Tesla investors endured a difficult first quarter.
Tesla’s stock fell 29% in the first three months of the year, its worst quarter since the end of 2022 and the third worst since the company went public in 2010. It was also the largest loser in the S&P 500.
Wall Street is particularly concerned about Tesla’s main business. The business is set to disclose first-quarter vehicle production and deliveries in the coming days, and even bulls anticipate lackluster performance, despite price reduction and buyer incentives offered during the period.
According to FactSet’s average of 11 analyst projections, experts were anticipating roughly 457,000 deliveries for the quarter as of Thursday, the penultimate trading day. That would be an 8% rise from 422,875 a year ago. Estimates for the quarter ranged between 414,000 and 511,000 deliveries.
Analysts that updated their projections in March were the most pessimistic, ranging from 414,000 to 469,000. Independent auto industry researcher “Troy Teslike” anticipates the company’s deliveries to fall short of even FactSet’s lowest projection.
Deliveries are the closest approximation of Tesla’s stated sales, but they are not clearly defined in the company’s shareholder communications.
Here are the four main causes behind Tesla’s first-quarter decline.
Unrelenting competitiveness in China.
In China, there is competition from a slew of fully electric vehicles, including new models that are less expensive than Tesla’s popular Model Y SUV and Model 3 sedan.
By the end of 2023, China’s BYD had surpassed Tesla as the world’s leading EV manufacturer. In the first quarter of this year, BYD maintained the pressure by debuting its Qin Plus EV at a starting price of roughly $15,200, followed by its BYD Seagull, a compact all-electric hatchback priced below $10,000.
Xiaomi, a Chinese smartphone manufacturer, is entering the game with its first vehicle, a completely electric SUV that is significantly less expensive than Tesla’s entry-level Model 3 sedan. Xiaomi CEO Lei Jun stated that the base version of the SU7 will sell for the equivalent of $30,408 in China, which he recognized would result in the business losing money on each transaction. Tesla’s Model 3 costs approximately $4,000 more.
Tesla lowered pricing in response, but sales remained slow.
According to figures from the China Passenger Car Association, Tesla sold 71,447 China-made vehicles in January, with 39,881 sold domestically, a decrease from December. In February, the number of Teslas manufactured in China fell again to 60,365, including exports.
As sales fell, Tesla decreased production at its Shanghai factory, reducing staffing from six and a half to five days per week, Bloomberg reported first.
Tesla did not provide forecast for 2024 on its earnings call in January, but experts perceive Tesla’s China troubles as a foreshadowing a difficult quarter, if not full year.
This week, Deutsche Bank analyst Emmanuel Rosner reduced Tesla’s price estimate, citing lower-than-expected China sales and the company’s recent intention to reduce manufacturing in the region. Rosner now expects Tesla to record 414,000 deliveries in the first three months of 2024, with year-over-year growth in the mid-single digits.
Red Sea attacks, activist conflicts in Europe.
There was also drama in Europe.
Tesla and other manufacturers, such as Volvo, paused partial manufacturing on the continent in January due to a component scarcity caused by attacks on shipping in the Red Sea. Iran-backed Houthi rebel strikes have continued to disrupt one of the world’s most important routes.
Then, in March, environmentalists staged a major demonstration in Germany. Objecting to Tesla’s intentions to expand the footprint of its vehicle and battery facility in Brandenburg, outside of Berlin, protesters set fire to electrical infrastructure near the plant. While the fire did not spread to the factory, it left the facility without enough electricity to operate, necessitating a temporary suspension of production.
Following the incident, CEO Elon Musk visited the German factory to comfort employees. He also described the protest as “extremely dumb.” Tesla’s head of policy, Rohan Patel, wrote on X that Tesla’s purpose is to “create zero emissions products” but to do it properly, “we also focus on creating the most sustainable factories along with a culture to do the right thing.” “In our community.”
Meanwhile, in the Nordic countries, Tesla service technicians and other employees have gone on strike to support the Swedish labor organization IF Metall. Since October 2023, the labor union has pressured Tesla to discuss and sign a collective bargaining agreement with its employees.
According to IF Metall’s website, nine out of ten Swedish workers are union members, but Tesla has continuously opposed unionization, as it does in the United States, and has rejected IF Metall’s negotiations.
Cybertruck is an aging lineup and is still in its early days.
While EV sales continue to climb globally, the rate has decreased. And, with Tesla no longer the dominating player, each new product is more important. There’s not much in the hopper.
The Cybertruck is still in its early stages and has a narrow appeal. In December, the business began presenting the truck’s angular, unpainted steel prototypes during a promotional event in Austin, Texas.
Musk earlier remarked during an earnings call that Tesla “dug its own grave” with the sci-fi-inspired Cybertruck. In a late 2023 conversation with Tesla enthusiast and car critic Sandy Munro, Musk warned that the “Cybertruck is not something that will be material to Tesla’s financials” in 2024.
Tesla is ramping up manufacturing of its updated Model 3, known as the Highland, in Fremont, California. Forbes’ Larry Magid wrote, “Visually, the changes on the outside are subtle.” He also objected to Tesla’s contentious design decision to remove “stalks” off the sides of the steering wheel. Highland drivers utilize buttons and on-screen controls to switch between drive, reverse, and park modes, as well as to signal a turn or lane change.
Tesla is developing a completely new platform, a more affordable electric vehicle known as the “Model 2.” However, it will not be provided to clients for years.
Musk Control and Controversy
Musk has continued to wager that Tesla customers and stockholders will stick with the company despite his increasingly heated rhetoric about X and beyond.
Earlier this month, Musk met with former President Donald Trump in Florida. He has advocated for a “red wave” in the upcoming US elections and has shared, liked, or otherwise pushed far-right accounts and content on X, where he now has 178.8 million listed followers. He has repeatedly disparaged undocumented immigrants, railed against business diversity initiatives, and made ridiculous allegations that Haitian migrants are cannibals.
Musk’s political worldview is at conflict with the demographics most likely to purchase his products. According to last year’s Pew Research and Gallup poll, proponents of electric vehicles are philosophically left-leaning.
Musk has also predicted that Tesla’s shareholders and board of directors will follow his lead. Musk announced in February that he will seek a shareholder vote to change Tesla’s incorporation from Delaware to Texas, after a Delaware judge overturned his $56 billion pay package in 2019 on the basis that the board failed to prove “the compensation plan was fair.”
Prior to the ruling, Musk had been lobbying shareholders and the Tesla board to give him more control over the EV company.
Musk expressed discomfort with building Tesla as a leader in AI and robots without having ~25% voting control in a January post.
In an interview with CNBC, investor Ross Gerber, a longtime Tesla bull, described the demand as “blackmail”.
Bears clean up
All told, Tesla and its shareholders have lost more than $230 billion in market capitalization since the calendar moved to 2024. This made for an extremely profitable quarter for short sellers, who had been anticipating such a downturn.
According to S3 Partners statistics, Tesla shorts are up more than $5.77 billion by 2024, making it the most profitable name in the United States. At the end of trading on Thursday, short interest was approximately 3.76% of the float, or $18.71 billion in notional value.
Brad Gerstner of Altimeter Capital is buying on the dip. Gerstner told CNBC this week that the corporation is making “massive progress at an accelerating rate” with its self-driving technology efforts.
Musk has been making such statements for years. In 2015, he informed shareholders that Tesla’s cars will reach “full autonomy,” or the ability to drive themselves, by 2018. In 2016, he stated that Tesla would be able to send one of its cars on a cross-country drive without human intervention before the end of the year.
Tesla has yet to release a robotaxi, autonomous vehicle, or technology that can transform its vehicles into “level 3” automated vehicles. Tesla does, however, provide advanced driver assistance systems (ADAS), including a regular Autopilot option and a premium Full Self-Driving “FSD” option, the latter of which costs $199 each month for subscribers in the United States or $12,000 up front.
In an effort to boost end-of-quarter sales, Musk recently demanded that all sales and service personnel install and demonstrate FSD for customers before handing over their vehicles. In an email to workers, he stated, “Almost no one realizes how well (supervised) FSD actually works.” I know this may delay down the delivery process, but it is still a necessary requirement.”
Despite its moniker, Tesla’s premium option requires a human driver behind the wheel, ready to steer or brake at any time.
“In our community.”
Meanwhile, in the Nordic countries, Tesla service technicians and other employees have gone on strike to support the Swedish labor organization IF Metall. Since October 2023, the labor union has pressured Tesla to discuss and sign a collective bargaining agreement with its employees.
According to IF Metall’s website, nine out of ten Swedish workers are union members, but Tesla has continuously opposed unionization, as it does in the United States, and has rejected IF Metall’s negotiations.
