Tesla is having a very bad year so far. Investors will get an idea of just how bad after the company reports earnings and offers comments to investors after the bell today.
So far this year Tesla shares have fallen 43% as of the close of trading Monday, after losing another 3% on the day following the latest round of price cuts announced over the weekend.
The drop in the value of the stock has even some Tesla bulls worried about the future for the world’s most valuable automaker, and one that had been among the most profitable for the last five years. Concerns about the EV demand not living up to forecasts is hurting all auto stocks, but Tesla has had its own run of bad news lately to worry investors. And it makes what Tesla says Tuesday evening very important for its future.
“The moment of truth has now arrived for Elon Musk and Tesla,” said Dan Ives, analyst with Wedbush Securities who has had a bullish view of Tesla for years. But he said the “conference call and messaging one of the most important moments in the company’s history.”
“For the first time many long time Tesla believers are giving up on the story and throwing in the white towel,” he wrote. “The miscalculation of demand erosion in China has been a gut punch to the bull thesis. The global EV landscape has turned Tesla from a Cinderella story to a horror show in the near-term.”
The latest price cuts announcement, which reduced the US prices of the Model Y, Model X and Model S by $2,000 each, while leaving prices unchanged for the Model 3 and the Cybertruck, follows its first year-over-year decline in global sales since the pandemic. Tesla has said it plans to cut more than 10% of its staff. The company also said it seeking approval from shareholders to restore stock options to allow CEO Elon Musk to buy 300 million shares of its stock at a discount after a Delaware judge earlier this year threw out the 2018 compensation package that had included those options.
The company is clearly facing the greatest competitive challenge since it became profitable in 2019. Not only is it facing more competition from traditional western automakers who are rolling out their own EV models, but it’s also facing increased competition from Chinese automakers.
In the final three months of last year Tesla lost its title as the world’s largest EV maker to Chinese automaker BYD.
And although it reclaimed the title in the first quarter, its first quarter sales were much weaker than expected, adding to concerns that projections of strong growth for EVs were greatly overplayed.
Ives is very concerned about what the unpredictable Musk might tell investors during the call on Tuesday.
“If Musk is flippant again and there is no adult in the room on this conference call with no answers then darker days are ahead,” he wrote.
Despite Tesla’s drop in sales and price cutting, it is still the most valuable automaker in the world, with a market cap of $469 billion, roughly $100 billion more than No. 2 Toyota and nearly five times as much as General Motors and Ford, combined.
But it’s lost more than half of its value from when it was a $1 trillion stock, and some Tesla bears argue it is still grossly over-valued. The company shares hit an all time high in November of 2021, after a very strong year, then lost nearly two-thirds of their value in 2022, before doubling once again in 2023 ahead of 2024’s current slide.
Analyst Gordon Johnson of GLJ Research says that the latest price cut will end up costing Tesla at least $1 billion and should have shaved an additional 10% off the stock than the drop that occurred in trading Monday.
“It is our strong opinion that the full extent of this weekend’s ‘nightmarish’ price cuts are not being fully appreciated by Mr. Market,” he wrote Monday.
Analysts are forecasting Tesla to report adjusted earnings of 49 cents a share, sharply lower than the 85 cents a share it reported a year ago. Its profit margins, also a closely watched number, have been falling steadily since it started an EV price war more than a year ago.
But much of the focus Tuesday will be on its guidance for future plans, specifically a lower-priced version of its car, to be called the Model 2, and its plans for a fleet of driverless “robotaxis,” that it said it would unveil in August.
After Reuters reported earlier this month that it was dropping plans for the Model 2 because of competition from China, Musk tweeted “Reuters is lying (again),” without giving any details of the company’s plans. But in January, he did warn that Chinese automakers could ‘demolish’ rivals with low priced EVs. What he says about the competition from Chinese EVs today will also be a key focus for investors.
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