Tesla’s Revenue Slumped but Elon Musk Promised Affordable EVs & Robotaxis

Tesla Q1 2024 Results

Although sales of electric vehicles continue to rise, the rate of adoption has slowed due to range of factors. These include price premiums, range anxiety, elevated inflation and high interest rates. EV sales in the US grew by a strong 46.3% in 2023 according to the Kelley Blue Book ^[1], but this is substantially slower compared to recent years (66% in 2022 and 89% in 2021). On a global scale, the International Energy Agency (IEA) expects growth of around 21.5% this year, down from the 35% expansion of 2023. ^[2]

Reacting to weaker demand, major automakers like Ford have put renewed emphasis on hybrids. Tesla Motors Inc does not have such plans and has responded by slashing prices amidst intense competition, but has still taken a hit. Tuesday's Q1 results, revealed Its days of supply surged by an eye watering 87% y/y, to 28. Deliveries slumped to 386,810 units, in what was the first contraction in nearly four years and the pandemic breakout. ^[3]

This combination of lower asking prices and sales, delivered a blow to its top and bottom lines. Revenues dropped for the first time since Q2 2020, while profitability continued to decline. Operating income of $1.171 billion was the smallest in three years and operating margin of 5.5, was the lowest since Q4 2020.

Despite the downbeat financials, CEO Elon Musk offered reasons for optimism, promising cheaper vehicles, which are crucial given the adverse external environment and slower adoption. He had previously touted a cheap car, but now offered an accelerated timeline for updated lineup that includes "affordable models", to "more like the early 2025, if not late this year" ^[4]. However, it is unclear if this is the next gen 25K car he had referred to in the past. Competing on price though may be a lost battle for the EV pioneer, as Chinese rivals already dominate that front.

Elon Musk seems to care more about autonomous driving, which as I have written before can unlock tremendous value if done right. He tried to reframe Tesla as "an AI or robotics company" and said it will showcase the purpose-built robotaxi in August. He also touted progress on FSD and mentioned they are in talks with "one major automaker" for licensing it. He also dismissed any regulatory concerns, saying "I actually do not think that there will be significant regulatory barriers" if there are "conclusive data" that the autonomous car are safer than man-operated ones.

Tesla's stock has suffered this year from a stream of negative news, narrowing profitability and lower deliveries. Despite Tuesday's poor financials, markets reacted positively to the promise of cheap EVs and robotaxis, with the stock gaining more than 10% in today's premarket.