April 23, 2024, Tesla Q1 2024 revenue declined 9% yoy to $23.3B. Slide deck: https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q1-2024-Update.pdf
Transcript available at: https://www.fool.com/earnings/call-transcripts/2024/04/23/tesla-tsla-q1-2024-earnings-call-transcript/
Fewer automotive deliveries are the reason, caused by shipping problems, lost of government incentives, a highly competitive EV market and tough interest rate environment globally. The earnings release noted that the industry is moving toward hybrids instead of EV and Global EV (not just Tesla) is under pressure from strong hybrid sales. The reason may come down to affordability. Hybrids tend to be lower priced than EVs and with high interest rates, consumers can only afford hybrids as a way to save money on gas. Many car makers are directing their investments into selling more hybrids. Tesla only makes EVs and it plans to address the high cost issue by developing lower cost vehicles. More on that later.
Tesla capital expenditure reached $2.8B. The earnings release indicated $1B spending on AI infrastructure Capex. They now have 35,000 H100 Nvidia GPUs. That AI spent increased AI training compute by 130% in Q1 and helps the progress for Full Self Driving. On FSD, Tesla has lowered price to $99/month or lifetime vehicle purchase for $8,000.
Operating expenses for Q1 2024 is 2.525B, up 37% yoy. This includes AI expenses and battery cell advancements.
Price reductions on its cars have driven average selling prices (ASP) down and hurt profitability/ lower EPS. Interest rate cut can help lower affordability. There is possibility of at least one rate cut this year.
Prior to earning release, 4/23/2024 Tesla stock trading finished at $144.68 on volume 124,545,100 in a range of $141.11-147.26. At the beginning of the year it traded 01/02/2024 at $248.42 on volume of 104,654,200 in range of $244.41 – $251.25. Year to date, Tesla had declined -42% coming in the the earnings. It needs to rise $103.74 to break even.
For a drop of 9% revenue, the company suffered 42% declined. Why does losing 9% of the business in one quarter cause a drop of company value by that magnitude. 42% valuation drop may be excessive relative to the magnitude of the business decline.
Contributing to the decline is the future revenue forecast of the company. The company needs to grow revenue to recover. There is good news on that front. Contrary to a Reuters report that Tesla canceled $25k vehicle in favor of robotaxi, Tesla Q1 earnings report is saying the opposite. Since Robotaxi require FSD to be bulletproof, revenue from Robotaxi could be quite far into the future. In the earnings slide deck, Tesla plans to leverage existing factories and production lines for the next low cost vehicle. Tesla provided more details on the next gen plans in the Outlook section of the report.
Tesla plans to introduce an affordable models before end of second half of 2025. By using existing lines, the cost savings will be less that what is possible w/ a completely new improved line but it can help Tesla bring some of that cost down sooner to consumers and also will use less cash. Their existing factories have total capacity of 3 million vehicles/year. The Robotaxi on the other hand will use the completely new unbox production methodology which can wait since FSD needs more time to mature and be more perfect. The next gen low cost model can employ some of those ideas using the existing capacity is an efficient strategy to address the declining revenue issue and can reverse that once they hit the market. Lower price model expanding the TAM is a good for revenue growth.
If revenue growth reaccelerates, Tesla has a chance to recover lost market cap.
Energy Generation and Storage unit grew revenue yoy 7% w/ energy capacity deployments of 4.1 GWh. Q1 Revenue for Energy generation and storage is small compared to automative at $1.6B.
Services and other revenue grew 25% yoy and reached $2.288B. Gross profits down 40% of this unit. Reason for this is used car prices have dropped. This unit also included Supercharging which in February started servicing cars from other OEMs.
Tesla has $26.9B cash at quarter Q1 end, decreased $2.2B.
Cashflow for the Q1 2024 is negative $2.5B.
Cost of goods per unit declined. It was helped by raw material cost dropping. This may be due to the established auto companies cutting back on EV ramp.
Helping future earnings per share will be
1. Tesla’s global 10% layoff as it will lower Tesla’s cost.
2. Future quarters can also benefit from seasonality stronger sales and the absence of unusual events like the new Model 3 ramp, Red Sea reroute and Gigaberlin arson attack all happening in Q1.
3. Continuing Cybertruck ramp
4. Export to other countries from Shanghai factory. Example reported in earnings report is Chile.
5. Attractive leasing terms for customers
Tesla share reacted favorably following the earnings report. Investors are relived that Tesla will be continuing the low cost mode to grow revenue and in fact will be doing so with less Capex and sooner. Tesla finished next day trading 4/24/2024 up 12% at 162.13. The year to date lost is trimmed to 34%.
04/26/2024 $168.29 109,815,700
04/25/2024$170.18 126,427,500
04/24/2024 $162.13 181,178,000
04/23/2024 $144.68. 124,545,100