Tesla’s earnings might be $US1.2 billion ($1.8 billion) lower than a year ago amid slowing growth of the electric vehicle market, but that doesn’t seem to faze Elon Musk and his investors.

Tesla’s share price did tumble in after-market trade after the electric carmaker reported a 45 per cent slump in profit for the June quarter, missing analysts’ forecasts for the fourth consecutive quarter. Its share price is, however, still more than 70 per cent above its low point this year.

Elon Musk is asking shareholders to sit tight as his company is evolving.Credit: AP

In an indication of how tough conditions are for EV makers, while Tesla increased revenue by 2 per cent to $US25.5 billion, its earnings slumped from $US2.7 billion to $US1.5 billion and its profit margin shrunk from 9.6 per cent to 6.3 per cent.

In contrast, General Motors, which makes all its money from selling internal combustion vehicles and loses money on its EVs, easily beat analysts’ expectation in the June quarter. Its earnings, also released on Tuesday, were up 37 per cent to $US4.4 billion and its profit margin was 6.5 per cent.

GM shares trade on a multiple of its prospective earnings of about 6. Tesla’s trade at more than 100 times its expected earnings. At face value, that makes no sense.

It can only be rationalised if investors see Tesla as something other than what it is – an automaker operating in a still fast-growing, but increasingly competitive and increasingly low-margin niche of an otherwise mature industry.

Elon Musk has been able to successfully sell investors on his vision of what Tesla might be, rather than what it is today.

If it were valued as a carmaker, Tesla would be worth a fraction of the $US785 billion market capitalisation it has today, even though that is massively below the $US1.2 trillion it was valued at less than three years........

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