Brief:
- Tesla has experienced its most significant drop in revenue since 2012, with a 9% decrease in the first quarter.
- The company's stock price has fallen over 40% this year, as of the close on Tuesday, amid rising global competition.
- Additionally, the growth in electric vehicle sales is decelerating, leading Tesla and its main competitors to repeatedly cut EV prices in recent months to boost demand.
Tesla Shares Fall After Q1 Report: Insights and Analysis
Tesla Shares Fall Despite Revenue Decline
Tesla announced a 9% decrease in revenue for the first quarter on Tuesday, marking its largest drop since 2012 and falling short of analysts' expectations, as the company continues to navigate the impacts of persistent price reductions.
However, the stock saw an uptick in after-hours trading following CEO Elon Musk's announcement to investors about the potential for earlier-than-anticipated production of new, more affordable electric vehicle models.
This is how the company's performance measured up against Wall Street forecasts, according to an LSEG analyst survey:
Revenue fell to $23.33 billion from $25.17 billion in the previous quarter, while net income plummeted 55% to $1.13 billion, or 34 cents per share, down from $2.51 billion, or 73 cents per share, a year earlier.
This decline in sales was more severe than the last major drop in 2020, which occurred during production interruptions caused by the Covid-19 pandemic. In the first quarter of 2024, Tesla's automotive revenue fell 13% year-over-year to $17.38 billion.
Early Production Boosts Tesla Shares
On the earnings call, Musk mentioned that Tesla aims to begin production of new models by "early 2025, or perhaps even late this year," a more optimistic timeline than the previously projected second half of 2025. Musk also highlighted Tesla’s advancements in artificial intelligence and ongoing negotiations with "one major automaker" to license its Full Self-Driving (FSD) driver assistance system, currently available in the U.S.
Tesla Shares and Future Growth
In its presentation to shareholders, Tesla provided a less optimistic forecast for 2024, indicating to investors that the rate of growth in vehicle volumes might fall well below the levels seen in 2023.
Before the shares surged 13% in after-hours trading, Tesla's stock had dropped over 40% this year, hitting its lowest point since January 2023. This decline was driven by concerns over sluggish deliveries, intensifying competition in China, and ongoing price reductions.
Tesla Q1 2024 Earnings Notes. $TSLA
Elon opening remarks:
- Q1 challenges as well as ramp of Model 3 in Fremont. EV adoption rate globally is under pressure. EVs will dominate the market long term. Despite challenges, Tesla team did good. Megapack reached all time high in Q1,…
— Farzad (@farzyness) April 23, 2024
Source: Twitter/Farzad
Earlier in the month, Tesla noted an 8.5% decrease in vehicle deliveries compared to the first quarter of the previous year.
The company mentioned in the presentation that it is fast-tracking the introduction of "new vehicles, including more affordable models," which will be manufactured on the same production lines as its existing models.
Tesla's goal is to maximize the use of its existing production capacity and to surpass its 2023 production by more than 50% before it considers adding new manufacturing facilities.
Tesla Shares Reflect Operational Challenges and Opportunities
The growth of electric vehicle (EV) sales is slowing, prompting Tesla and its main competitors to reduce prices in an attempt to boost demand. This led to an 18% drop in Tesla's gross profits in the first quarter, largely influenced by these price reductions.
During a discussion about first-quarter operational hurdles, including disruptions in the supply chain along the Red Sea, CEO Elon Musk expressed optimism about improvement in the second quarter.
Tesla's reported total sales included earnings from previous sales of its Full Self-Driving (FSD) option. The launch of an Autopark feature in North America enabled the company to account for previously deferred revenue.
According to Chris Redl, an autos analyst at Siena Capital, Tesla recognized up to $700 million in deferred revenue from FSD in the quarter, which accounts for approximately 4.3% of Tesla’s automotive revenue once regulatory credits are excluded.
Tesla underwent significant organizational changes this month, seeing the departure of two executives, Drew Baglino and Rohan Patel. Last week, Musk announced in a companywide memo that the automaker would reduce its global workforce by more than 10%.
The company's capital expenditures increased by 34%, reaching $2.77 billion.
Tesla’s free cash flow was negative this quarter, posting a deficit of $2.53 billion. This contrasts with a free cash flow of $441 million a year ago and $2.06 billion in the previous quarter. The company attributed this downturn to a $2.7 billion increase in inventory and $1 billion spent on developing AI infrastructure.
Leadership and Commitment to Tesla Shares
Revenue from Tesla's energy business saw a 7% increase to $1.64 billion, while the services and other segment of the company experienced a 25% rise to $2.29 billion compared to the same quarter last year.
During the earnings call, Musk was questioned about whether he plans to step down from Tesla due to his numerous other commitments, which include leading SpaceX, overseeing X (previously known as Twitter), and managing other ventures.
Musk did not give a direct answer, instead noting that he spends most of his time working, and he seldom takes even a Sunday afternoon off. He emphasized his commitment to ensuring Tesla's continued success.
At the end of the call, Tesla's Vice President of Investor Relations, Martin Viecha, announced his departure from the company in a few months after a tenure of seven years, to which Musk expressed his gratitude.
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