Tesla shares fell more in July than any of its Magnificent Seven peers, capping a month in which investors punished the company for a gap between its AI story and its financials. The stock’s decline widened the distance between Tesla and the rest of the group, and analysts said the problem is not the cars; it is the promise attached to them.
The decline came despite a quarter in which Tesla delivered more vehicles than analysts expected. The issue was the part of the business that does not yet show up in revenue. Tesla’s full self-driving software, the product that underpins the company’s valuation, generates a fraction of the revenue that the market’s assumptions imply, according to Gordon Johnson, an analyst who published a report on the stock this week.
Johnson, a long-time Tesla skeptic, wrote that the company’s second-quarter results exposed the gap between FSD’s actual sales and the expectations embedded in the share price. He argued that if the regulatory path for robotaxis moves more slowly than Tesla expects, the stock faces a revaluation, a conclusion that framed the month’s trading.
The robotaxi promise is central to Tesla’s valuation. The company has said it will launch a driverless ride-hailing service, and investors have treated the plan as the next growth engine after car sales plateau. The service does not exist at scale yet, and every delay in its rollout pushes the revenue further into the future.
July’s losses also reflected a rotation that hit the whole group. Investors moved out of the most expensive AI-adjacent names, and Tesla, with its unusual combination of an auto business and an AI narrative, was the first to be sold. The stock’s high beta, a measure of how much it moves relative to the market, amplified the decline.
The company’s other businesses have not filled the gap. Energy storage has grown, but it remains a small share of revenue. The charging network is profitable but modest. Tesla’s core auto business is facing its own pressure, with price cuts compressing margins and competition intensifying in China, its second-largest market.
The comparison with peers is stark. While Tesla fell, the other members of the Magnificent Seven, led by Microsoft, Alphabet and Amazon, were supported by earnings that showed AI spending converting into cloud revenue. Tesla’s AI ambitions, by contrast, remain a promise, and the market’s patience for promises has thinned.
Analysts who follow the company are divided on what happens next. The bull case rests on the robotaxi service launching and scaling faster than skeptics expect, and on FSD eventually becoming a high-margin subscription business. The bear case, articulated most forcefully by Johnson, is that the timeline keeps slipping and the valuation keeps waiting.
Tesla’s history argues for caution on both sides. The stock has swung wildly between these narratives before, rallying on robotaxi optimism and collapsing when deadlines slip. The company’s ability to surprise, in both directions, is one of the few constants in its story.
The specifics of Tesla’s situation compound the pressure. The company has cut vehicle prices repeatedly over the past two years to defend its sales volume, and those cuts have compressed the margins that fund its other ambitions. Competition in China, where local manufacturers have flooded the market with cheaper electric cars, has turned the country from a growth engine into a margin battleground.
FSD’s economics are the crux of the valuation debate. The software is sold as a one-time option or a monthly subscription, and Tesla has said a large share of buyers in North America use it. The revenue, while growing, remains small next to the car business, and the market’s valuation of Tesla implies that FSD and robotaxis will eventually dwarf vehicle sales, a leap of faith that Johnson’s report questions.
The regulatory path is the variable neither side controls. Tesla has said it plans to deploy robotaxis using customer-owned cars, a model that differs from the purpose-built fleets of Waymo and Zoox, and that requires approvals the company has not yet secured. The Zoox exemption granted this week by federal regulators shows the lane is open, but Tesla’s own applications remain pending.
The stock’s history argues for humility on both sides of the debate. Tesla has fallen further than this and recovered, and it has also kept falling when the narrative turned. What is unusual this time is the company’s position: its core business is no longer growing fast enough to carry the valuation alone, and the AI story has competition from companies with real AI revenue.
For now, the market has chosen to trust the financials over the vision. July’s decline was a vote that Tesla’s valuation should reflect the cars it sells and the software it actually collects money for, not the robotaxis it has promised. Whether that vote holds depends on a regulatory calendar that Tesla does not control.
