Tesla Profits Drop 71% - Sales Decline & Musk Sentiment

Tesla Faces Financial Challenges Amidst Declining Sales

Recent financial reports released on Tuesday indicate that Tesla’s sales performance is trending downwards, bringing the company closer to incurring losses than it has experienced in recent years. This situation potentially jeopardizes a key competitive advantage over other electric vehicle (EV) manufacturers.

First Quarter Earnings Report

The electric vehicle company announced a net income of $409 million on revenue totaling $19.3 billion, following the delivery of approximately 337,000 EVs during the first quarter. However, this represents a substantial 71% decrease in net income compared to the same quarter in the previous year.

This marked Tesla’s weakest quarter for vehicle deliveries in over two years and followed the company’s first instance of year-over-year sales decline.

Impact of Tax Credits

Tesla’s earnings were partially supported by $595 million in revenue generated from zero-emission tax credits. Without these credits, the company would have reported a loss.

Stock Market Reaction and Future Plans

Despite the challenging financial results, Tesla’s stock price increased during after-hours trading. This positive reaction was attributed to investor confidence in the company’s plans to initiate production of a more affordable EV model in June.

Furthermore, CEO Elon Musk announced during an earnings call his intention to reduce his involvement with the Department of Government Efficiency to dedicate more focus to Tesla. While not a complete withdrawal, Musk indicated a potential continuation of his work with DOGE in some capacity throughout President Donald Trump’s current term.

Concerns Regarding Trade Wars and Political Climate

Tesla cautioned shareholders about the potential impact of ongoing trade disputes on its future business operations. The company stated that President Trump’s tariffs and “evolving political attitudes” could significantly affect demand for its products.

Specifically, the company anticipates that current tariffs, largely focused on China, will have a more pronounced effect on its Energy division compared to its automotive business. Tesla is implementing strategies to stabilize operations in the medium and long term, but acknowledges uncertainty regarding sales growth for the current year.

Affordable EV Production

Tesla reaffirmed its commitment to developing more affordable vehicle models, maintaining its target for the start of production in the first half of 2025. Musk specified during the earnings call that production is expected to commence in June.

These new vehicles will incorporate elements of a next-generation platform designed for the robotaxi, while also utilizing the existing platform that underpins the Model Y and Model 3. Production will occur on the same manufacturing lines as the current vehicle lineup.

This contradicts a recent Reuters report suggesting delays in the launch of these new EVs.

Headwinds Facing Tesla

Tesla is currently navigating several challenges. Its existing EV lineup is becoming dated, despite recent updates to its sedans and SUVs. The Cybertruck, a highly anticipated product, has not achieved the level of success initially projected by CEO Elon Musk.

Moreover, Musk’s political views and involvement in the Trump administration have sparked criticism and negatively impacted the Tesla brand.

Focus on Robotaxi and Optimus

Tesla is increasingly prioritizing its Robotaxi and Optimus robot projects. Musk has announced plans to launch a preliminary version of the Robotaxi service in Austin this June, with potential expansion to other cities by the end of the year, though specific details remain limited.

Despite repeated assurances, Musk has yet to demonstrate fully autonomous driving capabilities in Tesla vehicles. Recent reports from The Information indicate that an internal Tesla analysis suggests the Robotaxi program could incur losses for an extended period, even if operational.

Previous Financial Performance

Last year, Tesla also reported unfavorable financial results. In the first quarter of 2024, profits decreased by 55% to $1.13 billion compared to the same period in 2023. This decline was attributed to a prolonged EV price reduction strategy and “unexpected obstacles.”

In the second quarter of 2024, Tesla reported a profit of $1.5 billion, a 45% decrease from the same period in 2023. This was impacted by a $622 million restructuring charge, although regulatory credit sales of $890 million partially offset this decline.

This article was initially published at 1:15 pm PT and has been updated with additional comments from Elon Musk and other Tesla executives from the earnings call.