When a large falls, it might make one heck of a loud noise. Tesla’s (NASDAQ:TSLA) first-quarter delivery miss is especially unsettling because it has implications not just for the corporate but for the electric-vehicle (EV) market as an entire.
On a worldwide level, the push for automobile buyers to modify to EVs hasn’t been as swift or as easy as some investors had hoped it might be. Particularly, China has been a sticking point for U.S.-based automakers as customers have demonstrated a preference for domestic manufacturers similar to BYD (OTCMKTS:BYDDY).
Granted, Tesla CEO Elon Musk has warned that China-based EV manufacturers will “demolish” their American rivals if trade barriers aren’t put in place. In truth, that demolition may already be in effect, with TSLA stock in free fall and wide-eyed investors left to select up the pieces.
Why did Tesla stock decline today?
Off by 5% to six% at midday on Tuesday, Tesla stock has declined sharply from its late-2021 peak of around $400. Before anyone assumes that the shares are a screaming bargain though, it’s essential to think about the explanation for the sell-off.
It’s not difficult to discover the offender. Tesla just released its vehicle production and delivery figures for the primary quarter, and the market isn’t pleased with the numbers.
First, I’ll acknowledge the positive news. In Q1 2024, Tesla produced 433,371 vehicles and delivered 386,810 vehicles. Due to this fact, Tesla has a delivery-to-production ratio of 386,810/433,371 or around 89%, which isn’t bad in any respect.
That’s all of the excellent news that I could dig up, and it took some mental gymnastics to get there. Beyond the delivery-to-production ratio, it’s hard to seek out anything encouraging about Tesla’s quarterly operational report.
Unfortunately for the corporate and its shareholders, those 386,810 deliveries fell far in need of the analysts’ consensus estimate of 449,080 deliveries. This result also represented a serious plunge in comparison with the 484,000 vehicles that Tesla delivered within the prior quarter.
Moreover, Tesla’s 433,371 produced vehicles didn’t match as much as the consensus forecast of 452,976 units. In other words, even when Musk had prepared investors for a difficult quarter, the actual results revealed serious issues occurring under the hood at Tesla.
It’s evident that Tesla and Musk understood how bad the quarterly operational results were. The automaker offered an excuse or two, blaming the “early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns resulting from shipping diversions brought on by the Red Sea conflict and an arson attack at Gigafactory Berlin.”
The market isn’t within the mood to tolerate excuses, nonetheless. Tesla’s status as a Magnificent Seven member was already in jeopardy, and now it looks increasingly like a large in decline.
Tesla’s “unmitigated disaster”
It’s also value mentioning that Tesla appears to be highly reliant on its relatively lower-priced vehicles. In the primary quarter, the corporate produced 412,376 and delivered 369,783 combined Model 3 and Model Y units. In contrast, Tesla only produced 20,995 and delivered 17,027 “other models,” a category that features the pricey Cybertruck, Model S and Model X.
It’s probably not a very good sign for the EV industry generally if Tesla can’t easily sell its higher-price-tag models. If consumers lean toward cheaper models, whether out of preference or out of necessity, this might be problematic for the profit margins of automakers like Tesla.
At the top of the day, Tesla’s latest operational report signals an unlucky directional change for a corporation that when seemed invincible. In truth, the primary quarter marks Tesla’s first quarterly EV-delivery decline in almost 4 years. Thus, investors might get the impression that Musk’s strategy of price cuts isn’t figuring out as intended.
For one expert on Wall Street at the very least, this report evidently casts a dark cloud over Tesla.
“While we were anticipating a foul 1Q, this was an unmitigated disaster 1Q that is tough to clarify away,” Wedbush analyst Dan Ives wrote in a note.
The aforementioned quarterly data points seem to verify Ives’ consternation. Looking ahead, the Wedbush analyst doesn’t sound particularly optimistic about Tesla’s ability to reverse the damage:
“We view this as a seminal moment within the Tesla story for Musk to either turn this around and reverse the black eye 1Q performance. Otherwise, some darker days could clearly be ahead that might disrupt the long-term Tesla narrative.”
Calling the Q1 2024 operational report a “seminal moment” for Tesla could be overdramatic. Automakers have their good and bad quarters, and Tesla was within the doghouse in 2022 before its stock zoomed higher in 2023.
Nonetheless, to cite the classic TV show I Love Lucy, Tesla and Musk have some “splaining” to do. Until the automaker demonstrates its turnaround prospects through more favorable data points, investors should consider steering toward more promising opportunities.