Tesla Q1 2024 Earnings – Model 2 is Coming

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Against a growing confluence of headwinds, including an erratic pricing strategy, the fate of the margin-critical Model 2, a growing dampener on global demand for EVs, and discord over a gigantic compensation package for its CEO, Tesla might well report its worst quarterly earnings in 7 years later today.

Tesla (NASDAQ: TSLA) Q1 2024 Earnings

Tesla has reported $21.301 billion in revenue for the first quarter of 2024, missing consensus expectations of $22.3 billion.

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The following snippet summarizes the EV giant’s production activities during the quarter:

As we reported earlier this month, Tesla delivered 386,810 units in Q1 2024 against a production level of 433,371 units. This is the first time that Tesla has recorded a year-on-year contraction in quarterly deliveries since Q2 2020, which was the height of the pandemic-driven mayhem.

While reporting its earnings for Q4 2023, Tesla declared that its growth rate in 2024 would be “notably lower” than what it achieved in 2023 as it continues to prepare for “next-generation” vehicles in 2025.

As per Wall Street’s consensus estimates for Q1 2024, Tesla’s auto gross margin (ex-Regulatory Credits) was expected to print at 15.9 percent. Against these expectations, Tesla recorded an auto gross margin (ex-RC) of 16.36 percent.

The EV giant has reported a free cash flow of -$2.5 billion for the first quarter of 2024.

Finally, Tesla has announced $0.45 in non-GAAP (adjusted) EPS, missing consensus expectations of $0.51.

The following snippet summarizes Tesla’s latest guidance:

At the time of publication, the EV giant’s stock is up around 7 percent in after-hours trading. Even though the company missed consensus expectations, it has pledged to accelerate the development of more affordable models.

Earnings Call

Investors are eager to glean any information as to Tesla’s trajectory vis-a-vis the interplay between the robotaxi and the Model 2. For the benefit of those who might not be aware, Reuters published a highly contentious report in early April, disclosing Tesla’s apparent willingness to abandon its upcoming cheaper Model 2 in the face of serious competition from China.

While Elon Musk quickly clamped down on the veracity of Reuters’ reporting, this has not stopped educated conjecture as to the fate of the $25,000 Model 2. The same day, in an apparent attempt to halt Tesla’s share price slide, Musk announced that the EV giant’s much-delayed robotaxi will be unveiled on the 08th of August, 2024, with the vehicle expected to leverage the same platform as that of the Model 2.

There appears to be a growing chorus on Wall Street that the robotaxi is a 2030 story that lacks any immediate financial implications. According to Wedbush’s Dan Ives, around 60 percent of Tesla’s growth in the next few years will be sourced from the Model 2, as the sub-$30,000 price point drives another leg of the EV mass adoption cycle. Consequently, if the robotaxi were to replace the Model 2 as the EV giant’s panacea of sorts, it would be a “debacle negative” for the Tesla story.

Today, Tesla has indicated that it is pursuing the development of the Model 2 as well as the robotaxi simultaneously.

Other updates include:

  1. Elon Musk has announced that the EV giant is in talks with one major automaker for licensing the FSD.
  2. Musk says that the Optimus robot will be able to start performing useful tasks in the factory by the end of 2024, with its commercial sales expected to begin from 2025 onward.
  3. Elon Musk has labeled the robotaxi “Cyber Cab.”

Important Developments Over the Quarter

Toward the end, let’s go over some of the most important recent developments in Tesla’s ongoing story.

Pricing Strategy

Throughout March, Tesla continued to incrementally raise the price of its EVs. For instance, Tesla raised the price of the Model Y LR and RWD variants by $1,000 in the US on the 01st of March to alleviate some of the pressure on its margins. It also offered 5,000 free supercharging miles to customers in the US who bought a new Tesla vehicle by the 31st of March, 2024, essentially trying to pull forward demand from the upcoming quarters. Then, on the 16th of March, Tesla hinted at another $1,000 price hike for the Model Y in the US, translating this possibility into reality on the 01st of April.

In March, Tesla hiked the price of the Model Y in a number of key European countries by 2,000 Euros. However, the company discounted the newly launched Model 3 Highland by up to 10 percent in France. Concurrently, in order to get rid of elevated inventories at Giga Shanghai, the EV giant offered incentives worth $4,807 to buyers of the Model 3 sedan or the Model Y SUV in China.

However, in April, Tesla again started to slash the price of its EVs in major markets. Over the weekend, Tesla dropped the prices of its Model 3, Y, S, and X in China by 14,000 Yuan or around $2,000. The base Model Y in China now starts at 250,000 Yuan or around $35,000. Tesla also cut the prices of Models Y, S, and X in the US, with the base prices for these vehicles now pegged at $43,000, $73,000, and $78,000, respectively.

Elon Musk is also mulling decreasing Tesla’s FSD monthly subscription price to increase its uptake rate.

Tesla’s seemingly erratic pricing strategy has prompted harsh words from even seasoned bulls, with WholeMarsBlog noting:

“I think that if you had a monkey throw shit at a keyboard to come up with a pricing strategy for Tesla it would be more coherent than what we’ve seen.”

Elon Musk’s Compensation Package

Back in 2018, Tesla awarded Elon Musk one of the biggest compensation packages in American corporate history, worth around $56 billion. However, Tesla underwent a trial in 2022, where some shareholders asserted that the Delaware Court of Chancery should void Elon Musk’s 2018 compensation plan as it was a result of sham negotiations. Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick ultimately agreed with the plaintiffs and voided Elon Musk’s 2018 compensation plan, prompting Musk to declare that he was uncomfortable working at Tesla with his current voting power of around 13 percent.

Tesla’s board has now issued a preliminary proxy statement ahead of the upcoming Annual General Meeting (AGM), urging all shareholders to re-ratify Elon Musk’s 2018 compensation package.

Tesla’s Layoffs

Tesla is now slashing its global headcount by over 10 percent, with some departments expected to see cuts of as much as 20 percent. Tesla’s median non-CEO salary in 2023 amounted to around $34,000. Assuming 15,000 employees are laid off, Tesla can reasonably eke out annual savings of around $500 million, corresponding to an impact of $0.11 on the EV giant’s expected 2024 EPS of $2.80.

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