We will also deal with similar topics at our Portfolio Investment Day 2024 conference on May 16, in which participation is free after registration.
The quarter was weak
The turning point in Tesla’s story was the sales report that the company previously published for the first quarter, which revealed that Tesla’s sales in the first quarter were below expectations.
In the first quarter, the company faced several challenges, including supply disruptions caused by the Red Sea conflict, a fire at the Berlin factory, and ramping up production of the updated Model 3 in Fremont. Excluding the Cybertruck and unscheduled downtime, PRE per vehicle decreased, primarily due to lower raw material costs. However, compared to the first quarter of last year, the company produced 1.6 percent fewer cars, so a total of 433,371 cars were completed.
Amid weakening demand for electric cars, sales fell 8.5 percent to 386,810 units.
The last time Tesla registered a year-on-year decline in sales was in the second quarter of 2020, during the Covid crisis.
Although the company tries to stimulate demand by lowering the price of cars, this is a double-edged sword, as it leaves a mark on sales revenue and profitability. Reflecting the price cut, average revenue per vehicle delivered in the quarter fell nearly 5 percent to $44,926 per vehicle compared to a year earlier.
Due to the lower average sales price, the decreasing number of units, and the negative currency effect first quarter sales fell 9 percent to $21.3 billion. The 13 percent drop in the revenue of the automotive business could not be substantially offset by the 7 percent increase in the energy segment and the 25 percent increase in the service (and other) business.
At first glance, the 9 percent drop may not seem like much, but since 2012 Tesla has not experienced such a drop.
With this, the company also fell short of analysts’ expectations, as the consensus was for revenue of $22.2 billion.
The challenges faced by the company have also seriously affected the efficiency, operating profit fell by 55 percent to 1.1 billion euros, which resulted in an operating margin of 5.5 percent, compared to 11.4 percent in the first quarter of last year. Profitability was also negatively affected by the decrease in the price of cars and the unfavorable change in the product mix; an increase in operating costs through R&D spending; ramping up Cybertruck production; and the decline in the number of units sold. This was clearly not offset by the reduction in costs per car and the growth in energy storage and software sales.
The profit after tax also decreased to the same extent as the operating profit, by only 48 percent to 1.5 billion dollars.
Earnings per share thus became $0.45, 47 percent lower than a year earlier. Analysts, on the other hand, were expecting EPS of $0.51.
Cheaper models may come
In recent quarters, we’ve gotten used to seeing the same messages in the “outlook” section of Tesla’s flash reports. There are still familiar lines, but the company provided interesting new information,
especially the new models.
The company has updated its plans for the future range of vehicles to accelerate the introduction of new models ahead of the launch previously planned for the second half of 2025. These new vehicles including more affordable models will also use aspects of the next-generation platform, as well as aspects of the current platforms, and will be produced on the same production line as the current vehicle lineup, the company said.
Elon Musk said of the plans that production could start “in early 2025, if not at the end of this year.”
The company manager, however, did not answer the question whether the new vehicles will be completely new models or fine-tuned, improved or updated versions of the existing vehicles.
According to Guidehouse Insights analyst Sam Abuelsamid, the new model announcement confirms that Tesla has put plans for the roughly $25,000 Model 2 on hold. “It seems clear that the new vehicle platform has really been shelved for now. The next generation vehicle would have to use production processes fundamentally different from the current models. Since Tesla does not intend to spend billions on new manufacturing facilities or to convert existing factories, it appears that Tesla will continue to manufacture the current products”.
According to the strategic consideration, the move will result in a smaller cost reduction than previously expected, but it will allow the company to increase sales volume in a cautious and more efficient manner in terms of investment costs in the current uncertain period. Thanks to this, the company can get closer to fully utilizing its current maximum production capacity of nearly three million vehicles per year, which enables an increase of more than 50 percent compared to 2023 production, without investments in new production lines.
Musk also praised Tesla’s investments in AI infrastructure and said the company was in talks with “a major automaker.” on the licensing of the driving support system.
The company also added that the previously launched robotaxi product will follow the so-called “unboxed” production strategy, but no more was revealed about the product. According to Musk, Tesla’s fleet of self-driving vehicles will be “like a combination of Airbnb and Uber.” Some vehicles will be owned and operated by Tesla, while others will be vehicles owned by individuals but leased on Tesla’s network.
Tesla began the second quarter with a major restructuring, with two board members, Drew Baglino and Rohan Patel, resigning this month and the company announcing layoffs of more than 10 percent of its global workforce. In addition to all this, the company again cut the price of its vehicles in the main markets, such as the United States, China and Europe. After discussing the operational challenges of the first quarter, Musk said that “the second quarter will be much better.”
The exchange rate shot up
Although there were not many thanks in the quarterly figures, the news about future plans and the announcement related to new models clearly stirred the imagination of investors. Tesla’s share price rallied 13.3 percent after yesterday’s market close, so the exchange rate can start today’s trading close to $164. There was room to bounce back, as Tesla shares fell 42.8 percent this year.
Cover image credit: Axelle/Bauer-Griffin/FilmMagic via Getty Images
