Everything You Need to Know About Tesla's Latest Earnings Report

Analysts Notebook joined discussion · Apr 24, 2024 19:57

$Tesla (TSLA.US)$'s stock surged more than 12% in after-hours trading following its first-quarter earnings report, despite the company's earnings-per-share falling below analysts' expectations.

The electric-car maker did, however, surpass gross margin estimates and announced plans to fast-track production of new, more affordable vehicle models. The stock had previously risen 1.8% in Tuesday's trading but has been underperforming in 2024, with a 42% drop year-to-date. CEO Elon Musk also discussed the upcoming release of Tesla's Robotaxi and the push towards producing a cheaper range of electric vehicles, which likely contributed to the post-earnings stock boost.

Tesla's Q1 Earnings

Tesla's first-quarter revenue for 2024 stood at $21.3 billion, missing analyst expectations and reflecting a 9% decrease from the previous year. The company also saw a significant drop in adjusted net income and EPS, with declines of 48% and 47% year-over-year.

Additionally, Tesla experienced an 8.5% fall in vehicle deliveries during the quarter, a noticeable contraction from past performance. Factors such as slower EV adoption in the U.S. and stiff competition from local manufacturers in China have negatively impacted Tesla's sales, investor confidence, and its stock price.

Everything You Need to Know About Tesla's Latest Earnings Report

Key Takeaways From Earnings Call

• Affordable Models Expected by Early 2025 or Sooner

Musk announced that Tesla has expedited its product development timeline and now aims to begin production of new vehicles by early 2025, or possibly even late 2024, ahead of the previously stated second half of 2025 target.

These upcoming vehicles include more affordable options built on Tesla's new platform, incorporating current technology. This follows Musk's 2018 mention of a potential $25,000 Tesla car, which he projected would take around three years to develop. Additionally, Musk revealed that these new models would be manufactured on the same lines as existing vehicles, potentially alleviating investor worries about production costs and schedule.

• Tesla's FSD Tech

Elon Musk revealed that Tesla is currently in discussions with a major car manufacturer about licensing its full self-driving (FSD) technology. He indicated there's a "good chance" of signing a deal within the year, but Tesla's leaders mentioned it would take a minimum of three years to integrate the technology into the partner's vehicles after the agreement.

Musk suggested that such a licensing arrangement could enhance Tesla's cash flow as autonomous driving gains wider acceptance. Additionally, he commented on the industry trend where competitors are shifting focus to plug-in hybrids in response to EV market challenges. Musk disagreed with this approach, maintaining his stance that electric vehicles will ultimately prevail in the market.

• Tesla's Robotaxi

Musk shed light on Tesla's anticipated robotaxi service, the "cyber cab," which is expected to debut on August 8. This service is part of Tesla's strategy to establish a self-operating taxi network. He detailed that Tesla's robotaxi fleet would include vehicles owned by Tesla and those owned by individual users, who can earn income by renting their autonomous cars to users, with Tesla receiving a commission. Musk suggested investors consider Tesla's model as a hybrid between $Uber Technologies (UBER.US)$'s ride-sharing service and $Airbnb (ABNB.US)$'s property rental concept.

Additionally, Musk hinted at the possibility of integrating an $Amazon (AMZN.US)$ Web Services (AWS)-like aspect in the future, where Tesla's robotaxis could perform computing tasks such as interfacing and running AI algorithms when not in transit.

Addressing regulatory matters, Musk expressed optimism that there won't be substantial hurdles to the deployment of autonomous vehicles, arguing that once it's proven that self-driving cars are safer than those driven by humans, not adopting autonomy would be counterproductive to safety.

• Tesla's Humanoid Robot Optimus

Musk has indicated that Tesla's humanoid robot, Optimus, is currently performing "simple factory tasks" in a lab setting and is projected to be implemented in Tesla's production facilities by the end of 2024. He also suggested that Optimus might be available for external sale by the end of 2025.

Musk is highly optimistic about the potential economic impact of Optimus, stating that it could surpass the value of all Tesla's other ventures combined due to the vast market for a sentient humanoid robot capable of operating in the real world and performing tasks on demand.

Furthermore, Musk believes Tesla has a significant advantage in the humanoid robot market, especially in terms of reaching mass production efficiently and having superior inference technology on the robot. He asserts that Tesla's proficiency in inference technology is unparalleled and will be beneficial in multiple applications.

• Biggest Free Cash Outflow Ever

Free cash flow turned negative in the quarter, with the company reporting a deficit of $2.53 billion. A year ago, Tesla reported free cash flow of $441 million, a number that reached $2.06 billion in the fourth quarter. Tesla attributed the negative figure to a $2.7 billion buildup in inventory and $1 billion in capital expenditures on "AI infrastructure."

We really should be thought of as an AI-robotics company," Musk said. "If you value Tesla as just an auto company, it's just the wrong framework. If somebody doesn't believe that Tesla will solve autonomy, I think they should not be an investor in the company."

Source: Bloomberg

Analysts' Take

• Investors cheered renewed promises of an affordable EV by early next year, alongside continued investment in a future robotaxi fleet.

Tesla's Q1 numbers were background noise on the earnings call," RBC Capital Markets' analyst Tom Narayan said in a note late Tuesday.

• "Tesla lived on the coolness of its car, the idea that the company was about to launch autonomous vehicles and investor confidence in Mr. Musk's ability to do nearly impossible things," Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business, said in an email.

Now its cars are old, the fleet of Robotaxis promised five years ago hasn't arrived, and confidence in Mr. Musk is battered by disappointments and behavior that mystifies investors."

• "Elon Musk has promised Robotaxis since 2016," said Jan Becker, chief executive of Apex. AI, a company that provides software used by autonomous driving systems.