Tesla’s stock wraps up one of its worst quarters on record as global dominance wanes
A Tesla car is driven past a store of the electric vehicle (EV) maker in Beijing, China January 4, 2024.
Florence Lo | Reuters
It was a brutal first quarter for Tesla investors.
Shares of the electric vehicle maker plunged 29% in the first three months of the year, the worst quarter for the stock since the end of 2022 and the third worst since Tesla went public in 2010. It was also the biggest loser in the S&P 500.
Chief among concerns on Wall Street is Tesla’s core business. The company is poised to report first-quarter vehicle production and deliveries in coming days, and even bulls are expecting sluggish results, despite price cuts and incentives for buyers dangled throughout the quarter.
As of Thursday, the last trading day of the quarter, analysts were expecting around 457,000 deliveries for the period, according to the average of 11 analyst estimates compiled by FactSet. That would mark an increase of 8% from 422,875 a year earlier. Estimates for the quarter ranged from 414,000 to 511,000 deliveries.
Analysts who updated their numbers in March were the most bearish, with their estimates ranging from 414,000 to 469,000. Independent autos industry researcher “Troy Teslike” expects the company’s deliveries to come in below even the lowest estimate captured by FactSet.
Deliveries are the closest approximation of sales reported by Tesla but are not precisely defined in the company’s shareholder communications.
Here are four major reasons for Tesla’s first-quarter slide.
Unrelenting competition in China
In China, there’s competition from an onslaught of fully electric vehicles, including new models that cost less than Tesla’s popular Model Y SUV and Model 3 sedan.
To end 2023, China’s BYD dethroned Tesla as the world’s top EV maker. In the first quarter of this year, BYD kept up the pressure, launching its Qin Plus EV at a starting price of around $15,200, followed by its BYD Seagull, a small all-electric hatchback with a starting price below $10,000.
Chinese smartphone company Xiaomi is getting in the game with its first vehicle, a fully electric SUV that costs far less than Tesla’s entry-level Model 3 sedan. Xiaomi CEO Lei Jun said the standard version of the SU7 will sell for the equivalent of $30,408 in China, a price he acknowledged would mean the company is losing money on each sale. Tesla’s Model 3 is about $4,000 more than that.
Tesla slashed prices in response, but sales were still sluggish.
According to data from the China Passenger Car Association, Tesla sold 71,447 of its China-made cars in January, including 39,881 sold domestically, representing a drop from December. The numbers slid again in February to 60,365 China-made Teslas, including exports.
As sales dipped, Tesla reduced production at its Shanghai factory, shifting staffers from working six and a half days to week to five days, Bloomberg first reported.
Tesla didn’t offer guidance for 2024 in its earnings call in January, but analysts see Tesla’s China struggles as a harbinger for a rough quarter, if not full year.
Deutsche Bank analyst Emmanuel Rosner lowered his price target on Tesla this week, citing weaker-than-expected China sales and the company’s recent plan to cut production in the region. Rosner is now expecting Tesla to report deliveries of 414,000 for the first three months of 2024, and is predicting just mid-single-digit growth for the year from Tesla.
Red Sea attacks, activist clashes in Europe
There was also drama in Europe.
Tesla and other manufacturers like Volvo suspended some production on the continent in January due to a shortage of components following attacks on shippers in the Red Sea. Iran-backed Houthi militia attacks have continued to disrupt one of the world’s busiest routes.
Elon Musk, CEO of Tesla Inc., arrives at the Tesla plant in Gruenheide, Germany, on March 13, 2024.
Krisztian Bocsi | Bloomberg | Getty Images
Then in March came a dramatic protest by environmentalists in Germany. Objecting to Tesla’s plans to expand the footprint of its car and battery factory in Brandenburg, outside of Berlin, the protesters set fire to electrical infrastructure near the Tesla plant. While the fire didn’t spread to the factory, it left the facility without sufficient power for operations, forcing a temporary suspension in production.
CEO Elon Musk visited the German factory after the attack to reassure employees. He also called the protest “extremely dumb.” Tesla’s head of policy, Rohan Patel, wrote on X that Tesla’s mission is to “create zero emissions products” but to do that well, “we also focus on creating the most sustainable factories along with a culture to do the right thing in our community.”
Meanwhile, in Nordic countries, Tesla service technicians and other workers have been on strike in support of the Swedish labor union IF Metall. The labor group has been pressuring Tesla, since October 2023 to negotiate and sign a collective bargaining agreement with its workers.
IF Metall’s website says that nine out of 10 workers are union members in Sweden, yet Tesla has resisted unions, as it consistently does in the U.S., and rebuffed IF Metall’s efforts to negotiate.
Aging lineup, early days for Cybertruck
While EV sales are still gaining popularity worldwide, the growth rate has slowed. And with Tesla no longer the dominant player, every new product becomes more crucial. There’s not a lot in the hopper.
The Cybertruck is still in its very early days and has a niche audience. The company began delivering the angular, unpainted steel model of the truck in December at a promotional event in Austin, Texas.
Musk previously stated on an earnings call that Tesla “dug its own grave,” with the sci-fi inspired Cybertruck. In an interview with Tesla fan and auto critic Sandy Munro in late 2023, Musk cautioned that the “Cybertruck is not something that will be material to Tesla’s financials” in 2024, and “will probably be material in 2025.”
A Tesla Cybertruck at a Tesla store in San Jose, California, on Nov. 28, 2023.
Bloomberg | Bloomberg | Getty Images
Tesla has been gearing up production of its refreshed Model 3, known as the Highland, in Fremont, California. Forbes’ Larry Magid wrote, “Visually, the changes on the outside are subtle.” He also disliked Tesla’s controversial design decision to omit “stalks” from sides of the steering wheel. Highland drivers use buttons and on-screen controls to shift between drive, reverse and park or to signal a turn or lane change.
Tesla does have a totally new platform in the works, a more affordable EV that fans refer to as the “Model 2.” But it won’t be delivered to customers for years.
Musk control and controversy
Musk has continued to bet that Tesla customers and shareholders will stick with the company regardless of his increasingly incendiary rhetoric on X and beyond.
Earlier this month, Musk met with former President Donald Trump in Florida. He’s called for a “red wave” in upcoming U.S. elections, and he’s shared, liked or otherwise promoted far-right accounts and content on X, where he now has 178.8 million listed followers. He has repeatedly disparaged undocumented immigrants, ranted against corporate diversity initiatives and made absurd claims that migrants from Haiti are cannibals.
Musk’s political ideology stands at odds with groups of people most likely to buy his products. Proponents of electric vehicles tend to be left-leaning ideologically, according to research from Pew Research and Gallup last year.
Musk has also wagered that Tesla shareholders and its board of directors will follow his lead. In February, Musk said he would move for a shareholder vote to transfer Tesla’s site of incorporation to Texas from Delaware, after a judge in Delaware voided the $56 billion pay package that he was granted in 2019 on grounds that the board failed to prove “the compensation plan was fair.”
Before the ruling, Musk had begun pressuring shareholders and the Tesla board to give him more control of the EV maker.
“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control,” Musk wrote in a post in January.
Investor Ross Gerber, a longtime Tesla bull, called the demand tantamount to “blackmail” in an interview with CNBC.
Bears cleaning up
It all adds up to over $230 billion in lost market cap for Tesla and its shareholders since the calendar turned to 2024. That made for a very lucrative quarter for short sellers, who’ve been expecting such a downturn.
According to data from S3 Partners, Tesla shorts are up more than $5.77 billion in 2024, making it the most profitable name in the U.S. Short interest at the end of trading on Thursday was about 3.76% of float, representing $18.71 billion in notional value.
Altimeter Capital’s Brad Gerstner is buying the dip. Gerstner told CNBC this week that the company is now making “massive progress at an accelerating rate” on its self-driving technology efforts.
Musk has been making such pronouncements for years. In 2015, he told shareholders that by 2018 Tesla’s cars would achieve “full autonomy,” and be able to drive themselves. In 2016, he said Tesla would able to send one of its cars on a cross-country drive without requiring any human intervention by the end of the following year.
Tesla still has yet to deliver a robotaxi, autonomous vehicle or technology that can make its cars into “level 3” automated vehicles. However, Tesla offers advanced driver assistance systems (ADAS), including a standard Autopilot option, or premium Full Self-Driving “FSD” option, the latter of which costs $199 a month for subscribers in the U.S. or $12,000 up front.
In a push for end-of-quarter sales, Musk recently mandated that all sales and service staff install and demo FSD for customers before they hand over their cars. He wrote in an e-mail to employees, “Almost no one actually realizes how well (supervised) FSD actually works. I know this will slow down the delivery process, but it is nonetheless a hard requirement.”
Despite its name, Tesla’s premium option requires a human driver at the wheel, ready to steer or brake at any moment.
A view of Google Headquarters in Mountain View, California, United States on March 23, 2024.
Tayfun Coskun | Anadolu | Getty Images
Advertising is so back.
After a brutal 2022, when brands reeled in spending to cope with inflation, and a 2023 defined by layoffs and cost cuts, the top digital advertising companies have started growing again at a healthy clip.
Meta, Snap and Google all reported first-quarter results this week, with revenue growth that exceeded analysts estimates and at rates not seen in at least two years. Their financials were primarily driven by improvements across their ad businesses.
The companies entered earnings season in a favorable position in that their numbers would be comparable to historically weak periods. But investors and analysts were cautious in their expectations, given the political and economic instability in various markets across the globe and the ongoing challenges posed by high consumer prices.
Meta, which was the first in the group to report results, put some fears to rest on Wednesday, showing a 27% jump in first-quarter revenue to $36.5 billion. For the Facebook parent, it was the strongest rate of expansion since 2021.
“When Meta was in its dark days two years ago, the company knew what they had to do to get back on track,” analysts at Bernstein wrote in a note after the earnings report. “To their credit, Meta defended the core.”
That dark era was defined by the combination of macroeconomic challenges and Apple’s iOS privacy change, which made it harder for social media companies to target users with ads. Meta lost two-thirds of its value in 2022 and was forced to dramatically cut headcount.
A smartphone is displaying Facebook with the Meta icon visible in the background.
Jonathan Raa | Nurphoto | Getty Images
Meta responded by rebuilding its ad system, with the help of hefty investments in artificial intelligence, so it could deliver value to brands despite the roadblock imposed by Apple. The stock almost tripled in 2023.
While the company’s first-quarter results beat estimates across the board, the shares tanked on Thursday after CEO Mark Zuckerberg focused his post-earnings commentary on the many ways Meta is spending money in areas outside of advertising, notably the metaverse.
“We’ve historically seen a lot of volatility in our stock during this phase of our product playbook where we’re investing in scaling a new product but aren’t yet monetizing it,” Zuckerberg said on the earnings call late Wednesday.
The Bernstein analysts, who recommend buying the shares, said Meta’s ad revenues were led by strength in online commerce, gaming, entertainment and media, and that China-based ad demand “remained strong.” Meta has benefited from a surge in spending from Chinese discount retailers like Temu and Shein.
“Without sounding overly religious, you either believe in Zuck or you don’t, and we do,” the analysts wrote.
‘Incrementally positive’
Alphabet followed on Thursday, reporting ad revenue for the first quarter of $61.66 billion, up 13% from the year prior, with YouTube ad revenue jumping 21% to $8.09 billion. The company as a whole grew 15%, a rate last seen in 2022, and the stock shot up 10% on Friday, the sharpest rally since 2015.
During the quarterly call with investors, Alphabet finance chief Ruth Porat said the company is “very pleased” with the momentum of its ad businesses.
Analysts at Citi wrote in a note on Friday that the broader advertising environment is “clearly strengthening,” pointing to accelerating growth within Google Search and YouTube.
“We emerge from Q1 results incrementally positive on shares of Alphabet,” the analysts wrote, maintaining their buy recommendation.
Snap shares rocketed 28% on Friday after the company reported a 21% increase in revenue to $1.19 billion, the strongest growth in two years. In each of Snap’s past six quarters, sales either grew in single digits or declined.
The company said it’s seeing accelerating demand for its ad platform and benefiting from an improved operating environment, according to its investor letter.
Deutsche Bank analysts wrote in a report on Friday that Snap delivered a “much-needed” beat, and that its ad stack is back on track. The analysts, who have a buy rating on the stock, said investors appear “most encouraged by the ad platform investments, which are showing increasing promise.”
Despite the rally, Snap shares are still down 14% for the year.
Investors will get a clearer picture of the digital ad market next week, with Pinterest reporting on Tuesday alongside Amazon, which has emerged as a giant in online ads. Reddit will follow on May 7, reporting earnings for the first time since the social media company’s initial public offering in March.
Technology
Snap shares rocket 28% after company reports unexpected profit, better-than-expected revenue
A view of the atmosphere during the Snap Partner Summit 2023 at Barker Hangar on April 19, 2023 in Santa Monica, California.
Joe Scarnici | Getty Images Entertainment | Getty Images
Snap shares surged 28% on Friday after the company surprised Wall Street by showing a profit and reported sales and user numbers that exceeded analysts’ estimates.
The stock climbed $3.15 to close at $14.55, its biggest percentage gain since 2022. Even after the rally, the stock is down 14% for the year due to a 31% plunge in February.
Revenue in the first quarter increased 21% to $1.19 billion from $989 million a year earlier, topping analysts’ estimates for sales of $1.12 billion, according to LSEG.
The company reported adjusted earnings per share of 3 cents, while analysts were expecting a 5-cent loss. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $46 million, compared to analysts’ expectations for a loss of $68 million.
Snap said adjusted EBITDA “exceeded our expectations” and was primarily driven by operating expense discipline, as well as accelerating revenue growth.
Snap has been working to rebuild its advertising business after the digital ad market stumbled in 2022. Its investments are starting to pay off. The company said in its investor letter that revenue growth was primarily driven by improvements in the advertising platform, as well as demand for its direct-response advertising solutions.
“I think more broadly, we saw a much more robust brand environment, which played out in all of our regions in Q1,” CFO Derek Andersen said on the earnings call.
User growth was also better than expected. Snap reported 422 million daily active users (DAUs) in the first quarter, up 10% year over year and topping the average analyst estimate of 420 million, according to StreetAccount.
In February, Snap announced it would lay off 10% of its global workforce, or around 500 employees. The company said Thursday that headcount and personnel costs will “grow modestly” through the rest of the year.
Advertising revenue came in at $1.11 billion in the first quarter. Snap’s “Other Revenue” category, which is primarily driven by Snapchat+ subscribers, reached $87 million, an increase of 194% year over year. Snap reported more than 9 million Snapchat+ subscribers for the period.
Though Snap’s growth was its fastest since March 2022, it still fell behind that of Meta, which reported 27% growth in its better-than-expected first-quarter results on Wednesday. Meta shares plunged anyway after the company issued a light forecast and spooked investors with talk of its long-term investments.
For the second quarter, Snap expects to report revenue between $1.23 billion and $1.26 billion, up from the $1.22 billion expected by analysts, according to StreetAccount.
WATCH: Watch CNBC’s full interview with Snap CEO Evan Spiegel
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