Tesla investors, still reeling from a 43% drop in share price since the year’s inception, are bracing for what are likely to be unimpressive financial results for the first quarter, coupled with a significant shift in priorities for CEO Elon Musk, who is doubling down on his commitment to “go balls to the wall for autonomy.”
Tesla is expected to report earnings after markets close Tuesday, with the company’s earnings call scheduled for 5:30 pm ET. Tesla shares rose Tuesday morning, gaining more than 2% ahead of earnings, marking a brief respite in an otherwise downward trend exacerbated since early March.
The plummeting share price comes amidst Musk’s renewed focus on automated driving on two fronts: aggressively marketing its advanced driver assistance system known as “Full Self-Driving,” or FSD, to more customers and simultaneously pursuing an ambitious project to bring a robotaxi to market.
Over the weekend, Tesla slashed the price of its Full Self-Driving (FSD) advanced driver-assistance system to $8,000, down from $12,000. This price cut follows last week’s reduction of the FSD monthly subscription to $99 from $199.
Tesla’s push to get FSD into more cars could be a strategic move to collect more data, which will be crucial for enhancing the neural networks that will power fuller-scale autonomy. FSD currently performs many driving tasks in urban and highway environments but still requires a human driver to remain alert and ready to take over if necessary.
Tesla’s major and expensive bet on autonomous driving technology comes at a time when the company faces narrowing profits. Last week, Tesla laid off 10% of its staff to cut costs in preparation for the company’s “next growth phase,” according to an email Musk sent to all employees.
Earlier this month, Musk abruptly announced on Twitter that Tesla was halting development of its $25,000 electric vehicle in favor of a robotaxi, which he promised to unveil in August. Sources within Tesla have confirmed to TechCrunch that they had no prior warning from Musk about this unexpected shift and that internal restructurings reflect a new ethos that prioritizes robotaxi development.
These developments coincide with Tesla’s ongoing adjustments to its EV pricing strategy. Last week, Tesla eliminated EV inventory price discounts, but over the weekend, it slashed prices on the Model 3 and Model Y by up to $2,000 in the U.S., China, and Germany.
As witnessed in the first quarter of 2023, such price cuts adversely affect Tesla’s income and margins. The company will need to persuade investors that its shift in focus to autonomous vehicles is a silver lining amidst declining margins, rather than merely a smokescreen.
Tesla’s lower first-quarter delivery figures and price cuts are likely to result in reduced profits. Analysts polled by Yahoo Finance forecast a profit of $0.48 per share on $20.94 billion in revenue. Notably, Tesla generated $25.17 billion in revenue in Q4 and $23.3 billion in the first quarter of 2023.
Tesla delivered 386,810 vehicles in the first quarter of 2024, a 20% decrease from the 484,507 delivered in the final quarter of 2023. It’s noteworthy that this decline was not merely a quarter-over-quarter blip. Tesla delivered fewer cars than in the first quarter of 2023, marking the first year-over-year sales drop in three years.
Tesla’s Q4 results revealed a company already grappling with shrinking profit margins due to its price-cutting strategy and rising costs associated with the Cybertruck production launch and other R&D expenses. The automaker reported a net income of $7.9 billion in the fourth quarter on a GAAP basis, an outsized figure primarily driven by a one-time, non-cash tax benefit of $5.9 billion.
The company’s operating income and its earnings on an adjusted basis provide a clearer picture of its financial performance. Tesla reported operating income of $2.06 billion in the fourth quarter, a 47% decrease from the same period a year earlier. On an adjusted basis, the company earned $3.9 billion, a 27% drop from the same period last year.
The key question is whether Tesla can prevent that profit pie from shrinking to a profit muffin. Since Tesla reported its Q1 2024 production and delivery numbers, the company has continued to pull various financial levers to attract new buyers and entice existing customers to purchase FSD, all while reducing costs and maintaining profit margins.
These conflicting goals, coupled with Musk’s “wartime CEO mode” status, are poised to make the Q1 earnings call an entertaining affair. Beyond the potential theatrics, there are pressing long-term questions about how Tesla will deliver on autonomy and whether it will be enough to convince investors that it can retain its leadership position and continue to innovate.
