Keeping It Simple

[eastunder]

Tesla puts bleak Q1 results in rearview mirror by accelerating timeline for affordable EVs
09:59:08 AM ET, 04/24/2024 - Briefing.com

For the third consecutive quarter, Tesla (TSLA) fell short of EPS estimates while revenue in Q1 declined by 8.7% yr/yr to $21.3 bln, also missing expectations and representing the EV maker's first sales decrease since 2Q20. Yet, TSLA shares are charging higher today, registering some much-needed gains after the stock's 43% year-to-date plunge.

The rebound is partly attributable to the muted expectations surrounding this earnings report and the simple fact that this weak quarter is now in the rearview mirror. After TSLA reported disappointing Q1 deliveries on April 2, followed by news of steep shipment declines at its Shanghai facility and a fresh round of price cuts in the U.S., a dismal quarterly report was essentially a given. Now that it's in the books, investors can set their sights on more positive developments.On that note, TSLA disclosed in its Q1 shareholder letter that it has "updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025." This future vehicle line-up will include the highly anticipated affordable "Model 2", which is expected to have a price tag under $30,000.The update comes as a pleasant surprise because back on April 5, Reuters reported that TSLA was looking to scrap plans to build its mass-market car mainly due to rising competition in China. Indeed, in the weeks leading up to last night's Q1 earnings report, it appeared as if Elon Musk had shifted gears as he focuses on launching a robotaxi in the 2025/2026 timeframe.

On April 8, Musk looked to spark some excitement for the robotaxi, announcing that it will be unveiled on August 8.However, investors weren't taking the bait as the prospects of TSLA cancelling plans to launch Model 2 forced analysts to rethink their EPS and revenue expectations for FY26 and beyond. Now, TSLA hasn't just put Model 2 back on the table, but it has also sped up the timeline, aiming to begin production ahead of its previously communicated start in 2H25. Of course, given Musk's propensity of being overly optimistic regarding new product launches, this should be taken with a grain of salt.Nevertheless, TSLA confirming that Model 2 is still in the works comes as a relief and helps change the bearish narrative that has enveloped TSLA this year. With a legitimate growth catalyst on the horizon, that TSLA believes will enable more than 50% growth over 2023 production, the focus turns away from a Q1 that was quite dismal.Driven by eroding ASPs, gross margin decreased again, slipping by 20 bps qtr/qtr and by 199 bps yr/yr to 17.4%. Meanwhile, operating expenses continue to climb higher, increasing by 37% yr/yr to $2.53 bln as TSLA ramps up its investments in AI infrastructure to enhance its FSD technology.

The main takeaway is that TSLA's Q1 results were weak across the board, but that was widely anticipated and largely baked into the stock. By disclosing its plans to accelerate the launch of more affordable vehicles, TSLA has swung the narrative back to a more bullish manner as the next significant growth catalyst is back on the table.