Optimism surrounding Tesla’s performance despite declining profitability

By Glenn Dyer | More Articles by Glenn Dyer

There are some overly optimistic investors in the US—why else would they boost the share price of EV pioneer Tesla after the company reported its worst quarterly performance in more than a decade, revealing a more than halving in profitability in the first three months of the year?

There’s a big argument in the US markets at the moment about buying shares in major companies—especially the megatechs—on the dip (when they fall). Tesla shares were down 40% this year alone before the March quarter report on Tuesday, but the 8% bounce after the weak results is going a bit far given the terrible details in the results and the fact that Elon Musk has a history of promising but changing his mind.

The 40% fall ended up as an accurate assessment of the company’s weakened performance, which was worse than in 2020, the first year of the pandemic.

Perhaps investors were indulging in their usual boosterism about Musk—who is erratic to say the least. Perhaps they were also buying after the company detailed thousands of job cuts at its plants in California and Texas.

Those cuts won’t help Tesla fight off the growing pressures from Chinese EV makers elsewhere—especially in China, which is Tesla’s most important business with its largest and most efficient car plant in Shanghai, soon to be joined by a storage energy facility.

Perhaps it was Tesla and Musk's latest about-face—that the company will be pushing to build “affordable” vehicles—a so-called Tesla 2 model. It was less than a month ago Musk seemed to cancel that project in favor of the robotaxi (to be revealed in August).

Tesla reported a 9% decline in first-quarter revenue and a continued erosion of its profit margins thanks to the big fall in first-quarter sales and the surge in unsold vehicles to a record 46,000.

Group revenue fell from $23.33 billion a year to $25.17 billion in the fourth quarter. Net income dropped 55% to $1.13 billion from $2.51 billion.

The drop in sales was even steeper than the company saw in 2020, thanks to disrupted production during the pandemic.

Tesla’s automotive revenue declined 13% year-over-year to $17.34 billion in the first three months of 2024 as weak sales, price cuts, and the costs of numerous recalls took their toll.

Revenue in Tesla’s energy division increased 7% to $1.64 billion, while services and other revenue rose 25% to $2.29 billion compared to the same period last year. The company said it’s accelerating the launch of “new vehicles, including more affordable models,” that will “be able to be produced on the same manufacturing lines” as Tesla’s current lineup.

Tesla is aiming to “fully utilize” its current production capacity and to achieve “more than 50% growth over 2023 production” before investing in new manufacturing lines.

And the optimists plunged back into Tesla shares, despite the company again warning investors that “volume growth rate may be notably lower than the growth rate achieved in 2023.”

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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