Things aren’t going well for Tesla right now. With first-quarter earnings due out later today, investors are wondering what CEO Elon Musk can do to turn the tide in shares of the electric vehicle maker.
The stock is down 43% this year to $142.05 through Monday’s close and has dropped for seven straight days as investors have adjusted to slower growth in EV sales.
Tesla announced price cuts in the U.S. and China over the weekend, the latest sign of weakening demand for the company’s vehicles. The company delivered about 387,000 units in the first quarter, falling almost 9% year over year and missing the lowest Wall Street estimates by about 20,000 units. Management blamed supply problems on the weak delivery results.
Canaccord analyst George Gianarikas tells Barron’s he wants to hear more about those supply problems and the current state of EV demand on the post-earnings conference call. “What is the real demand [for] Teslas? I don’t think it’s as bad as 387,000,” he says.
Gianarikas is relatively bullish on Tesla shares, rating them Buy with a price target of $234 a share, though he expects numbers will look weak.
Wall Street is projecting operating profit margins of just under 7%, down from about 11% in the first quarter of 2023 and down from about 19% in the first quarter of 2022.
Lower profit margins will translate to lower earnings. Wall Street expects earnings per share of about 50 cents, according to FactSet, down from 85 cents earned in the first quarter of 2023.
Earnings estimates don’t get updated at the same rate as deliveries so some fail to account for the latest numbers. Therefore, investors should brace for an earnings miss.
Wells Fargo analyst Colin Langan projects 40 cents a share for the quarter. The analyst rates Tesla shares Sell and has a $120 price target. “Our below-consensus EPS reflects the price cuts, lower deliveries, labor inflation, and worse operating leverage,” he writes.
Operating leverage refers to the impact of fixed costs on earnings and profit margins. Across its four assembly plants, Tesla was expected to sell about 450,000 units in the quarter. It only sold fewer but still has all the expenses associated with running those plants.
“I think we will have a cashflow/balance sheet scare,” says Per Lekander, portfolio manager and CEO at Clean Energy Transition. ”I am at close to negative $2 billion first-quarter cash flow.” Wall Street is projecting positive free cash flow of $300 million.
“The stock can only hold up if Elon can come up with a dream,” says Lekander, noting the Aug. 8 robotaxi event that Elon Musk announced earlier this month. ”If August 8 fails, then [the] stock is toast.”
The roboxtaxi event announcement came amid speculation that the company had abandoned its plan to produce a cheaper electric car, often referred to as the Model 2. Musk denied that report.
Musk believes creating truly self-driving cars will be a boon to Tesla, enabling it to sell self-driving software as a subscription to vehicle owners and allow the company to operate robotaxi fleets. Tesla recently started a free trial of its highest-level driver assistance software called Full Self Driving. That product can do most driving tasks most of the time but still needs driver supervision.
Musk might focus on its robotaxi goals when he speaks on Tuesday. If he does, Wedbush analyst Dan Ives says that could be a mistake. He wants Musk to address decelerating growth, articulate a coherent pricing strategy, and offer more details on the Model 2 Tesla due out on roads in 2025—as well as the company’s robotaxi opportunities.
Ives, who rates shares Buy and has a $300 price target, hasn’t been happy with Musk’s recent conference calls. “If Musk is flippant again and there is no adult in the room on this conference call with no answers, then darker days are ahead.”
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