How to trade Tesla using options ahead of a potential earnings miss

CNBC

4 days ago

Tesla is scheduled to announce its second-quarter earnings on July 23. Several factors suggest the company may report weaker-than-expected results. These include declining vehicle deliveries, shrinking profit margins, intensified competition and pressure related to Elon Musk's public image and political activities. Recent data has shown slowing vehicle deliveries. In Q2 2025, Tesla delivered 384,122 vehicles, a 13.5% year-over-year decrease from 443,000 in Q2 2024, marking the largest annual drop in the company's history. Although this figure was slightly better than some bearish estimates, it fell short of the consensus expectation of approximately 385,000 vehicles. The decline is attributed to weakened demand, particularly in Europe and China, where Tesla's market share has eroded. In China, Tesla's EV market share dropped to 7.6% in the first five months of 2025, down from 10% in 2024, partly due to competition from companies like BYD and Xiaomi. Chinese leadership, which, given the way things operate in that country, might view close ties between corporate and political leadership favorably, might not be too impressed by the apparent falling out between Elon and President Trump, as Musk decried the failure of DC to reduce the Federal budget deficit in the so-called "Big Beautiful Bill." In Europe, sales have also been weak, possibly hampered by limited changes to the lineup and increasing competition. Analysts forecast Q2 revenues of $22.6–$22.8 billion, down approximately 11% from $25.5 billion in Q2 2024. The auto industry is, after all, a cyclical business. Tesla's automotive gross margins are also under pressure, projected to fall to 15–16.44% in Q2 2025, compared to 18.3% in Q2 2024. This decline is driven by price cuts implemented to stimulate demand, which have reduced the average selling price per vehicle. This is not unique to Tesla; price cuts and incentives have been increasing to clear inventory for other makes as well, but all of this provides evidence of a weakening car market. Additionally, Tesla's production outpaced deliveries, leading to some inventory buildup and potential further discounting, eroding profitability. On top of all of that, the elimination of federal electric vehicle tax credits in the U.S. reduces the meaningful pricing advantage EVs had over conventional ICE vehicles. That combined with Elon Musk's polarizing public image and political involvement negatively impacting Tesla's brand, I've previously mentioned that many Teslas I see now sport bumper stickers disavowing Musk, backlash likely most pronounced on the political left — who were (seemingly) among EV early adopters. These issues aren't necessarily unprecedented in the auto industry. The industry is a cyclical one, and individual automakers have faced significant fallout from missteps in the past and subsequently recovered. Tesla may as well, but it does not trade at an industry multiple. For several reasons, Tesla has consistently enjoyed the kind of multiples typically assigned to growing tech companies, rather than those in the consumer discretionary and industrials sectors. Legacy automakers like Ford and General Motors have languished with single-digit PE ratios for years. Having the "E" fall is bad enough, but if multiple investors are willing to pay for those earnings, the fall will be even worse. Let's just say a lot is riding on the robotaxi. I remain a fan of Tesla products, and Elon Musk is doing what he truly believes is for the greater good. That said, taking a political stance means taking a risk, and some shareholders may not have factored that into their calculus when determining an appropriate multiple to assign to the company. The trade Investors concerned about these factors may want to consider hedging their exposure into earnings in the event that Q2 earnings may be harder hit by consumer weakness and changing preferences than even the lower estimates account for. Heading into next week's earnings report, here's how I would trade Tesla through options to capture a potential negative surprise: Sell 1 Aug. 22 $300 put Buy 1 Aug. 22 $315 put DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. 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