Tesla's first-quarter report fell short of expectations, but reiterated its plan to accelerate the launch of affordable models, rising 8% after hours | Financial Report Insights
Tesla's revenue and profit have been below expectations for three consecutive quarters, with revenue declining year-on-year for the first time in four years and experiencing the largest drop in twelve years. Profits have been halved, and free cash flow has turned negative for the first time since the pandemic. The company reiterated its pessimistic forecast for significant lower vehicle sales growth this year, but stated that it will accelerate the launch of more affordable new models and increase AI investments, emphasizing that "the future belongs not only to electric vehicles, but also to autonomous driving."
On Tuesday, April 23, after the U.S. stock market closed, Tesla, the world's largest automaker by market value, released its first-quarter financial report for 2024.
Although both revenue and profit were lower than expected, and the company maintained its guidance for "significantly lower" car production/delivery growth in 2024, it announced plans to accelerate the launch of more affordable models, causing the stock price to surge by 8% after hours. This move came after recent media reports about canceling the development of Model 2.
Some analysts believe that the plan for an affordable Tesla Model 2 is seen as a key to achieving Musk's sales growth ambitions. In 2020, he stated that Tesla aims to sell 20 million cars by 2030, double the current sales volume of Toyota, the world's largest automaker.
Tesla closed up 1.8% on Tuesday, after dropping 3.4% to $142.05 on Monday, hitting a 15-month low since January 2023. During a seven-day losing streak, the stock fell nearly 19%, and it has dropped by almost 42% year-to-date, making it the second deepest decline among S&P 500 components. The stock had previously fallen by 29% in the first quarter, marking the largest decline since the end of 2022 and the third largest quarterly decline since the company's IPO in 2010.
Before the financial report was released, Wall Street analysts had a "neutral" consensus rating on Tesla, with a target price of $175.67, representing a 21% upside from the current price. Among them, 11 analysts rated it as "buy," 3 recommended "hold," and 4 suggested "sell."
Tesla's revenue and profit have fallen short of expectations for three consecutive quarters, with revenue seeing the largest decline in twelve years and profits halved
The financial report shows that Tesla's first-quarter revenue fell by 9% year-on-year to $21.3 billion, below the market's expectation of $22.3 billion. This marks the first year-on-year decline in nearly four years since the operational disruption caused by the COVID-19 pandemic in the second quarter of 2020, and it is the largest decline since 2012, dropping over 15% from the $25.17 billion in the previous quarter, mainly due to a slowdown in global demand for electric vehicles.
Analysts suggest that this revenue decline is even greater than the decline the company experienced in 2020, which was attributed to production interruptions caused by the pandemic.
Tesla's profit has been continuously squeezed by price reduction strategies and investments in AI and other initiatives. Net profit halved, declining by 55% year-on-year to $1.13 billion, well below the market's expectation of $1.9 billion. Adjusted EPS for the first quarter was $0.45, lower than analysts' expected $0.52, and a decrease from $0.71 in the previous quarter and $0.85 in the same period last yearThe operating profit for the quarter fell by 56% to nearly $1.2 billion year-on-year, with the operating profit margin further declining from 8.2% in the same quarter last year to 5.5%.
Additionally, the company's capital expenditure increased to $2.77 billion, a 34% year-on-year growth. The first-quarter free cash flow was negative $2.5 billion, leading to a $2.2 billion decrease in cash, cash equivalents, and investments at the end of the quarter. This was mainly due to a $2.7 billion increase in inventory during the quarter and $1 billion in capital expenditure on artificial intelligence infrastructure, with further investments planned to enhance core AI infrastructure capabilities in the coming months.
Previously, it was predicted that its gross margin would hit the lowest level in seven years in the first quarter since the launch of the "mass-market divine car" Model 3 in early 2017. Both Barclays and UBS believe that free cash flow will "slightly turn negative," marking the company's first quarter of negative cash flow since early 2020, at a critical time of heavy investment in robotaxis and cheaper new electric vehicles.
In the first quarter, Tesla's automotive revenue decreased by 13% year-on-year to $17.34 billion. The revenue from the energy generation and storage division increased by 7% year-on-year to $1.64 billion, with a record high gross profit increase of 140% year-on-year, and deployment reaching a record high of 4.1 GWh; service and other revenue increased by 25% year-on-year to $2.29 billion.
Reiterating the pessimistic forecast of "significantly lower" vehicle sales growth this year, but stating an accelerated launch of more affordable new models
In its performance guidance, Tesla reiterated that it is currently "between two major growth waves (a platform period)":
"The first growth wave began with the global expansion of the Model 3/Y platform, and we believe the next growth wave will be triggered by advances in autonomous driving and the introduction of new products, including those built on our next-generation vehicle platform. The future is not only electric, but also autonomous.
By 2024, our vehicle sales growth rate may be significantly lower than in 2023, as we focus on launching next-generation vehicles and other products. This year, the growth rate of our energy generation and storage business revenue will exceed that of the automotive business."
It is worth noting that Tesla still maintains its commitment to start production of a "new model" in the second half of 2025, and states that it will accelerate the launch of more cost-effective models and a dedicated robotaxi product. The description of the "more affordable new models" directly contradicts recent reports that Tesla has abandoned the development of a Model 2 priced at less than $30,000The financial report stated that in the first quarter, the average selling price of vehicles decreased, with increased operating expenses due to investments in artificial intelligence, battery upgrades, and other R&D projects. Additionally, costs related to the increase in Cybertruck electric pickup production, declining vehicle deliveries, etc., led to a weak operating profit.
However, the decrease in raw materials, freight, and tariffs is reducing the unit cost per vehicle seasonally. The introduction of the Autopark feature in North America has also increased the revenue recognition of the FSD intelligent driving assistance system year-on-year.
The financial report also revealed that AI training computation in the first quarter increased by over 130%, with over 1,000 Cybertrucks produced in a single week in April. The Model Y production in Texas reached a historical high, with unit sales costs at a historical low. The company expects the demand in the Chinese market to improve throughout the year, stating that many products will be supplied by the Shanghai Gigafactory when entering new markets like Chile.
Furthermore, analysts suggest that Tesla invested $1 billion in AI computing in the first three months of this year, making it more like an AI company than a traditional car manufacturer.
Why is this important?
Following weak deliveries in the first quarter, layoffs, and the comprehensive recall of Cybertrucks, the weekend's global price reduction measures have intensified investors' growing concerns. With investor sentiment declining and the company's financial situation weakening, there is an urgent need to understand the latest developments regarding Tesla's current and future prospects. This financial report is likely a crucial "crossroads" that will determine Tesla's near-term fate.
The "bullish" brokerage firm Wedbush bluntly stated that the Tuesday financial report and conference call are a "critical moment" for Tesla and CEO Elon Musk, possibly one of the most important moments in the company's history, with significant implications for the stock price. After a turbulent first quarter, Tesla needs to reassure investors, seizing the opportunity to ensure that the recent setbacks are just "unexpected speed bumps" rather than the beginning of a decline.
On one hand, Tesla's global delivery and production volumes in the first quarter were below expectations, with deliveries down 8.5% year-on-year, marking the first year-on-year decline in nearly four years since 2020, even falling below analysts' most pessimistic expectations. This decline is also 20% lower than the record high delivery volume in the fourth quarter of last year. Combined with the news of global layoffs of at least 10% last week, it highlights the dilemma of price reductions failing to stimulate EV demand effectively.
Simultaneously, news before the first-quarter report revealed Tesla shelving the development of the sub-$30,000 Model 2 vehicle and instead focusing on the launch of a self-driving robotaxi on August 8. These actions represent Tesla's priorities and growth strategies shifting from entering broader markets to focusing on "full self-driving" technology, which may impact the composition of long-term shareholders and subsequently lead to stock price fluctuationsAccording to some analysis, Tesla's stock price logic has long been based on future expectations of mass market sales and autonomous driving cars, rather than current sales and profits. Therefore, this financial report provides investors with a valuable opportunity to clarify the direction and strategy for the next stage of development:
"Currently, investors are not only digesting the continuously falling stock price, disappointing sales data, and the controversial plan to relocate the company's headquarters from Delaware to Texas, but also facing another dilemma: whether Tesla will become a large EV manufacturer with cheaper models or a smaller autonomous driving technology provider."
Deutsche Bank pointed out that at present, Tesla's future seems closely related to "cracking the code for fully autonomous driving," which represents "significant technological, regulatory, and operational challenges."
What is most concerning?
When Tesla announces its first-quarter performance on Tuesday, it is expected that Musk will face tough questions from analysts regarding declining sales, intensified competition from Chinese electric vehicle manufacturers, and the fate of Tesla's key future products. After the stock plummeted, investors are focusing on electric vehicle demand, recent performance guidance from the company, and the product roadmap layout.
Investors also want to know if Tesla is undergoing a major strategic shift. Bank of America analyst John Murphy pointed out that confidence in Tesla has deteriorated since the end of 2023, and attention will be on management comments related to growth initiatives, especially the "next-generation platform" relied upon by the more affordable electric vehicle Model 2, AI, and the Robotaxi for fully autonomous driving.
In terms of new markets, there is high market attention on Musk's postponed planned trip to India, building factories and investing in chip production in South Asia, as well as the construction and production of the super factory in Mexico, and the sales performance of the Cybertruck electric pickup. Documents submitted to regulatory agencies last week indicated that since deliveries began at the end of November last year, Cybertruck sales have been low, with less than 4,000 units sold.
How does Wall Street view it?
Wall Street News has mentioned that a significant breakthrough in Full Self-Driving (FSD) may lead Musk to bet the company's future on autonomous driving, especially Robotaxi, temporarily abandoning the development and sale of more affordable electric vehicles. However, facing numerous regulatory obstacles, high costs, and the reality that autonomous driving technology is not yet mature, Robotaxi may not be able to support Tesla's next growth stage.
Although Goldman Sachs believes that Tesla is still one of the leaders in the field of autonomous driving/ADAS technology, and in the long run, they believe that software and digital services can become important drivers of its business, many analysts believe that in the face of the severe challenge of weak demand for electric vehicles, Tesla's current strategy of shifting towards robotaxi for autonomous driving, rather than cheaper electric vehicles, is risky.Morgan Stanley, which rated Tesla as "underweight," attributed the disappointing first-quarter delivery volume to logistical challenges such as the Suez Canal conflict causing transportation diversions and the suspected arson attack at the German factory leading to production halts. They stated that it is not convincing that these logistics challenges are the sole reason for the decline in delivery volume, especially after Tesla announced a large-scale layoff last week, which equates to a reduction in personnel capacity. This undoubtedly indicates that the decrease in delivery volume is a result of declining demand rather than supply constraints.
Morgan Stanley had previously predicted that Tesla would incur losses this year and subsequently lowered its quarterly delivery volume forecast. Fidelity Bank expressed concerns that Tesla is becoming "a growth company without growth" and downgraded its rating to "sell." Bank of America still believes that the more affordable Model 2 will be launched in 2025 or 2026, but also acknowledges that "due to the weak fundamentals of electric vehicles and the subdued sentiment surrounding the electrification theme, Tesla's stock has been under significant pressure, and investors will focus on Tesla's demand and future growth plans."
Wedbush, which has always been bullish on Tesla, pointed out that the first-quarter delivery volume for Tesla was a nightmare level, and the next few months are a crucial "crossroads." As investor patience wanes and the robot taxi is not a short-term growth solution, if Tesla cannot provide new strategic prospects, its stock will face "darker days":
"Although we have seen more fragile periods in Tesla's history, such as 2015, 2018, and 2020, this time is clearly a bit different. Many long-term Tesla believers are starting to give up on this (high-growth) story for the first time and are throwing in the towel."
Deutsche Bank, which revoked its "buy" rating before the first-quarter report, believes that if Tesla abandons cheaper electric vehicles and instead goes "All in" on fully autonomous driving, it may need to undergo a potential painful transformation in shareholder composition:
"Investors who previously bet on Tesla's electric vehicle sales and cost advantages may recognize the output and eventually be replaced by more forward-looking artificial intelligence/technology investors.
However, going all out for autonomous driving carries significant risks. The August release of the robot taxi does not mean that the technology is ready, and challenges in technology, regulation, acquiring sufficient data, and operational aspects may hinder its commercial prospects. We are concerned about the significant execution risks in the development of Robotaxi technology, and fleet deployment may take several years.
The delayed development of the Model 2, originally scheduled for production in 2025, poses a risk of having no new cars in Tesla's consumer product lineup in the foreseeable future, which will bring sustained downward pressure on its sales and pricing for the next several years."