Shift in Priorities: Tesla’s Focus on Autonomy
Tesla investors are bracing themselves for disappointing first-quarter financial results and a change in strategy from CEO Elon Musk. The company’s shares have plummeted by 43% since the start of the year, but there was a brief moment of optimism as the shares rose by over 2% on Tuesday morning ahead of the earnings report. The downward trend in share price has been accelerated by Musk’s renewed emphasis on automated driving and plans to bring a robotaxi to the market.
To promote its advanced driver assistance system, known as “Full Self-Driving” (FSD), Tesla recently reduced the price of the FSD system from $12,000 to $8,000. Additionally, the monthly subscription price for FSD was slashed from $199 to $99. The company’s push to install FSD in more vehicles may be an attempt to gather more data and improve the neural networks required for full-scale autonomy. Currently, FSD can handle various driving tasks but still requires human supervision.
Tesla’s increased focus on autonomous driving comes at a cost. The company faces narrowing profits as it makes a significant investment in this technology. In preparation for its next growth phase, Tesla recently laid off 10% of its workforce to reduce costs. Musk’s unexpected announcement that the development of a $25,000 electric vehicle would be put on hold in favor of the robotaxi project has also caused internal restructuring within the company.
Meanwhile, Tesla has been adjusting its electric vehicle pricing strategy. Last week, the company discontinued EV inventory price discounts, but over the weekend, it slashed prices on the Model 3 and Model Y by up to $2,000 in several countries. This pricing volatility has impacted Tesla’s income and margins during the first quarter of 2024.
As Tesla prepares to announce its first-quarter earnings, analysts predict a smaller profit due to lower delivery figures and price cuts. Analysts polled by Yahoo Finance expect earnings of $0.51 per share on $22.15 billion in revenue, compared to $25.17 billion in revenue in the previous quarter. In the first quarter of 2024, Tesla delivered 386,810 vehicles, a 20% decrease from the previous quarter and the first year-over-year drop in sales in three years.
Tesla’s fourth-quarter results already reflected shrinking profit margins due to price reductions and rising costs associated with the launch of its Cybertruck production and other research and development expenses. The company’s operating income decreased by 47% compared to the previous year, and its adjusted earnings dropped by 27%.
As Tesla continues to make efforts to attract new customers and encourage existing ones to purchase FSD, while also reducing costs and maintaining profit margins, there are concerns about how the company will deliver on its promises of autonomy. The upcoming earnings call is expected to be eventful, given Musk’s status as a “wartime CEO.” The long-term question remains whether Tesla can convince investors that it is still at the forefront of innovation and capable of leading the industry.
