Tesla, headquartered in Austin, Texas, reported a net income of $1.13 billion for the first quarter of 2023, marking a substantial decrease compared to the $2.51 billion earned in the same period last year. This performance fell short of the $2.56 billion average estimate among analysts polled by Refinitiv. Excluding one-time items, Tesla’s earnings per share stood at 45 cents, missing the consensus estimate of 49 cents per share.
Investors were eagerly awaiting signals from Tesla regarding measures to address the stock’s downward trajectory and drive sales growth this year. The company responded with a letter to shareholders, indicating that production of more compact and affordable models would commence earlier than previously anticipated. It was hinted that these smaller models, possibly including the Model 2 with an estimated price of around $25,000, would share foundational elements and certain features with existing models. Tesla intends to utilize the same production lines for these new vehicles, optimizing efficiency and cost-effectiveness.
During a conference call with analysts, CEO Elon Musk expressed his expectation for production to begin between late 2023 and the second half of 2024. He emphasized that the production of these new vehicles would not necessitate the construction of new factories or significant new production lines. “This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex-efficient manner during uncertain times,” the investor letter stated.
However, Musk provided minimal specifics about the upcoming vehicles and whether they would be variants of existing models. “I think we’ve said all we will on that front,” he responded to an analyst’s inquiry. He did, however, express confidence that Tesla would surpass last year’s sales figure of 1.8 million vehicles in 2023.
Tesla also anticipates the autonomous robotaxi to serve as a catalyst for future earnings growth. The unveiling of the robotaxi is scheduled for August 8th. Following the closing bell on Tuesday, Tesla shares experienced an 11% increase but remain down more than 40% year-to-date. In contrast, the S&P 500 index has gained approximately 5% over the same period.
Morningstar analyst Seth Goldstein noted that Tesla’s communication regarding its future direction was more explicit than in the past, alleviating investor concerns about production of the Model 2 and the company’s growth trajectory. “I think for now, we’re likely to see the stock stabilize,” he said. “I think Tesla provided an outlook today that can make investors feel more assured that management is righting the ship.” However, he cautioned that if sales decline again in the second quarter, the outlook could change, and concerns could resurface.
Tesla’s first-quarter revenue amounted to $21.3 billion, reflecting a 9% decrease year-over-year due to a nearly 9% drop in worldwide sales attributed to heightened competition and reduced demand for electric vehicles. Tesla’s gross profit margin, representing the percentage of revenue retained after expenses, declined once more to 17.4%. This figure stood at 19.3% a year ago and reached a peak of 29.1% in the first quarter of 2022.
Over the weekend, Tesla reduced the prices of its Model Y, S, and X vehicles in the U.S. by $2,000 and reportedly implemented similar price cuts in other markets, including China, as the growth in global electric vehicle sales decelerates. The cost of “Full Self-Driving” was also reduced by one-third, to $8,000.
Additionally, Tesla announced last week that it would lay off approximately 10% of its 140,000-strong workforce, with these cuts affecting all levels of the organization, according to Chief Financial Officer Vaibhav Taneja. He explained that growth companies often accumulate redundancies that require pruning to sustain growth.
Musk has consistently promoted the robotaxi as a key growth driver for Tesla since the hardware was first offered in late 2015. In 2019, he promised a fleet of autonomous robotaxis by 2020, generating income for Tesla owners and enhancing the value of their vehicles. However, this promise has not materialized, and vehicle values have declined due to price cuts as the deployment of autonomous robotaxis has been repeatedly delayed while the company gathers road data for its computers through testing by owners.
During Tuesday’s conference call, neither Musk nor other Tesla executives provided specific details on when they anticipate Tesla vehicles to achieve fully autonomous driving capabilities on par with human drivers. Instead, Musk highlighted the latest version of Tesla’s autonomous driving software, which the company dubs “Full Self-Driving” despite its limitations and requirement for human supervision. He stated that “it’s only a matter of time before we exceed the reliability of humans, and not much time at that.”
Musk elaborated on the potential for enabling self-driving capabilities in millions of Tesla vehicles simultaneously, but once again refrained from providing a timeline for this development. He asserted that “if somebody doesn’t believe that Tesla is going to solve autonomy, I think they should not be an investor in the company.”
Early last year, the National Highway Traffic Safety Administration (NHTSA) ordered Tesla to recall its “Full Self-Driving” system after it was found to behave erratically around intersections and disregard speed limits. Tesla also recalled its less advanced Autopilot system to enhance its driver monitoring capabilities. Certain experts express skepticism that any system solely reliant on cameras, like Tesla’s, can attain full autonomy.
