Tesla shares in focus ahead of quarterly results as Elon Musk struggles amid price cuts, layoffs

Shares of Tesla edged higher on Tuesday ahead of the electric vehicle (EV) manufacturer's first-quarter results, with analysts expecting its lowest gross profit margin in more than six years. Shares have dropped 43 per cent year-to-date (YTD) as Elon Musk's EV giant has struggled with employee layoffs along with product discounts, price cuts to lure customers in the last few months.

Ahead of the announcement of Q1 results, stock was up 0.7 per cent at $143 in premarket trading, due after the close of trading. CEO Elon Musk will likely face pointed questions from investors during the post-results conference call about the fate of the so-called Model 2, a low-cost vehicle he had promised in January would be available in 2025.

Musk had also been expected to meet Prime Minister Narendra Modi on April 22 and announce major investments in an auto factory which was expected to produce a small, affordable model. However, Musk postponed the visit at the last minute, citing ‘very heavy Tesla obligations’. 

Tesla Q1 Results Expectations

Musk has already said that the company will be unveiling its so-called Robotaxi in August but has not clarified the plans for the cheaper vehicle. According to Bloomberg, it is possible that Tesla is only going to delay the production of the less-expensive car, rather than shelve it outright.

However, the concerns about Tesla’s strategy are elevating the nervousness of investors at a time when the company is already contending with slowing growth, thinning margins and sales. Earlier this month, the automaker reported an 8.5 per cent decline in deliveries and rising inventories, which lagged analysts’ forecasts by the most in at least seven years. 

Also Read: Tesla knocks $2,000 off prices for 3 EVs after shares crash 40% YTD on falling sales

Over the weekend, it announced the latest in a series of price cuts globally on the Model 3, Model Y and other models, further eating into margins. In the past 12 months, expectations for first-quarter earnings have been dialed back to 52 cents a share, half of what was once anticipated. 

The revenue forecast — now about $22.3 billion — has been cut 22 per cent over that time, according to data compiled by Bloomberg, while estimated free cash flow slid 70 per cent to around $654 million.

At nearly 47 times forward earnings, the Tesla stock significantly more expensive than every other member of the so-called Magnificent Seven tech stocks. On the flip side, the negative sentiment has set a relatively low bar, creating the potential for a relief rebound. Tesla is now among the worst performers on the S&P 500 index. 

Several analysts expect Tesla's annual deliveries to fall for the first time in 2024 after years of double-digit growth. The company warned in January that delivery growth would be notably lower this year, signaling that price cuts would be insufficient to lift demand.

Wall Street expects Tesla's automotive gross margin excluding regulatory credits to be 15.2 per cent, down from 19 per cent a year earlier and the lowest since the fourth quarter of 2017. Musk has predicted the imminent arrival of fully autonomous cars for years, but may still be years from delivering, given the steep engineering and regulatory challenges.

With inputs from agencies