In the first quarter, Tesla ‘s profits dropped by 55% to $1.13 billion compared to the same period last year. A prolonged strategy of reducing EV prices and facing several unexpected challenges impacted the automaker’s bottom line.
In the first quarter, Tesla’s revenue saw a 9% decline compared to the same period in 2023, amounting to $21.3 billion. Analysts surveyed by Yahoo Finance had projected earnings of $0.51 per share on $22.15 billion in revenue. In the first quarter, Tesla’s operating income experienced a significant decline of 54% compared to the same period last year, amounting to $1.2 billion.
In its Q1 earnings report, the company highlighted the various challenges it faced during the first quarter. These included the Red Sea conflict, the arson attack at Gigafactory Berlin, and the gradual ramp-up of the updated Model 3 at its factory in Fremont, California. Tesla also highlighted the ongoing challenge of global EV sales, with many carmakers giving priority to hybrids instead of EVs. Fortunately, the hybrid approach has allowed automakers to consistently purchase regulatory credits. In the first quarter alone, Tesla managed to earn an impressive $442 million in zero-emissions tax credits.
“The global EV adoption rate is facing challenges, with many other auto manufacturers shifting their focus from EVs to plug-in hybrids,” stated Tesla CEO Elon Musk during the earnings call. We believe that this strategy does not align with the future dominance of electric vehicles in the market.
Stock prices surge on optimistic projections.
The results, posted after markets closed Tuesday, caused shares to rise by as much as 12% following the release. Investors seemed to be particularly interested in Tesla’s forward-looking remarks about future products. This included an updated product roadmap that aims to introduce several more affordable vehicles to the market by 2025.
Despite the decline in profits, Tesla remains optimistic in their first-quarter report, highlighting their focus on the future. They discuss their plans to leverage AI technology to make advancements in autonomy and introduce new products, including those built on a next-generation vehicle platform. In the first quarter, the company allocated a substantial $1.1 billion towards research and development, marking an impressive 49% surge compared to the corresponding quarter in 2023.
Musk made it clear that, despite the challenges, the company remained committed to and actively invested in the future. According to Musk, the company is fast-tracking the development of a new vehicle lineup, aiming for production to begin as early as late this year or in early 2025.
“These new vehicles, including more affordable models, will incorporate elements from both the next-generation platform and our current platforms,” he stated. And we can easily produce on our current vehicle lineup’s existing manufacturing lines.
The impact of reducing prices
Tesla has experienced a significant increase in EV sales in recent years, reaching a new milestone of 1.8 million vehicles sold in 2023. However, a series of price reductions that began in late 2022 have negatively impacted the company’s profits.
Although the price cuts initially boosted sales, their impact was not long-lasting. In the first quarter of 2024, Tesla’s vehicle deliveries amounted to 386,810, showing a 20% decrease compared to the previous quarter’s total of 484,507. It’s worth noting that Tesla’s car deliveries in the first quarter of 2023 were 8.5% lower compared to the previous quarter, indicating a significant decline. In the first quarter, automotive gross margins, excluding regulatory credits, decreased to 16.35% from 18.96% in the same period last year.
In January, Tesla issued a warning about the potential slowdown in its vehicle sales growth for 2024. The company acknowledged being in a transitional phase between two significant periods of growth and was actively preparing for the introduction of a new vehicle platform. This platform aims to produce a smaller electric vehicle with a price tag of approximately $25,000. In addition, the company has been developing a “robotaxi” that utilizes the same platform. Meanwhile, Tesla has introduced the pricey (and demanding) Cybertruck as its latest model, along with new versions of its existing models, such as the Tesla Model 3 Performance.
Musk revealed during the company’s earnings call in January that the company plans to start production of the smaller and more affordable EV at its Texas factory in late 2025, with plans to expand to a new facility in Mexico.
Three months later, it seems that Musk has altered the company’s strategy for affordable electric vehicles. Musk appears to have opted to substitute the initial plan with a low-cost electric vehicle, specifically tailored for the new platform. Now, he is eager to dive straight into the world of robotaxis, with plans to unveil them in some capacity in August. Additionally, he aims to introduce “new models” that leverage the advancements made for this innovative platform.
Musk has made significant changes in less than two weeks since announcing the robotaxi launch date, overseeing a 10% reduction in headcount and implementing a restructuring that places a strong emphasis on autonomy. Two executives, Drew Baglino and Rohan Patel, have recently departed from Tesla. Tesla CFO Vaibhav Taneja projected that the annual savings from the workforce reduction will exceed $1 billion during the earnings call.
Alternative sources of income
Although automotive revenues experienced a decline, there were positive developments in other areas of the business, particularly in the field of energy storage.
The company announced a significant increase in energy storage deployments, reaching a new record of 4.1 GWh. Revenue for energy generation (specifically solar) and storage reached 1.6 billion in the first quarter, marking a 7% increase compared to the same quarter last year. Tesla noted that increased Megapack deployments drove a significant portion of the growth, albeit partially offset by a decline in solar installations.
The company also revealed that its services generated $2.28 billion in revenue, including capital from its Supercharger network. We anticipate a significant increase in this revenue source as more automakers, including Ford, GM, Rivian, and VW, adopt Tesla’s North American Charging Standard.
Tesla Semi encounters unexpected delays.
While Tesla is making progress on autonomy and a new product roadmap, there are still some projects that are experiencing delays. Another year has passed since the initial unveiling of the Tesla Semi in November 2017.
Production of the Tesla Semi, originally scheduled for 2019, has faced multiple delays. In December 2022, the company unveiled a production-ready Semi and successfully delivered a few to Pepsi, its inaugural customer, for a pilot program. However, it still needs to increase its volume of production.
In June of last year, Musk stated that the company’s production of the Class 8 big rig would not commence until the end of 2024. Tesla has now scheduled the first production Semi vehicles for late 2025, with external customers expected to receive them in 2026.
Tesla is in the final stages of engineering the Semi to achieve a highly cost-effective and efficient production process, as revealed during the call. The company announced in its first-quarter earnings report that it has commenced the construction of a Tesla Semi factory adjacent to its Gigafactory in Sparks, Nevada.
