Tesla, the renowned electric vehicle (EV) manufacturer, recently announced a 55% decrease in profits to $1.13 billion in the first quarter of this year compared to the same period last year. The decline in profits can be attributed to two key factors: an aggressive EV price-cutting strategy and several unforeseen challenges that impacted the company’s operations.
Despite reporting revenue of $21.3 billion in the first quarter, which marked a 9% drop from the previous year, Tesla fell short of analysts’ expectations. Analysts predicted earnings of $0.51 per share on $22.15 billion in revenue.
In its Q1 earnings report, Tesla acknowledged facing numerous challenges during the first quarter. These challenges included the Red Sea conflict, an arson attack at Gigafactory Berlin, and production delays with the updated Model 3 at its factory in Fremont, California. Additionally, Tesla highlighted that global EV sales continue to face pressure as many car manufacturers prioritize hybrids over EVs.
However, there were some positive aspects within Tesla’s financial results. The hybrid approach adopted by several automakers has resulted in continued demand for regulatory credits. Tesla earned $442 million in zero emissions tax credits in the first quarter. These credits have helped offset some of the financial losses incurred by the company.
Despite the decline in profits, Tesla’s stock saw a 9% increase immediately after the release of its Q1 earnings report. Investors appeared to focus more on Tesla’s forward-looking remarks regarding future products and an upended product roadmap. The company emphasized its commitment to advancing autonomy and introducing new products built on a next-generation vehicle platform. Tesla invested $1.1 billion in research and development during the first quarter, a 49% increase from the previous year’s quarter.
The decline in profits can be attributed to Tesla’s repeated price cuts, which began in late 2022. While these price cuts did initially boost sales, the effect was not long-lasting. In the first quarter of 2024, Tesla delivered 386,810 vehicles, a 20% decrease from the previous quarter. Furthermore, Tesla delivered 8.5% fewer cars compared to the first quarter of 2023. Automotive gross margins, excluding regulatory credits, also shrank to 16.35% in the first quarter, down from 18.96% in the same period last year.
Tesla had previously warned that its vehicle sales growth might be notably lower in 2024. The company cited being between “two major growth waves” and preparing for the launch of a new vehicle platform to produce a smaller EV that costs around $25,000. Additionally, Tesla had plans for a “robotaxi” built on the same platform. However, Tesla CEO Elon Musk seems to have altered the company’s low-cost EV strategy. Instead of focusing on a low-cost EV, Musk now intends to prioritize the robotaxi. The details of this new strategy are set to be revealed in some capacity in August.
Subsequently, Musk oversaw a 10% reduction in headcount and a restructuring that emphasizes autonomy. Two high-profile executives left the company as part of this restructuring. The CFO of Tesla, Vaibhav Taneja, stated during the earnings call that the workforce reduction is expected to generate savings well over $1 billion on an annual basis.
While automotive revenues declined, Tesla experienced growth in other areas of its business. Notably, energy storage deployments reached a record 4.1 GWh, leading to a 7% increase in revenue from energy generation and storage compared to the same quarter last year. The growth in revenue was primarily driven by increased Megapack deployments, partially offset by a decrease in solar installations.
Furthermore, Tesla reported $2.28 billion in revenue from services, including capital generated from its Supercharger network. This revenue source is expected to increase as more automakers, such as Ford, GM, Rivian, and VW, adopt Tesla’s North American Charging Standard technology.
In conclusion, Tesla’s first-quarter profits experienced a significant decline due to an EV price-cutting strategy and various challenges faced by the company. Despite falling short of analysts’ expectations, Tesla’s stock saw a brief surge after the release of its earnings report, as investors focused on the company’s future products and advancements in autonomy. Tesla’s decision to prioritize the robotaxi over a low-cost EV has led to a restructuring and headcount reduction. However, the company continues to generate revenue from energy storage and its services sector. Overall, Tesla remains a key player in the EV industry, constantly innovating and adapting to market demands.
