Tesla earnings crucial for Elon Musk post setbacks
Synopsis
With Tuesday's earnings report looming, Tesla CEO Musk is under increased pressure to assuage investors that recent setbacks are merely unforeseen obstacles rather than signals of a downward trajectory. Tuesday's earnings and conference call represent a critical juncture for Tesla and Musk, described as "one of the most pivotal moments in the company's history" according to Wedbush analysts.
Tesla CEO Elon Musk is under increased pressure ahead of Tuesday's earnings report to reassure investors that recent setbacks are merely unforeseen hiccups, rather than signs of a looming downturn. The electric car manufacturer, which saw rapid growth throughout much of 2022 and 2023, has encountered challenges that analysts argue have intensified the importance of the first-quarter report.
Tuesday's earnings and conference call represent a 'make-or-break' moment for Tesla and Musk, marking 'one of the pivotal moments in the company's history in our perspective,' according to a note from Wedbush.
As we entered 2024, Tesla enthusiasts were bracing themselves for a more challenging journey. Musk's previously unrivaled leadership in the electric vehicle (EV) sector was encountering increased competition from competitors, leading to a string of price reductions.
However, the reality has proven to be even rockier than anticipated.
After revealing a disappointing 8.5 percent decline in first-quarter deliveries on April 2nd, Tesla announced last week its intentions to reduce its workforce by over 10 percent.
Following that development, Tesla swiftly announced its intention to resurrect a $56 billion compensation package for Musk, which had been invalidated by a court ruling.
Towards the end of last week, Tesla announced a recall of its Cybertruck due to an acceleration issue. Additionally, there's been speculation surrounding the shelving of plans for the 'Model 2,' which is anticipated to be a mass-market, affordable vehicle.
On a positive note, Musk has indicated that the company will unveil a 'Robotaxi' this summer. However, analysts have raised safety concerns that are casting doubt on the timeline for this vehicle.
Stephanie Valdez Streaty, director of industry insights at Cox, remarked, 'There's a lot of confusion about the company's direction,' citing a more than 40 percent drop in Tesla's share price in 2024 as evidence of apprehension.
Investors are seeking 'greater clarity on their strategy,' she added. 'We could end up with many unanswered questions.'
"Growing Doubts -
Musk has weathered challenging periods with Tesla before, such as the struggles in 2018 to scale up production of the Model 3 vehicle while contending with US securities regulators due to a brief flirtation with privatizing the company.
Wall Street has become accustomed to Musk's unpredictable style and relaxed deadlines regarding goals for autonomous driving and other innovations, celebrating as Tesla delivered a series of strong results driven by continually increasing revenues.
However, as the financial outlook dims, analysts are voicing more pronounced skepticism.
Recent reports from JPMorgan Chase analysts dismissed Tesla's explanations for its underwhelming deliveries, which had attributed the issues to factors like shipping disruptions in the Red Sea region and a suspected arson attack at its German factory.
JPMorgan "placed little faith" in these explanations, despite the markets largely accepting them, stated the investment bank in a report.
"The significant layoffs announced yesterday, resulting in a reduction in manned production capacity, should dispel any doubt that the decline in deliveries stems from decreased demand rather than supply issues."
Last week, Deutsche Bank analysts downgraded Tesla to a "hold," citing concerns about the rumored delay of the Model 2 that were not offset by the Robotaxi initiative.
"The postponement of Model 2 development raises the risk of no new vehicle in Tesla's consumer lineup for the foreseeable future, which could continue to suppress its volume and pricing for many years to come," noted the Deutsche Bank report.
Deutsche Bank remarked that Musk's announcement of the Robotaxi unveiling in August "does not imply readiness of the technology," pointing out "technological, regulatory, and operational hurdles" that could impede its commercial viability.
"We are concerned about the significant execution risk associated with developing Robotaxi technology and believe that fleet deployment could be years away," cautioned Deutsche Bank."
