Tesla Aims for Cheaper EVs Amid 35% Stock Dip, $21.3B Revenue

Key Takeaway

• Tesla Inc. plans to launch more affordable EVs amid a 35% stock decline this year, aiming to boost sales and margins.
• First-quarter revenue fell 9% to $21.3 billion, marking Tesla's first year-on-year quarterly drop since early 2020.
• Strategy includes cheaper cars via existing lines and investment in AI, despite vague details on the "Model 2."

Market Response to Tesla's Strategy Shift

Tesla Inc. is navigating through a challenging phase, marked by a significant stock slump and heightened competition in the electric vehicle (EV) market. In response, CEO Elon Musk announced plans to accelerate the launch of more affordable models, aiming to rejuvenate sales and profit margins. Despite a 13% recovery in share price following Musk's presentation, Tesla's stock remains down 35% for the year, trading at less than half its late-2021 peak valuation of $1.2 trillion. This strategic pivot comes as Tesla faces real competition from established carmakers and Chinese brands, with the latter offering ultra-cheap EVs that pose a significant pricing challenge.

Financial Performance and Investor Concerns

Tesla reported a 9% decline in first-quarter revenue, falling to $21.3 billion from $23.3 billion year-over-year, missing analysts' expectations. This marks the company's first year-on-year quarterly drop since the start of 2020. Additionally, Tesla experienced its first cash outflow since the pandemic began, alongside worse than expected first-quarter profits. These financial setbacks have raised concerns among shareholders and analysts, particularly as Tesla grapples with "stale models" and the prospect of competing against new Chinese brands entering the market.

Strategic Shifts and Production Plans

Elon Musk's strategy involves a dual focus on launching more affordable EVs and advancing Tesla's autonomous driving technology. Despite speculation around the development of a new mass-market car, dubbed "Model 2," Musk remained vague about specific plans. Instead, Tesla aims to produce cheaper cars using existing production lines and systems, a move intended to cut spiraling costs as the company shifts investment towards AI and self-driving technology. This approach has led to speculation about whether Tesla is planning a budget version of its recently re-engineered Model 3.

Street Views

• Christopher Tsai, Tsai Capital (Neutral on Tesla):

  "Elon is hedging his bets. He’s using the same production line for a human-driven vehicle and a robotaxi, with the ability to pivot between the two depending upon the market demand at the time."

• Mike Tyndall, HSBC (Neutral on Tesla's future models):

  "The Model 2 appears to have morphed into something less radical than previously indicated, but there was confirmation that more models are coming."

• Philippe Houchois, Jefferies (Cautiously Optimistic on Tesla):

  "Musk was appeasing the market by pushing faster, but with a risk of compromises on product to accelerate launches."

Management Quotes

• Elon Musk, CEO of Tesla:

  "Tesla would “accelerate the launch of new models”, he said on Tuesday."

• Vaibhav Taneja, CFO of Tesla:

  "We believe that our awareness activities paired with attractive financing will go a long way in expanding our reach and driving demand for our products."

• Lars Moravey, Head of Engineering at Tesla:

  "Many of the developments for the “next-generation” model were “transferable” to the new models... We’re not trying to just throw it away. What we’re doing is trying to get it in . . .products as fast as possible."