Tesla Suffered a $2 Billion Cash Drain in Q1 2024 Due To Elevated Inventory

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Tesla (NASDAQ: TSLA) shares are at a year-to-date nadir today – now down around 33 percent so far this year – after the EV giant missed Wall Street’s consensus expectations for quarterly deliveries by the widest margin on record. With analysts now crowning Tesla as the “most hated among the Magnificent 7” grouping of high-flying stocks, the sentiment around the EV giant has undoubtedly hit the proverbial rock bottom. Nonetheless, a more nuanced study of Tesla’s quarterly delivery numbers does present a case for cautious optimism.

Tesla’s Disastrous Quarter

As we noted in a separate post earlier today, Tesla has now disclosed that it delivered 386,810 units in Q1 2024 against a production level of 433,371 units, constituting not only the first year-over-year contraction in quarterly deliveries since the pandemic-driven mayhem in Q2 2020 but also the largest miss vs. the consensus expectations of analysts on record. For reference, Wall Street analysts expected Tesla to deliver 431,125 units in the just-concluded quarter, which corresponds to a 10.3 percent miss relative to the actual numbers. On a year-over-year basis, Tesla’s quarterly deliveries shrank by 8.5 percent.

The bad news does not end here, however. Tesla’s inventory increased by a whopping 46,561 units in Q1 2024, translating into a cash drain of around $2.03 billion.

Tesla tried to defend its subpar quarterly performance by identifying the various idiosyncratic challenges that it faced over the past few weeks, including suboptimal production at Giga Fremont due to the ongoing Model 3 Highland production line upgrades, the continuing Houthi attacks in the Red Sea and the resulting diversion of tanker traffic, and the highly disruptive arson attack on Giga Berlin by “eco-terrorists” a few weeks back. However, as many people quickly pointed out, most of these disruptive events affected Tesla’s production capacity and do not explain why the EV giant’s inventory increased by the widest margin in history, clearly alluding to an underlying demand problem.

Silver Lining: Fierce Demand for New Models

Here is the silver lining, though. BYD – inarguably Tesla’s biggest competitor in China – also just concluded a shoddy Q1, managing to record quarterly deliveries of only 300,114 units and corresponding to a quarter-on-quarter decline of 43 percent! This indicates that macro and industry-wide factors are clearly at play here.

Yet, there is more. Xiaomi’s newly unveiled ~$30,000 SU7 electric vehicle is now sold out for the entire year, and that too within the span of just 24 hours! For context, Xiaomi is planning to produce 90,000 units of the SU7 this year. This suggests that there is ample demand in the market for newer and flashy models. This bodes well for Tesla’s Model 3 Highland and the Cybertruck, which will likely enter volume production in 2025.

Tesla TTM P/S Ratio Sourced from YCharts

After today’s stock market bleeding, Tesla is now trading at a Trailing Twelve Month (TTM) Price-to-Sales (P/S) multiple of 5.40x. This is a fairly attractive valuation level relative to historical precedents.

Going forward, Tesla has to focus on the following aspects to regain solid footing:

  1. Ensure a speedy rollout of the Model 3 Highland
  2. Try to achieve volume production of the Cybertruck on a war footing
  3. Increase its ad spending

At the time of writing, Tesla shares are down 5 percent and trading at the $166.30 price level.

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