Tesla posts its biggest revenue drop in 12 years — but the stock pops as Elon Musk promises cheaper EVs soon

 

Tesla’s first-quarter net income plummeted 55%, but its stock price surged in after-hours trading Tuesday as the company said it would accelerate production of new, more affordable vehicles.

The Austin, Texas, company said it made $1.13 billion from January through March compared with $2.51 billion in the same period a year ago.

Investors and analysts were looking for some sign that Tesla will take steps to stem its stock’s slide this year and grow sales. The company did that in a letter to investors Tuesday, saying that production of smaller, more affordable models will start ahead of previous guidance.

The smaller models, which apparently include the Model 2 small car that is expected to cost around $25,000, will use new-generation vehicle underpinnings and some features of current models. The company said it would be built on the same manufacturing lines as its current products.

On a conference call with analysts, CEO Elon Musk said he expects production to start in the second half of next year “if not late this year.”

New factories or massive new production lines won’t be needed for the new vehicles, Musk said.

“This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times,” the investor letter said.

But Musk gave few specifics on just what the new vehicles will be and whether they would be variants of current models. “I think we’ve said all we will on that front,” he told an analyst.

He did say that he expects Tesla to sell more vehicles this year than last year’s 1.8 million.

The company also appears to be counting on a vehicle built to be a fully autonomous robotaxi as the catalyst for future earnings growth. Musk has said the robotaxi will be unveiled on Aug. 8.

Shares of Tesla rose 11% in trading after Tuesday’s closing bell, but they are down more than 40% this year. The S&P 500 index is up about 5% for the year.

Morningstar analyst Seth Goldstein said the company gave guidance about its future that was clearer than in the past, allaying investor concerns about the production of the Model 2 and future growth. “I think for now we’re likely to see the stock stabilize,” he said. “I think Tesla provided an outlook today that can make investors feel more assured that management is righting the ship.”

But if sales fall again in the second quarter, the guidance will go out the window and concerns will return, he said.

Tesla reported that first-quarter revenue was $21.3 billion, down 9% from last year as worldwide sales dropped nearly 9% due to increased competition and slowing demand for electric vehicles.

Excluding one-time items such as stock-based compensation, Tesla made 45 cents per share, falling short of analyst estimates of 49 cents, according to FactSet.

The company’s gross profit margin, the percentage of revenue it gets to keep after expenses, fell once again to 17.4%. A year ago it was 19.3%, and it peaked at 29.1% in the first quarter of 2022.

Over the weekend, Tesla lopped $2,000 off the price of the Models Y, S, and X in the U.S. and reportedly made cuts in other countries including China as global electric vehicle sales growth slowed. It also slashed the cost of “Full Self Driving” by one-third to $8,000.

Tesla also announced last week that it would cut 10% of its 140,000 employees, and Chief Financial Officer Vaibhav Taneja said Tuesday the cuts will be across the board. Growth companies build up duplication that needs to be pruned like a tree to continue growing, he said.

Musk has been touting the robotaxi as a growth catalyst for Tesla since the hardware for it went on sale late in 2015.

In 2019, Musk promised a fleet of autonomous robotaxis by 2020 that would bring income to Tesla owners and make their car values appreciate. Instead, they’ve declined with price cuts, as the autonomous robotaxis have been delayed year after year while being tested by owners as the company gathers road data for its computers.

Neither Musk nor other Tesla executives on Tuesday’s call would specify when they expect Tesla vehicles to drive themselves as well as humans do. Instead, Musk touted the latest version of Tesla’s autonomous driving software — which the company misleadingly brands as “Full Self Driving” even though it still requires human supervision — and said that “it’s only a matter of time before we exceed the reliability of humans and not much time at that.”

It didn’t take the Tesla CEO long to begin expounding on the possibility of turning on self-driving capabilities for millions of Tesla vehicles at once, although again without estimating when that might actually occur. He went on to insist that “if somebody doesn’t believe that Tesla is going to solve autonomy, I think they should not be an investor in the company.”

Early last year the National Highway Traffic Safety Administration made Tesla recall its “Full Self-Driving” system because it can misbehave around intersections and doesn’t always follow speed limits. Tesla’s less-sophisticated Autopilot system also was recalled to bolster its driver monitoring system.

Some experts don’t think any system that relies solely on cameras like Tesla’s can ever reach full autonomy.

Elon Musk’s woes keep mounting. This time, it appears that employees at the founder’s SpaceX facilities are getting injured at much higher rates than the industry average.

Citing data the rocket company reported to the Occupational Safety and Health Administration (OSHA), Reuters found that injury rates at SpaceX last year were higher than the year prior at some of the company’s facilities, including its Texas and Florida locations.

In 2023, SpaceX reported to OSHA that injury rates at its facility in Brownsville, Texas reached 5.9 for every 100 employees. That’s higher than the 4.9 injuries per 100 it reported the year before at that location. Meanwhile, injuries at the company’s Cape Canaveral, Florida facility increased to 2.5, a steep rise from the 0.9 injuries per 100 it reported in 2022. The space industry’s injury average is just 0.8, the publication added.

Moreover, according to a Reuters investigation conducted late last year, SpaceX has been dealing with workplace injuries since 2014. The publication found that there have been at least 600 reported injuries since it began its investigation, some of which include broken bones, concussions, amputations, and even one skull fracture.

SpaceX and OSHA did not respond to a request for comment from Quartz.

Elon Musk’s Tesla is set to report earnings today after the bell. The electric vehicle company is having a rough 2024 so far and its issues only appear to be getting worse. Just last week, the EV maker said it would lay off 10% of its workforce, sending the stock into a spiral.

Tesla (TSLA.O), opens new tab said on Tuesday it would introduce "new models" by early 2025 using its current platforms and production lines as it retreated from more ambitious plans to produce an all-new model that had been expected to cost $25,000.

The talk of new offerings on a faster timeline sent Tesla shares soaring in after-hours trading, a much-needed boost, after months of decline during which Tesla has struggled with fierce competition and falling sales. The gains came despite Tesla releasing first-quarter results that missed Wall Street expectations.

Chief Executive Elon Musk declined to provide details of the new vehicles but said they would include more affordable models that would start production by early 2025. That's just before the target Musk previously set for launching the all-new low-cost model widely known as the Model 2.

Reuters Graphics

Reuters exclusively reported on April 5 that Tesla had scrapped plans for the Model 2, which investors had expected to drive Tesla's growth into a mass-market automaker. Musk initially reacted to that story with a post on his social platform X saying "Reuters is lying," without pointing out any inaccuracies.

On Tuesday, neither Tesla nor Musk directly addressed the Reuters report.

Instead, they discussed unidentified new models that appeared to be different products, without saying how many, what type, or providing their target prices.

The new models would be built on Tesla's current manufacturing lines and use "aspects" of its current platform and a next-generation platform, Tesla said. It cautioned that this plan may "result in achieving less cost reduction than previously expected," suggesting that the vehicles may cost consumers more than the Model 2's anticipated $25,000 price.

The automaker said its plan for new models would let it better control capital expenditures during "uncertain times."

Tesla engineering chief Lars Moravy said the company would avoid the risk of investing in a "revolutionary" manufacturing process. Musk has said previously the all-new affordable car would be a test bed for manufacturing innovation.

Moravy said Tesla's work on the next-generation affordable car is "transferable" to the vehicles the automaker now aims to release early next year.

"That engineering work, we're not trying to just throw it away," Moravy said. "We're going to take it and utilize it."

Musk declined to answer an analyst's question about whether the new vehicles would be all-new models or tweaks to existing vehicles.

"I think we've said all we will on that front," Musk said.

One observer took Tesla's comments on new models as a confirmation that it had halted plans for the Model 2.

"It seems clear that the new vehicle platform has indeed been shelved for now," said Sam Abuelsamid, an analyst at Guidehouse Insights. "The next gen vehicle was supposed to use fundamentally different production processes from current models. With no desire to spend billions on new production facilities or retool existing factories, it seems like we will see Tesla continue to build the current products."

Currently, Tesla's Model 3 and Model Y, with starting prices of around $40,000, are its only volume sellers.

ROBOTAXIS ON THE AIRBNB, AND UBER MODEL

Tesla also mentioned a "purpose-built robotaxi product" that it planned to build with a "revolutionary" manufacturing process, without offering a timeline for its release. The April 5 Reuters story reported that Tesla planned to continue developing a self-driving robotaxi on the same platform it had been developing for the Model 2.

Musk devoted much of the call with analysts to outlining ambitious visions for diversifying Tesla's business into artificial intelligence, humanoid robots and operating a fleet of millions of autonomous vehicles - all based on software and hardware products the automaker has not yet fully developed.

Tesla "should be thought of as an AI robotics company," not a car maker, Musk said.

The statement implies a substantial change in Tesla's fundamentals. More than 80% of Tesla's revenue in the first quarter came from selling electric cars.

Musk said Tesla's self-driving vehicle fleet will be "like a combination of Airbnb and Uber." Some vehicles will be owned and operated by Tesla, and others will be vehicles owned by individuals but rented out on Tesla's network.

The comments echoed a presentation from Musk in 2019 when he said a "robotaxi network" would be operating by 2020.

The 12.5% rise in Tesla shares in extended trading added about $57 billion to Tesla's market capitalization, recovering some losses from a plunge of more than 40% so far this year.

'SHOW-ME STOCK'

Tesla's plan for more affordable cars pleased investors despite its weak quarterly results after the bell. But some remained skeptical.

"Sounds promising, but Tesla is becoming more of a show-me stock based on how many delays we've seen in previous roll outs," said Jay Woods, chief global strategist at Freedom Capital Markets. "If they can deliver, then this is a great development."

The more modest strategy could also save Tesla substantial investments in a redesigned car and new production lines to build it. Tesla's decision to tap the brakes on adding manufacturing capacity mirrors similar decisions at General Motors (GM.N), opens a new tab and Ford Motor (F.N), opening a new tab in response to slowing growth in EV demand in the United States and intensifying competition from Chinese EV makers in the world's largest auto market.

"Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs," Tesla warned.

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Tesla's quarterly revenue fell for the first time since 2020 when the COVID-19 pandemic hampered production and deliveries.

The company on Tuesday reported revenue of $21.3 billion for the three months ended March, compared with $23.33 billion a year earlier. Analysts on average had estimated $22.15 billion, according to LSEG data.

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Tesla's average revenue per vehicle delivered in the quarter fell by nearly 5% from a year ago to $44,926 a vehicle, reflecting the impact of repeated price cuts.

Net profit in the first quarter stood at $1.13 billion, compared with $2.51 billion, a year earlier.

Tesla began the second quarter by announcing it would lay off more than 10% of its global workforce and slash vehicle prices in major markets such as the United States, China, and Europe.