jumped 142 percent year-on-year to $5.79 billion, and free cash flow swung to a deficit of $1.09 billion.

Despite the earnings miss, Tesla made clear it would not slow its AI investment. On the post-earnings conference call, the company named its robotaxi service and the Optimus humanoid robot as its core growth drivers and said it would not ease the pace of investment. It also said it would prioritize investment speed over capital efficiency and expand its robotaxi service through a vertically integrated model — operating the platform directly rather than partnering with outside providers.

Tesla is also moving quickly to build out its AI supply chain. The company cited Samsung Electronics' semiconductor factory in Texas, TSMC's plant in Arizona, expanded memory chip supply from Micron, and battery scale-up at Panasonic as part of ongoing efforts to secure AI semiconductor and battery supply chains for Optimus and its robotaxi. It also outlined plans to diversify supply chains for key robot components — including metal injection molding and flexible printed circuits — and to bring certain production in-house to strengthen manufacturing competitiveness.

With Tesla signaling it will keep spending even as cash flow deteriorates, market concerns about profitability are expected to persist. Because Korean retail investors hold more Tesla stock than any other foreign equity, share price swings stand to have a significant impact on their unrealized gains and losses.

Korean investors held $22.03 billion worth of Tesla shares as of Tuesday, the largest holding among all US stocks, according to the Korea Securities Depository. That figure represents about 12.1 percent of the total $182.03 billion in US equities held by Korean investors. Tesla's share price has fallen 14.6 percent this year, from $438.07 on Jan. 2 — the first trading day of the year — to $374.05 on Wednesday, and has dropped 12.0 percent this month alone.

Tesla has also been absent from the top net-purchase rankings among Korean retail investors recently. The stock failed to appear among the top 50 net-purchased US equities from June 23 through Wednesday, and was also excluded from the top 50 on a year-to-date basis. Still, given the sheer size of existing holdings, any recovery in profitability and the eventual payoff from AI investment are seen as the key variables that will determine Korean investors' unrealized returns.

Analysts expect Tesla's share price to oscillate between long-term growth hopes tied to AI investment and near-term profitability concerns for the time being. "Revenue growth is strong, but profit leverage is in effect not working," said Jo Jae-un, an analyst at Daishin Securities. "We are in the middle of an investment cycle, and a wait-and-see approach is warranted until there is evidence that the profit margin has bottomed out and is rebounding."