Tesla's (NASDAQ: TSLA) highly anticipated second-quarter earnings report landed with a thud for investors and some analysts. After the leading electric vehicle (EV) manufacturer announced a surprisingly high 444,000 vehicles were delivered in the three-month period, investors thought the subsequent earnings announcement would also surprise to the upside.

However, profit margins continued to drop due to increased competition and price cuts. That led Citigroup analyst Itay Michaeli to lower his firm's price target on the stock from $274 to $258 per share. However, that still implies a nearly 20% gain after Tesla shares sank in response to the quarterly report.

That pullback came after investors anticipating a more positive report had driven shares sharply higher over the past month. The post-earnings reaction, however, pushed Tesla stock into negative territory for the year.

Tesla's still generating cash

Tesla's report was really a mixed bag. While its automotive profit margin continued to trend lower, the company still generated $1.3 billion in free cash flow after capital expenditures. But automotive profit margin, excluding regulatory credit revenue, dropped to 14.6%. That's down from 18.2% in the prior-year period and 25.1% two years ago.

That's the major reason Michaeli was unimpressed with the results. However, like many Tesla investors, his focus remains on potential upcoming catalysts including a new, low-priced model as well as self-driving robotaxis.

As Tesla CEO Elon Musk himself said, investors who don't believe the company can execute its full self-driving vehicle plan shouldn't own the stock. The second-quarter report reinforced that sentiment. The company's auto sales and profits don't justify Tesla's stock valuation. Potential catalysts that can add value include the lower-priced EV model, the energy business that had a record quarter, and a full self-driving fleet. Those who don't see those catalysts panning out should look to invest elsewhere.

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