The initial quarter proved harsh for Tesla investors, with shares of the electric vehicle manufacturer plummeting by 29% over the first three months of the year. This marks Tesla’s worst quarterly performance since the close of 2022 and the third most challenging quarter since its initial public offering in 2010. Additionally, Tesla emerged as the top loser within the S&P 500 index during this period.
The primary concern on Wall Street revolves around Tesla’s core business as the company gears up to announce its first-quarter vehicle production and deliveries soon. Even optimistic investors anticipate subdued results, despite Tesla’s efforts to attract buyers with price reductions and incentives throughout the quarter.
By the end of the trading day on Thursday, analysts had estimated approximately 457,000 deliveries for the quarter, based on an average of 11 analyst forecasts compiled by FactSet. This projection reflects an 8% increase from the previous year’s 422,875 deliveries. Forecasts ranged from 414,000 to 511,000 deliveries for the quarter.
Among analysts who revised their estimates in March, the outlook was notably pessimistic, with projections ranging from 414,000 to 469,000 deliveries. Independent automotive industry researcher “Troy Teslike” anticipates Tesla’s deliveries falling below even the lowest estimate recorded by FactSet.
While deliveries serve as the closest approximation of Tesla’s sales, the precise definition of this metric isn’t explicitly outlined in the company’s shareholder communications.
Several key factors contribute to Tesla’s anticipated decline in the first quarter.
In China, there is fierce competition from a wave of fully electric vehicles, some of which are priced lower than Tesla’s popular Model Y SUV and Model 3 sedan.
By the end of 2023, BYD surpassed Tesla to become the world’s leading EV manufacturer. In the first quarter of the current year, BYD continued to intensify the competition by introducing its Qin Plus EV, starting at approximately $15,200, followed by the BYD Seagull, a compact all-electric hatchback with a starting price below $10,000.
Xiaomi, a Chinese smartphone manufacturer, has entered the automotive market with its inaugural electric SUV, priced significantly lower than Tesla’s base Model 3 sedan. Xiaomi’s CEO, Lei Jun, disclosed that the standard version of the SU7 will retail for approximately $30,408 in China, a price point where the company is aware it will incur losses per unit sold. In comparison, Tesla’s Model 3 is priced around $4,000 higher.
In response to Xiaomi’s entry and despite price reductions, Tesla experienced sluggish sales. Data from the China Passenger Car Association reveals a decline in Tesla’s sales of its China-made cars, dropping from 71,447 units in January to 60,365 units in February, inclusive of exports, with a notable decrease in domestic sales. This led to Tesla reducing production at its Shanghai factory, transitioning employees from a six-and-a-half-day workweek to five days, as initially reported by Bloomberg.
During Tesla’s earnings call in January, no guidance was provided for 2024. Nonetheless, analysts interpret Tesla’s challenges in China as indicative of a potentially difficult quarter or year ahead. Emmanuel Rosner, an analyst at Deutsche Bank, recently adjusted his price target for Tesla downward, citing weaker-than-anticipated sales in China and the company’s decision to curtail production in the region. Rosner’s revised forecast anticipates Tesla delivering 414,000 vehicles in the first quarter of 2024, with projected mid-single-digit growth for the entire year.
In January, there was upheaval in Europe as Tesla and other manufacturers such as Volvo halted certain production activities on the continent due to a component scarcity stemming from assaults on shippers in the Red Sea. The ongoing disruptions caused by attacks from Iran-backed Houthi militia have been affecting one of the globe’s most vital shipping routes.
In March, Germany witnessed a significant protest led by environmental activists against Tesla’s expansion plans for its car and battery factory in Brandenburg, near Berlin. The protesters ignited electrical infrastructure near the Tesla plant, causing a disruption in operations due to a lack of sufficient power. Although the fire did not reach the factory itself, it led to a temporary halt in production.
Elon Musk, the CEO of Tesla, visited the German factory following the incident to reassure employees. He criticized the protest as “extremely dumb.” Rohan Patel, Tesla’s head of policy, emphasized the company’s commitment to creating zero-emission products and sustainable factories, along with fostering a culture of community responsibility.
In Nordic countries, Tesla’s service technicians and other employees have gone on strike in solidarity with the Swedish labor union IF Metall. Since October 2023, the labor union has been urging Tesla to engage in negotiations and sign a collective bargaining agreement with its workers.
IF Metall’s website highlights that nine out of 10 workers in Sweden are union members, yet Tesla has resisted unionization efforts, similar to its stance in the United States, and has rejected IF Metall’s attempts to negotiate.
As electric vehicle (EV) sales continue to rise globally, the pace of growth has started to slow down. Given Tesla’s diminishing dominance in the market, each new product release holds increased importance. However, the pipeline for new releases appears relatively sparse.
The Cybertruck remains in its early stages, catering to a specific audience. Tesla commenced deliveries of the distinctive, unpainted steel model of the truck in December during a promotional event in Austin, Texas.
During an earnings call, Musk acknowledged that Tesla had “dug its own grave” with the futuristic Cybertruck. In a later interview with Tesla enthusiast and automotive critic Sandy Munro in late 2023, Musk cautioned that the Cybertruck “will not significantly impact Tesla’s finances” in 2024, but may become significant by 2025.
Tesla is ramping up production of its updated Model 3, dubbed the Highland, at its Fremont, California facility. According to Forbes’ Larry Magid, the exterior changes are minimal. Magid also criticized Tesla’s controversial choice to remove traditional stalks from the sides of the steering wheel. Instead, Highland drivers will utilize buttons and on-screen controls for functions such as shifting gears and signaling turns.
Tesla is also developing a completely new platform for a more budget-friendly electric vehicle, often dubbed the “Model 2” by enthusiasts. However, deliveries to customers are still several years away.
Musk persists in his belief that both Tesla’s customers and shareholders will remain loyal to the company despite his increasingly provocative statements on various platforms and his alignment with far-right ideologies.
Recently, Musk had a meeting with former President Donald Trump in Florida. He has been advocating for a “red wave” in upcoming U.S. elections and has actively engaged with, supported, or promoted far-right content on social media, particularly on X, where he boasts 178.8 million followers. Musk has made derogatory remarks about undocumented immigrants, criticized corporate diversity initiatives, and propagated baseless claims such as labeling migrants from Haiti as cannibals.
However, Musk’s political stance contradicts the typical ideological leanings of the demographic most inclined to purchase Tesla products, which tends to be more left-leaning, as indicated by research from Pew Research and Gallup.
Moreover, Musk has demonstrated confidence that Tesla’s shareholders and its board will follow his lead. In response to a Delaware judge’s decision to void his $56 billion pay package due to insufficient proof of fairness from the board, Musk announced plans to seek shareholder approval for relocating Tesla’s incorporation site from Delaware to Texas.
Prior to this ruling, Musk had been exerting pressure on both shareholders and the Tesla board to grant him greater control over the company, particularly emphasizing the need for around 25% voting control as Tesla ventures into AI and robotics. This demand was criticized by investor Ross Gerber, who likened it to “blackmail” in an interview with CNBC.
Since the beginning of 2024, Tesla and its shareholders have witnessed a staggering loss of over $230 billion in market capitalization, presenting a highly profitable quarter for short sellers who have anticipated such a decline.
According to data from S3 Partners, Tesla shorts have gained over $5.77 billion in 2024 alone, making it the most lucrative prospect in the U.S. market. As of Thursday’s closing, short interest stood at approximately 3.76% of the float, equating to $18.71 billion in notional value.
Brad Gerstner of Altimeter Capital is seizing the opportunity, expressing confidence in Tesla’s trajectory. He recently informed CNBC that the company is experiencing significant advancements in its self-driving technology efforts at an accelerating pace.
Despite Elon Musk’s long-standing promises, including claims in 2015 and 2016 about achieving full autonomy and cross-country autonomous drives, Tesla has yet to deliver on robotaxis or level 3 automated vehicles. However, it does offer advanced driver assistance systems (ADAS), with options such as the standard Autopilot and the premium Full Self-Driving (FSD) subscription, priced at $199 per month or $12,000 upfront in the U.S.
In a bid to boost end-of-quarter sales, Musk has mandated that all sales and service personnel demonstrate FSD to customers before vehicle handover, acknowledging that few individuals realize the capability of supervised FSD. Despite its name, Tesla’s premium FSD option still requires a human driver ready to intervene as needed.
Read More: Tesla owners instructed to avoid wearing Apple VR headsets while driving.
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