Tesla’s downbeat earnings report highlights a grim outlook

Analysts called Tuesday’s earnings report a “make or break moment” for the electric-vehicle maker as it continues to struggle with falling sales, stiff competition from China and uncertainty over its business outlook. Tesla’s earnings report was indeed grim: For the three months ended March 31, net income fell 55 percent from a year earlier to $1.13 billion while revenue fell 9 percent to $21.3 billion.

CEO Elon Musk, who has a unique penchant for redirecting the conversation, used Tuesday’s earnings call to deflect from the poor numbers, focusing instead on the company’s commitment to artificial intelligence and a fully autonomous car. Details on Tesla’s apparent new offerings — which include the “more affordable models” and the “cybercab” — were scant and did not address how the company would overcome the technological and regulatory hurdles ahead.

Musk signaled that the outlook for the second quarter will be “a lot better,” saying, “I think we will have higher sales this year than last year.” Asked to present a timeline for its lower-cost, $25,000 vehicle, Tesla did not answer directly, and Musk instead said his company should be thought of in terms of its autonomous goals.

“We should be thought of as an AI or robotics company,” Musk told investors. “If somebody doesn’t believe Tesla is going to solve autonomy, I think they should not be an investor in the company. But we will. And we are.”

Despite the vague promises for a recovery, the news sent Tesla’s stock — which has been hovering near a 52-week low — to recover in after-hours trading. Tesla was trading up more than 10 percent to $160 after closing around $145 on Tuesday. The stock rebound was a noteworthy moment for the company, which had been battered by analysts in the preceding weeks over its lagging vehicle deliveries.

Tesla said this month that it delivered 387,000 vehicles to customers in the first quarter, down 20 percent from the previous quarter and more than 8 percent from a year earlier, triggering concerns about its future outlook. But Tuesday’s earnings report appeared to offer an antidote in the form of unexpected new vehicles, though Tesla has a documented habit of overpromising.

Tesla executives were confident that sales would turn around in the next quarter, as they attributed the first-quarter struggles to a unique confluence of factors: “We experienced numerous challenges in the [first quarter] from the Red Sea conflict and the arson attack at Gigafactory Berlin, to the gradual ramp of the updated Model 3 in Fremont,” Tesla said in a statement, explaining the decline in earnings. “Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs.”

Gene Munster, managing partner at Deepwater Asset Management, said the ambitious second-quarter turnaround outlook that Tesla is projecting is “hard to believe” given the headwinds in the overall electric-vehicle market. But, he said, he still felt “optimistic” after the call — particularly given Musk’s focus on autonomous vehicles.

“What [Musk] is really doing is he is using that language to speak to investors to change their investment thesis, and he’s trying to emphasize that he shouldn’t be held accountable to hardware margins, but instead to what he thinks is a much better business model,” he said.

Tesla is still far from its heyday in 2021, before Musk began acquiring shares of Twitter. At the time, the electric-vehicle maker was smashing production and delivery records, while its stock was riding high with the company commanding a $1 trillion valuation, placing it among tech powerhouses such as Apple and Amazon.

Now, the company says it is between growth waves as it seeks to calm investors’ concerns about its direction.

The company this month told employees that it had to cut 10 percent of its global workforce after a “thorough review of the organization.” In a layoff notice obtained by The Washington Post, employees were told that Tesla, which has a large presence in California and Texas and factories in Germany and China, is looking “at every aspect of the company for cost reductions and increasing productivity,” according to the email, which was shared with The Post. Two prominent senior executives — a top engineering executive and a vice president of public policy and business development — also announced their departures the same day the layoffs were announced.

Putting a fine point on the quarter’s themes, the company’s vice president of investor relations Martin Viecha on Tuesday said that he would soon be departing Tesla, an announcement that closed out Tuesday’s earnings call.

To allay concerns about stagnating growth and persistent price cuts, Musk said this year that Tesla was “between two major growth waves” as it pivoted resources toward the production of its next lower-cost vehicle, known as the Model 2. He posted on X that the company would unveil a fully autonomous robotaxi in August, echoing a promise he made in the past about its existing fleet of consumer-owned cars but one he hasn’t yet delivered.

“Tesla pushed electrification and created this momentum. But now their growth is definitely slowing down … and they haven’t had a fresh new product,” said Stephanie Valdez Streaty, director of industry insights for Cox Automotive.

Dan Ives, an analyst for Wedbush Securities, said Tesla needs to provide realistic goals and clearly lay out what products consumers and investors can expect in the future.

Tesla, for its part, has pulled itself out of the trenches before: As competing automakers were slow to recover from the covid-19 shutdowns, Tesla was not only quick to reopen, it also was less constrained by a chip shortage and supply chain problems. Tesla reversed its fortunes from years earlier by demonstrating consecutive quarters of profitability, hitting production and delivery targets and seeing the runaway success of its best-selling vehicle, the Model Y crossover.

It also distanced itself from the low-margin business of auto manufacturing, staking out a position as a tech company at the vanguard of artificial intelligence with its bets on Autopilot and Full Self-Driving. Those decisions propelled it to a valuation of more than $1 trillion at its peak in late 2021.

Still, while Tesla has seen much more “tenuous times,” Ives said this time feels more precarious.

“For the first time, many longtime Tesla believers are giving up on the story and throwing in the white towel,” he said. “The miscalculation of demand erosion in China has been a gut punch to the bull thesis, the Model 2 vs. Robotaxi debate has taken on a life of its own, major layoff including key assets for Tesla, and a global EV landscape that has turned Tesla from a Cinderella story to a horror show in the near term.”

Outside of Wall Street, the company is also facing challenges as regulators increase scrutiny of the company. In December, Tesla recalled 2 million vehicles after an investigation from the National Highway Traffic Safety Administration found that its technology invited driver misuse. Tesla is also recalling nearly 4,000 Cybertrucks because of faulty accelerator pedals.

Several lawsuits threaten to cast its technology in an unflattering light, which could be a major blow for a company that is staking its future on a fully autonomous car. In court documents, Tesla says its user manuals and on-screen warnings make “extremely clear” that the driver must be fully in control while using Autopilot. Many of the upcoming court cases involve an element of driver distraction or impairment, which are difficult facts to prove when arguing that Tesla’s driver assistance feature is fully to blame.

In a surprising twist this month, the company settled a high-profile case on the eve of its trial over the 2018 death of a former Apple engineer whose vehicle veered off a highway in Northern California. Legal and industry experts are now expecting more settlements, which would allow Tesla to avoid a highly publicized courtroom battle in which its technology would be scrutinized in detail. Tesla has declined to comment on the lawsuits.

Consumers and investors are also souring on Musk’s controversial reputation. He regularly uses X to espouse hard-line immigration ideals, promote antisemitic rhetoric, push conspiracy theories and criticize liberal causes as a “woke mind virus.”

Now Musk faces the most significant challenge to his leadership since 2018, after his false declaration that he had “funding secured” to take Tesla private. That claim led to separate $20 million fines for him and Tesla, and he was forced to step aside as chairman of the board.

Tesla is now asking shareholders to approve a gargantuan pay package, worth as much as $56 billion, that was struck down by a Delaware judge this year over an unfair process. Musk, whose shareholder support is usually ironclad, is not guaranteed to win that vote. His plea for 25 percent control of Tesla has been met with skepticism. Prominent investors, some of whom have been vocal supporters, have publicly said they’ve reduced their positions in Tesla over its recent direction.

Musk appeared to make reference to that upcoming vote on the earnings call Tuesday, but he didn’t go into details.

“How brands market themselves and how they represent themselves in the market is crucial in an influencer-led system,” said Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management. “Now we’re seeing it with Elon, where he’s become so divisive, and the sales are going to zero if he continues this.”

To be sure, Tesla has also weathered reputational hazards before: In a short span in 2018, Musk invited a defamation lawsuit by referring to a Thai cave rescuer as a “pedo guy” and took a hit of a joint on Joe Rogan’s podcast, leading to scrutiny from NASA over his leadership of rocket builder SpaceX. His erratic behavior led investors to question whether he was fit to continue leading Tesla.

But, in the months that followed, Tesla’s moves and stock performance — along with the quick resolution of controversies facing the company — quickly erased those concerns.

“The moment of truth has now arrived for Elon Musk and Tesla with [Tuesday’s] conference call and messaging one of the most important moments in the company’s history in our view,” Ives said.