Tesla’s Q1 Revenue Drops 9% as Price Cuts Weigh, But Musk Teases Affordable EV Launch

Tesla Inc. reported a 9% decline in first-quarter revenue on Tuesday, the company’s biggest drop since 2012, as the electric vehicle giant felt the impact of aggressive price cuts aimed at boosting demand. However, CEO Elon Musk provided a glimmer of hope for investors, revealing that production of new affordable EV models could begin sooner than expected.

The company’s revenue fell to $21.30 billion, missing analysts’ estimates of $22.15 billion, according to data compiled by LSEG. Net income plunged 55% to $1.13 billion, or 34 cents per share, from $2.51 billion, or 73 cents per share, a year earlier. Adjusted earnings per share came in at 45 cents, below the expected 51 cents.

Despite the disappointing financial results, Tesla’s stock jumped in extended trading after Musk told investors that the company plans to start production of new models in “early 2025, if not late this year,” accelerating the previously announced timeline of the second half of 2025.

The decline in sales was even steeper than the company’s last drop in 2020, which was attributed to disrupted production during the Covid-19 pandemic. Tesla’s automotive revenue, which accounts for the lion’s share of its business, declined 13% year-over-year to $17.38 billion in the first three months of 2024.

Musk acknowledged the operational challenges faced in the first quarter, including supply chain disruptions in the Red Sea region. However, he expressed optimism for the second quarter, stating, “We think Q2 will be a lot better.”

In its shareholder deck, Tesla reiterated a pessimistic outlook for 2024, cautioning investors that “volume growth rate may be notably lower than the growth rate achieved in 2023.” The company’s shares have plunged more than 40% this year, reflecting concerns about weak deliveries, intensifying competition in China, and the ongoing price cuts.

Earlier this month, Tesla reported an 8.5% year-over-year decline in vehicle deliveries for the first quarter, further exacerbating investor concerns about slowing demand for electric vehicles amid rising interest rates and economic uncertainties.

To address this challenge, Tesla has been aggressively slashing prices to spur demand, a strategy that has weighed on its profitability. The company’s gross profits plummeted 18% in the first quarter, partly due to the impact of these price cuts implemented earlier in the year.

In an effort to bolster its competitiveness, Tesla announced plans to “accelerate the launch of new vehicles, including more affordable models,” that can be produced on the same manufacturing lines as its current lineup. The company aims to “fully utilize” its current production capacity and achieve “more than 50% growth over 2023 production” before investing in new manufacturing lines.

Musk also touted Tesla’s investments in artificial intelligence infrastructure and revealed that the company is in talks with “one major automaker” to license its driver assistance system, marketed in the U.S. as the Full Self-Driving, or FSD, option.

The company said total sales included revenue from earlier sales of its FSD option. The release of a feature called Autopark in North America allowed Tesla to recognize the deferred revenue from previous FSD sales. According to Chris Redl, an autos analyst at Siena Capital, Tesla may have recognized as much as $700 million in deferred revenue from FSD in the quarter, representing roughly 4.3% of its automotive revenue after stripping out regulatory credits.

In addition to the financial results, Tesla also provided a glimpse of its long-awaited robotaxi-based ride-hailing service, showcasing screens of the service in its shareholder deck. The company has been promising a self-driving vehicle for years without delivering on Musk’s ambitious promises.

As the electric vehicle market matures and competition intensifies, Tesla finds itself at a pivotal juncture. Sales growth across the broader EV industry is slowing, prompting manufacturers like Tesla and its key rivals to slash prices in an effort to stimulate demand.

In response to these challenges, Tesla embarked on a massive restructuring effort earlier this month, with two executives, Drew Baglino and Rohan Patel, resigning. Musk also announced last week that the automaker was cutting more than 10% of its global workforce.

The company’s capital expenditures rose 34% to $2.77 billion compared to a year earlier, reflecting its ongoing investments in manufacturing and infrastructure. However, Tesla’s free cash flow turned negative in the quarter, with the company reporting a deficit of $2.53 billion, in stark contrast to the positive free cash flow of $441 million a year ago and $2.06 billion in the fourth quarter of 2023. Tesla attributed the negative figure to a $2.7 billion buildup in inventory and $1 billion in capital expenditures on “AI infrastructure.”

Tesla’s energy division provided a bright spot, with revenue increasing 7% to $1.64 billion, while services and other revenue rose 25% to $2.29 billion compared to the same period last year.

During the earnings call, Musk was asked about his intention to remain at the helm of Tesla, given his numerous other responsibilities, including leading SpaceX, controlling X (formerly Twitter), and running other businesses. Musk did not directly address the question but emphasized his commitment to ensuring Tesla’s prosperity, stating that he spends the majority of his time at work and rarely takes time off.

At the conclusion of the call, Martin Viecha, Tesla’s vice president of investor relations, announced his departure from the company after seven years, prompting Musk to express his gratitude for Viecha’s contributions.

As Tesla navigates these challenging times, investors will be closely watching the company’s ability to execute its plans for new, more affordable models and leverage its investments in artificial intelligence and autonomous driving technology. While the first quarter results were disappointing, Musk’s optimism and the company’s strategic initiatives provide a glimmer of hope for a potential rebound in the coming quarters.

However, the road ahead remains uncertain, and Tesla will need to navigate a complex landscape of slowing demand, intensifying competition, and evolving consumer preferences. The company’s success will depend on its ability to deliver on its promises, optimize its cost structure, and maintain its position as a leader in the rapidly evolving electric vehicle market.