Tesla's revenue and profit fell short of expectations for three consecutive quarters. Revenue declined year-on-year for the first time in four years and recorded the biggest decline in 12 years. Profits fell short, and free cash flow was negative for the first time since the pandemic. The company reiterated its pessimistic forecast of “significantly lower” vehicle sales growth this year, but said it will accelerate the launch of new cheaper models and increase investment in AI. “The future is not only electric, but also autonomous.”
After the US stock market on Tuesday, April 23, the world's largest automaker by market capitalization$Tesla (TSLA.US)$Financial results for the first quarter of 2024 were released.
Although both revenue and profit fell short of expectations, and maintained the “significantly lower” automobile production/delivery growth rate guidelines in 2024, the company said it would speed up the launch of cheaper, affordable models, “punched” media reports on the development of the Model 2 a few days ago, and the stock price soared more than 13% after the market.
According to some analysts, plans for an affordable Tesla Model 2 are seen as the key to achieving Musk's sales growth ambitions. He said in 2020 that Tesla hopes to sell 20 million cars by 2030, double the current sales volume of Toyota, the world's largest car manufacturer.
Tesla closed up 1.8% on Tuesday. It fell 3.4% to $142.05 on Monday, breaking a 15-month low since January 2023, falling nearly 19% during a seven-day period of continuous decline and falling nearly 42% since this year, making it the second-deepest decline among the S&P 500 constituent stocks. The stock price fell 29% in the first quarter, the biggest drop since the end of 2022, and the third largest quarterly decline since the company's 2010 IPO.
Before the earnings report was released, Wall Street analysts' consensus rating for Tesla was “neutral,” with a target share price of $175.67, with room for 21% increase compared to the current stock price. Of these, 11 rated “buy,” 3 recommended “hold,” and 4 recommended “sell.”
Tesla's revenue and profit fell short of expectations for three consecutive quarters. Revenue recorded the biggest decline in 12 years, and profits fell short
According to financial reports, Tesla's revenue for the first quarter fell 9% year on year to US$21.3 billion, lower than market expectations of US$23.3 billion. This is not only the first year-on-year decline in nearly four years since the COVID-19 pandemic disrupted operations in the second quarter of 2020, but also the biggest decline since 2012. It is also more than 15% month-on-month decline from US$25.17 billion in the fourth quarter of last year, mainly due to the slowdown in global demand for electric vehicles.
According to some analysts, the current decline in revenue was even greater than the company's decline in 2020, when production disruptions caused by the pandemic were blamed.
Tesla's profit side continues to be squeezed by measures such as price reduction strategies and investment in AI. Net profit was cut in half and fell 55% year over year to US$1.13 billion. The market originally expected US$1.9 billion. Adjusted EPS earnings for the first quarter were $0.45 per share, lower than analysts' expectations of $0.59, showing a month-on-month and year-over-year decline from 71 cents in the previous quarter and 85 cents in the same period last year. Operating profit for the quarter fell 56% year on year to nearly 1.2 billion US dollars, and operating profit margin fell further to 5.5% from 8.2% in the fourth quarter of last year.
Additionally, the company's capital expenditure increased to US$2.77 billion, an increase of 34% over the previous year. Free cash flow for the first quarter was negative $2.5 billion, leading to a month-on-month decrease of $2.2 billion in cash, its equivalents, and investment at the end of the quarter. Mainly due to an increase in inventory of $2.7 billion and capital expenditure on artificial intelligence infrastructure of $1 billion, core AI infrastructure capabilities will continue to be increased over the next few months.
Earlier, some people had predicted that its gross margin in the first quarter would be the lowest level in seven years since the “Civilian Magic Car” Model 3 was put into production in early 2017. Both Barclays and UBS believe free cash flow will “turn slightly negative”. This will be the company's first negative quarterly cash since early 2020, or a critical time to invest heavily in robot taxis and new, cheaper electric vehicles.
In the first quarter, Tesla's automobile business revenue fell 13% year over year to 17.34 billion US dollars. Revenue from the energy production and storage sector increased 7% year over year to $1.64 billion, and gross profit surged 140% year over year to record high, and energy deployment reached a record high of 4.1 GWh; services and other revenue increased 25% year over year to $2.29 billion.
Reiterates the pessimistic forecast of “significantly lower” vehicle sales growth this year, but says it will accelerate the launch of new cheaper models
In the performance guide, Tesla reiterated that it is “currently between two major growth waves (the platform period)”:
“The first wave of growth began with the global expansion of the Model 3/Y platform, and we believe the next wave of growth will be triggered by advancements in autonomous driving and the launch of new products, including products built on our next-generation automotive platform. The future is not only electric, but also autonomous.
In 2024, our vehicle sales growth rate is likely to be significantly lower than in 2023, as we work to launch next-generation vehicles and other products. This year, our energy generation and storage business revenue growth rate will surpass that of the automotive business.”
Notably, Tesla still maintains its promise to start production of “new models” in the second half of 2025, and says it will accelerate the launch of more affordable models and special robot taxi Robotaxi products. The above description of a “more affordable new model” directly “punches the face”. A few days ago, some media reported that Tesla had given up research and development of a Model 2 with a starting price of less than 30,000 US dollars.
According to the financial statement, average vehicle sales prices declined in the first quarter, increased operating expenses due to investment in artificial intelligence, battery upgrades, and other R&D projects, as well as poor operating profits due to increased production costs of Cybertruck electric pickup trucks and a decline in vehicle delivery.
However, the reduction in raw materials, freight, and tariffs has led to a continuous decline in the unit cost of each vehicle from quarter to quarter, and the introduction of the Autopark (automatic parking) function in North America has also led to a year-on-year increase in revenue confirmation from the FSD intelligent driving assistance system.
The financial report also revealed that the AI training calculation volume increased by more than 130% in the first quarter. In April, more than 1,000 Cybertrucks were produced in a single week. Model Y production in Texas in the US rose to a record high, and unit sales costs fell to a record low. The company expects demand in the Chinese market to generally improve throughout the year. “When we enter new markets such as Chile, many of these products will be supplied by the Shanghai Gigafactory.”
Furthermore, according to some analysts, Tesla invested 1 billion US dollars in AI computing in the first three months of this year, making it more like an AI company than a car company.
Why is it important?
Following weak deliveries, layoffs, and Cybertruck's full recall in the first quarter, global price cuts over the weekend heightened investors' growing concerns. As investor sentiment declines and the company's financial situation weakens, people urgently need to know the latest situation of Tesla's current and future prospects. It can be said that this financial report is likely to be a “crossroads” that will determine Tesla's recent fate.
“Most” brokerage firm Wedbush said bluntly that Tuesday's earnings report and conference call were a “critical moment” for both Tesla and CEO Musk, and even one of the most important moments in the company's history, and will have a huge impact on stock prices. After a chaotic first quarter, Tesla needed to reassure investors and take the opportunity to ensure that it recently only experienced an “unexpected speed bump” and not the beginning of a recession.
On the one hand, Tesla's global delivery volume and production in the first quarter were lower than expected. Delivery volume fell 8.5% year on year. This was the first year-on-year decline in nearly four years since 2020. It was even lower than analysts' most pessimistic expectations, down 20% month-on-month from the record high delivery volume in the fourth quarter of last year. Coupled with news of at least 10% of global layoffs this week, they all highlight the plight of price cuts failing to effectively stimulate EV demand.
Meanwhile, the news that Tesla is putting aside research and development of the cheapest Model 2 model of less than 30,000 US dollars and is instead fully betting on the release of the driverless taxi (Robotaxi) on August 8, all indicate that Tesla's priorities and growth strategy are shifting from entering a more mass market to “fully automated driving” technology, which may affect the composition of long-term shareholders, leading to changes in stock prices.
According to some analysts, the logic of Tesla's stock price has long been based on future expectations for mass market sales and driverless cars, rather than current sales and profits. Therefore, this financial report provides a valuable opportunity for investors to clarify the next stage of development direction and strategy:
“Currently, in addition to digesting falling stock prices, disappointing sales data, and controversial plans to move the company headquarters from Delaware to Texas, investors are also facing another challenge: Tesla will become a major EV manufacturer with cheaper models or a smaller provider of autonomous driving technology.”
Deutsche Bank pointed out that at present, Tesla's future seems to be closely related to “cracking the code for fully unmanned autonomous driving,” which represents “major technical, regulatory, and operational challenges.”
What do you think of Wall Street?
Wall Street News has mentioned that the significant breakthrough in fully automated driving (FSD) has made Musk bet on the future of the company on autonomous driving, especially Robotaxi, so he temporarily stopped developing and selling cheaper electric vehicles. However, in the face of numerous regulatory hurdles, high costs, and the reality that autonomous driving technology is not yet mature, Robotaxi may not be able to support Tesla's next stage of growth.
Although Goldman Sachs believes that Tesla is still one of the leaders in autonomous driving/ADAS technology, and believes that software and digital services can be an important driving force for its business in the long run, many analysts believe that under the serious challenge of weak demand for electric vehicles, Tesla's current strategy to switch to driverless robot taxis rather than cheaper electric vehicles is risky.
According to J.P. Morgan Chase, which rated “reduced holdings,” Tesla blamed logistics challenges such as transportation diversion due to the Red Sea conflict due to the Red Sea conflict and the suspension of production at German factories due to suspected arson attacks. “Last week, Tesla announced large-scale layoffs, which is equivalent to a reduction in personnel production capacity. This unquestionably indicates that the decline in delivery volume is the result of falling demand, not a product of blocked supply.”
Morgan Stanley predicted in March that Tesla would lose money this year, then lowered its quarterly delivery forecast. Wells Fargo is concerned that Tesla is becoming “a growth company with no growth” and downgraded its rating to “sell.” Bank of America still believes the cheaper Model 2 will be launched in 2025 or 2026, but it also admits that “Tesla's stock price has always faced significant pressure due to weak fundamentals of electric vehicles and poor sentiment surrounding electrification topics, and investors will focus on Tesla's demand and future growth plans.”
Wedbush, which has always been very optimistic about Tesla, pointed out that delivery volume in the first quarter is a nightmare for Tesla. The next few months are a critical “fork in the road”. As investors begin to weaken patiently and robot taxis “not a short-term growth solution”, Tesla's stock will face “darker days” if it fails to provide new strategic prospects:
“While we've seen more vulnerable periods in Tesla's history, such as 2015, 2018, and 2020, this one is clearly a little different. For the first time, many long-time Tesla followers began to abandon this (high growth) story and confess defeat.”
Deutsche Bank, which withdrew its “buy” rating before the first quarterly report, believes that if Tesla were to abandon cheaper electric vehicles and switch to “All in” fully automated driving, the stock might have to experience a potentially painful shift in shareholder composition if it were a “change of argument” at the strategic level:
“Investors who previously bet on Tesla's electric vehicle sales and cost advantages may recognize the export market and eventually be replaced by longer-term AI/ tech investors.
However, there are considerable risks in fully pursuing autonomous driving. The launch of the robot taxi in August doesn't mean the technology is ready; technical, regulatory, access to enough data, and operational challenges may hinder its commercial prospects. We are concerned that the development of Robotaxi technology has significant implementation risks, and that fleet deployment may take years.
The delay in development of the Model 2, which was originally scheduled to be put into production in 2025, created a risk that there will be no new cars in Tesla's consumer product lineup in the foreseeable future, which will put continued downward pressure on sales and pricing for many years to come.”
Editor/Somer