Tesla Faces Profit Slump Right After Musk’s $56 Billion Pay Package

Plus: Soda prices may rise, a drug giant’s profits are booming while it sues to block Medicare negotiations, and more.

By Eric Gardner

Less than two months after Tesla shareholders approved a $56 billion pay package for CEO Elon Musk, the company reported its second consecutive quarter of declining profits, sending the stock down 13 percent. According to Bloomberg, it has been over 365 days since Tesla last met Wall Street’s earnings expectations.

For the quarter, the electric vehicle leader posted an operating profit of about $1.6 billion, with a little more than half coming from selling cars. The rest came from emission credits. These credits are effectively all profit, as companies that don’t meet federal emission requirements can purchase credits from automakers like Tesla, which does.

The turbulence reflects a broader trend in the industry. After a big spike, growth in the American electric vehicle market has slowed to a trickle. In 2023, Motor Intelligence estimated that the industry grew by 50 percent. However, growth slowed to just 6.8% in the first half of this year. In response, General Motors postponed the opening of a new plant, while Tesla is now in the unenviable business position of selling fewer cars and slashing prices to do so. “The whole story here is about what else is to come,” an asset manager told Bloomberg.

Tesla’s inflated value (the company is roughly worth as much as Ford, GM, Stellantis, Toyota, and Volkswagen combined) has long been premised on the idea that Musk could singularly lead the team into cutting-edge technology like autonomous vehicles and artificial intelligence. “If you believe Tesla will solve autonomy, you should buy Tesla stock, and all these other questions are in the noise,” Musk reiterated to investors this week.

In April 2024, Musk told investors that the company would showcase self-driving taxi technology by the end of summer. One month later, Reuters reported that the Department of Justice criminal investigation into the company centered around its self-driving technology claims—casting even more doubt on Tesla’s ability to meet the lofty objectives.

This week, Musk announced the unveiling of his autonomous robotaxi would be delayed until October.

Watch our profile exploring how Elon Musk got rich:

AstraZeneca’s sales are booming, while it tries to halt Medicare negotiations

This week, management at pharmaceutical giant AstraZeneca told investors that high sales of its blockbuster cancer drugs would earn the company more profit and revenue than initially forecasted. The company, which sold over $43 billion worth of drugs in 2023, now expects to record nearly $50 billion in sales this year. 

Meanwhile, earlier this month, the company appealed a March 2024 decision in an attempt to halt implementing the Biden Administration’s landmark Medicare drug negotiation policy. In the initial decision siding with the government, a Trump appointed federal judge concluded, “Understandably, drug manufacturers like AstraZeneca don't like the IRA [Inflation Reducation Act, the law that ended the prohibition on Medicare negotiating drug prices]. Lower prices mean lower profits.”

Since its passage in 2022, the pharmaceutical industry launched 14 lawsuits against the regulation, but has yet to achieve a victory. To date, judges have ruled against the industry in all six decided cases, with the remainder still pending. Many, including AstraZeneca’s case, are on appeal. 

The policy allows the agency responsible for administering Medicare, the Centers for Medicare & Medicaid Services (CMS), to negotiate the price of ten commonly used prescription drugs, with the number of drugs negotiated expanding every year. Farxiga, AstraZeneca’s popular diabetes medicine, was included in the first wave of negotiations. 

Researchers at Harvard Medical School found that the federal government would have saved $26 billion if the provisions would have been in effect from 2018 to 2021. "That's a pretty sizable reduction in spending from a very small number of drugs," the study’s lead author told CNBC.

In the most recent reporting year, Medicare spent $2.58 billion on Farxiga, at an average cost of $4,046 per patient. According to CMS data, that’s 31 percent more per patient than just four years before. In 2023, AstraZeneca sold nearly $6 billion worth of Farxiga across the world, 36 percent more than the previous year.

Watch our deep dive on the drug industry’s war against Medicare negotiations:

Price increases continue at Coca-Cola

Coca-Cola, the powerhouse behind brands Topo Chico, Fairlife, and its flagship cola, has increased its revenue by nearly 23 percent since the pandemic began. How did they do it?

Mostly by raising prices.

CEO James Quincey speculated that the company expects to continue the strategy, selling fewer units at “slightly” higher prices throughout the year. “I think that's likely to be true as we go through the rest of the summer,” Quincey said on a call with analysts earlier this week.

In their latest report, the Atlanta-based company raised prices in North America by 11 percent, compared to 9 percent worldwide, helping push revenue past $12 billion while simultaneously expanding profit margins. After the solid financial results, management increased the company’s annual growth forecast by a full percentage point. The news comes in stark contrast to rival PepsiCo, which saw stressed consumers abandon its beverage division after four years of price increases.

Coca-Cola’s lone weak spot in earnings was its away-from-home business, which includes sales to fast-food chains. Throughout the pandemic, fast food franchises have pushed price increases far beyond inflation, with the average menu item at McDonald’s now costing more than 40 percent of what it did in 2019. Quincey believes that the reintroduction of value meals will help attract budget-conscious consumers and jump-start sales.

“Having said that,” he concluded, “there are just as much consumers spending on more premium categories or more premium price points and experiences.”

High smartphone prices and the disappearance of government subsidies are taking a toll on Verizon

Despite adding more customers, Verizon Wireless's stock experienced its largest drop of the year this week after the company missed revenue expectations. The expiration of COVID-era subsidies and a decline in phone upgrades contributed to the middling financial performance.

From April to June this year, the company added 148,000 customers who pay after service is provided, but lost over 600,000 pre-paid mobile phone subscribers, plans typically associated with low-income individuals. Management attributed nearly two-thirds of the losses to the expiration of the Affordable Connectivity Program, a bipartisan COVID-relief program that provided internet and cellphone subsidies to 23 million low-income households. 

The company also reported an 11 percent decline in phone upgrades in compared to the same time last year. A big driver of the lack of upgrades may be due to the rising cost of smart phones. According to data firm Statisca, since 2019, the average cost of a smart phone has increased from around $550 to over $940–an increase of over 71 percent.