Tesla's Price Plunge Ahead of Earnings

Checking in on Tesla (TSLA) Ahead of Earnings.

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Just a Little Bit of Optimism, Please

Tesla's (TSLA) 2024 has been notably turbulent, despite its impressive performance in the previous year. This sudden downturn is illustrated by its ranking as the poorest performing stock in the S&P 500 for the first quarter, with its shares continuing to fall. The decline was triggered by less-than-expected earnings, widespread price reductions within the electric vehicle sector, and the pervasive impact of high interest rates which have dampened overall demand.

In a surprising development, TSLA announced a reduction in its workforce by 10% and also reported a 9% drop in first-quarter vehicle deliveries compared to the same period last year. Elon Musk elaborated on the workforce reduction, emphasizing that such measures are taken every five years as a strategic preparation for future growth. This decline has pushed the stock down by 11% in just the past week, positioning it near its lowest value in 52 weeks—a stark contrast to the S&P 500 which is nearing record highs.

Historically, TSLA has been a standout in the stock market since it first reported profits in 2020, leading to a significantly higher valuation compared to traditional car manufacturers like General Motors and Ford. Despite recent setbacks, the company still boasts a valuation of around $500 billion (roughly).

Challenges are, however, mounting for TSLA in the short-term. Not only are vehicle deliveries lagging behind production, suggesting a softening demand, but the company has also put the brakes on the development of the Model 2—a more affordably priced vehicle—to focus more on advancing its robotaxi and autonomous driving technology (not a bad move in my opinion).

This strategic shift comes amid several internal upheavals, including the departure of two key executives involved in battery and vehicle manufacturing and a workforce reduction that hints at faltering demand (hopefully we will receive more color on this). Given these circumstances, TSLA's financial performance is expected to reflect these pressures, with anticipated declines in first-quarter profits due to the competitive pricing landscape of the EV market.

Adding to TSLA's woes, Musk has teased the launch of a robotaxi in August, although his history of postponing product launches and company milestones might temper expectations. While the robotaxi could revolutionize the company’s business model, stringent regulations and safety concerns do pose significant hurdles.

In this broader context, TSLA's once-promising electric vehicle narrative seems to be on pause. As the company navigates through these challenges, a potential recovery ahead of earnings hinges on a resurgence in EV sales and the successful rollout of its autonomous vehicles. In the short-term, the journey might remain turbulent until we gain a clearer macroeconomic perspective on the business. However, with TSLA leading the way in full self-driving technology, electric vehicles, and humanoid robots, the company’s long-term potential is incredibly promising. Despite the uncertainty often spotlighted in the headlines, I view this as an opportune moment to strengthen my position in the company.