On the morning of April 24, Tesla released its results for the first quarter of 2024.
In the first quarter of this year, Tesla not only saw a collapse in sales, but also saw a triple decline in revenue, net profit and gross profit margin compared with the previous quarter, all of which were lower than expected. FSD and Robotaxi, which are lifesavers, have confirmed their prospects and potential, but it is still difficult to boost sales and profitability in the short term.
The only good news is that the Model 2, a budget model that has attracted much attention in the market, is expected to start production in the second half of 2025 without the need for a new plant or a large-scale new production line.
In Q1 2024, Tesla achieved operating income of US$21.3 billion, down 9% year-on-year and 15% month-on-month, lower than market expectations of US$22.1 billion, and also the first year-on-year decline in revenue since 2020, net profit was only US$1.129 billion, down 55% year-on-year and 86% month-on-month, lower than market expectations of US$1.81 billion, and gross profit margin decreased by 2 percentage points year-on-year and 0.3 percentage points quarter-on-quarter to 17.35%.
1. The price reduction did not work, and the Q1 delivery collapsed completely
Tesla's price reduction and volume guarantee strategy was invalid in the first quarter of this year, and its sales volume was completely lower than market expectations. Tesla's explanation is that production and sales have declined due to production line upgrades at its Fremont plant in California, the arson of the Berlin Gigafactory, and transportation problems caused by the Red Sea conflict.
Wall Street Insight Research believes that the reasons behind it may be more than that. Because the collapse of sales is not only the US and European markets, which Tesla said will be affected, but also the Chinese market. Tesla's continued price cuts and frequency are not outstanding under the general trend of domestic electric vehicle price wars this year, and its old models have been difficult to continue to inspire consumers' enthusiasm.
In the first quarter of this year, Tesla's global deliveries were 387,000 units, down 8.5% year-on-year and 20.2% quarter-on-quarter, and production was 433,000 units, down 1.7% year-on-year and 12.4% quarter-on-quarter.
In addition, it is worth noting that while the overall sales of new energy vehicles in China, the United States and Europe are still maintaining positive growth, Tesla has suffered a "Waterloo" in the three major new energy vehicle markets.
This also made Tesla's production and sales gap to a record high in the first quarter of this year. Tesla's production exceeded sales by 47,000 units, which not only brought the inventory of the quarter to a record high, but also completely broke Tesla's previous good situation of production and sales, and deliveries were affected by capacity constraints rather than demand.
If there is no new strategic change in the future, Tesla will face the possibility of weak sales growth or even negative growth this year. As Tesla said, "the increase in the number of new car deliveries in 2024 is likely to be significantly lower than the growth rate achieved in 2023."
Because even with the flat sales target of 1.8 million units, Tesla needs to reach an average sales level of 471,000 units in the next three quarters, an increase of 22% quarter-on-quarter, which is not easy to achieve for Tesla, which continues to decline in sales month-on-month.
2. Profitability still has not reversed the trend
At the beginning of this year, Tesla implemented a price cut of 2.9-36,000 yuan for the Model Y and Model 3, bringing the price of the new version of the Model Y and Model 3 to a record low. However, the price reduction strategy did not work well, failed to drive sales growth, and also pulled revenue, profit and gross margin levels into a downward trajectory.
Fortunately, benefiting from the decline in the price of raw material lithium carbonate and power batteries, Tesla's operating costs decreased by 1.21 billion yuan year-on-year, as well as the increase in FSD revenue in the automobile business (Tesla said that due to the release of FSD V12 supervision, FSD-related revenue recognition in the first quarter increased a lot), so that Tesla's single vehicle revenue and automobile gross profit margin in the first quarter reached 44,900 yuan and 15.6%, a year-on-year decrease of only 2,300 yuan and 1 percentage point, slightly exceeding expectations.
Therefore, before Tesla's new affordable model Model 2 comes out, price reduction is still a rare effective strategy in Tesla's hands. As long as the overall production capacity and output are still greater than the level of orders and sales, Tesla will continue to reduce prices.
At the beginning of the second quarter of this year, Tesla launched a preferential policy of "0 interest" installment purchase for Model 3 and Model Y for the first time, with a down payment of only 79,900 yuan, and at the same time, it continued to give a price reduction discount of 14,000 yuan for all models.
3. Is FSD a lifesaver?
Tesla's old products are gradually expiring, and new products will not be put into production until the second half of 2025.
With the subsequent increase in FSD penetration, Tesla is expected to increase revenue and profit levels by offering FSD to collect buyout prices or subscription fees, while also taking a cut of the business through the Robotaxi launched in August. However, Tesla faces no less difficulties and challenges.
(1) FSD has been slow to enter the Chinese market
The promotion of Tesla's FSD in the European and American markets can indeed attract more customers and boost sales to a certain extent. This is also reflected in Tesla's linear increase in mileage after announcing a one-month free trial of FSD at the end of March.
As of early April this year, Tesla's FSD mileage has exceeded 1 billion miles, and it has been updated from the beta version to the supervised version.
In order to keep customers after the FSD free period has ended, Tesla has also opened a price reduction mode. Reduced the FSD package price from $12,000 to $8,000, and the subscription price from $199 to $99 per month. The price of FSD is sinking, but the technology is being updated, which greatly increases the attractiveness of the product.
However, Tesla's FSD has not been officially introduced into China so far, so it is difficult for Chinese consumers to fully appreciate the benefits of Tesla's FSD price reduction and technology improvement, which also makes Tesla in the Chinese market still rely on the price reduction and brand influence of old models to attract customers.
Tesla's sales in Europe and the United States account for less than 50% of global sales, and support for new energy vehicles in Europe and the United States is gradually declining.
As a result, the penetration rate of new energy vehicles in Europe and the United States continues to be stuck at around 20% and 10%, and there is no trend of continuous improvement. Therefore, FSD has only half the effect on Tesla's overall sales boost.
However, in Tesla's first-quarter conference call, Musk said that he is in talks with a major automaker on the authorization of Full Self-Driving (FSD), which is expected to further enhance the penetration of FSD in the autonomous driving market.
(2) Robotaxi has many restrictions and no first-mover advantage
Cruise, the first self-driving taxi business in the United States, has been shut down altogether due to frequent safety incidents. Although Waymo has made some progress in terms of safety, it is not used frequently (only 0.01% of Uber's total business).
The launch of Tesla's Robotaxi project can indeed increase the use of FSD and drive the mileage of FSD, but it is still difficult to quickly establish the scale effect and obtain greater profits. Because Tesla needs to fundamentally address consumer safety concerns and change their travel patterns and habits, and at the same time needs to obtain permission from regulators in various states in the United States.
As for the Chinese market, the unmanned taxi business that Tesla wants to promote does not have any first-mover advantage in China, and it is difficult to win a large share of the market. At present, Baidu's Radish Run, as well as Didi Technology, a joint venture between Didi and GAC, have already begun to lay out, among which Radish Express has completed business openings in Beijing, Shanghai, Wuhan, Shenzhen and Chongqing and other cities, with a total order volume of up to 4 million.
Tesla's failed price reduction strategy, continued downward profitability, and sales that began to grow negatively have cast a slight shadow on Tesla's prospects. I only expect Tesla, which has given itself the name of "self-driving company", to really make a beautiful comeback with FSD.
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