Tesla Sales Dip 8%, Shifts Focus to Robotaxis Amid Challenges

Key Takeaway

• Tesla anticipates its weakest quarterly performance in 7 years, with an 8% decline in car sales and a significant drop in gross margin.
• Amid financial pressures, Tesla shifts focus from a $25,000 electric vehicle to prioritizing self-driving "robotaxis."
• Despite challenges, investors remain hopeful about Tesla's autonomous driving prospects but seek clarity on its strategic direction.

Quarterly Performance Concerns

Tesla shareholders are preparing for potentially disappointing quarterly results, anticipated to be the company's weakest performance in seven years. This period of uncertainty is marked by challenges such as slowing demand and an ongoing price war. The company has also reported an 8% decline in car sales in the first quarter compared to the same period in 2023. Analysts predict a significant drop in gross margin, the lowest since early 2017, and a "modestly negative" free cash flow, marking the first quarter of negative cash since early 2020. These financial indicators highlight the hurdles Tesla faces as it navigates a competitive and evolving automotive landscape.

Strategic Shifts and Investor Expectations

Amidst financial pressures, Tesla is reportedly reconsidering its product roadmap, particularly the development of a $25,000 electric vehicle, unofficially dubbed the Model 2. Instead, there appears to be a pivot towards prioritizing self-driving "robotaxis," a move Elon Musk describes as "blindingly obvious." This strategic shift has sparked a debate among investors and analysts regarding Tesla's future direction—whether it will continue as a mass manufacturer or focus more on autonomous technology. James Anderson from Lingotto Investment Management and Tom Slater from Baillie Gifford express cautious optimism about Tesla's potential in the autonomous driving sector, highlighting the importance of the upcoming robotaxi unveiling in August.

Autonomy and Market Position

Tesla's exploration into full self-driving (FSD) capabilities and autonomous vehicles is a critical aspect of its strategy. The FSD feature, available to customers for $99 a month, represents a significant technological advancement, though it still requires driver attention. Investors like Christopher Tsai and Gary Black acknowledge the competitive challenges Tesla faces in the electric vehicle market but remain hopeful about its prospects in increasing production and leading in autonomous driving technology. However, Barclays analyst Dan Levy and Deutsche Bank analyst Emmanuel Rosner express skepticism, suggesting that clarity on Tesla's strategic direction, especially regarding the Model 2, may remain elusive and could lead to a shift in investor sentiment.

Street Views

• James Anderson, Lingotto Investment Management (Neutral on Tesla):

  "It’s always been a margin versus volume debate for them, and this is the latest twist... Whether it is a good twist depends vitally and decisively on what the shift to autonomous brings."

• Tom Slater, Baillie Gifford (Bullish on Tesla's self-driving technology):

  "This year would be 'quieter' for Tesla sales, but added that investors were enthusiastic about the potential of its self-driving cars. If you look at all the reviews of the latest version of their full self-driving software, it’s a massive leap forward."

• Christopher Tsai, Tsai Capital (Cautiously Optimistic on Tesla):

  "We also believe the company will increase production and deliveries substantially in the years to come and further its lead in autonomous driving."

• Gary Black, The Future Fund (Neutral/Cautiously Optimistic on Tesla):

  "Much depends on how [Musk] frames timing of the $25K car... despite robotaxi prioritisation."

• Dan Levy, Barclays (Neutral on Tesla's strategy clarity):

  "Plans for Model 2 will likely get most attention but don’t expect a satisfying answer."

• Emmanuel Rosner, Deutsche Bank (Bearish/Concerned about Tesla's strategic shift):

  "We view Tesla’s shift as thesis-changing, and worry the stock will need to undergo a potentially painful transition in ownership base... There is considerable risk from going [all in] for autonomy."

Management Quotes

• Elon Musk:> "Focusing on autonomy was 'a blindingly obvious move'."