The News
Tesla on Tuesday reported a 55% drop in quarterly profit compared with the first quarter of 2023, yet another sign that the once-dominant electric carmaker is struggling amid intense competition from Chinese automakers.
The EV giant posted revenues of $21.3 billion in Q1, equating to a 9% drop and its biggest year-on-year fall since 2012.
Analysts began forecasting trouble for Elon Musk’s EV empire after Tesla announced price cuts in China at the weekend. Similar price cuts were seen in the U.S. and Germany as sales slumped in Q1, and the company recently announced a 10% reduction in its global workforce.
But Musk appeared confident that Tesla can stay cash-positive even with more price cuts during Wednesday’s investor call.
“If you have a great product at a great price, the sales will be excellent,” he said.
Investors have become increasingly worried about the sustainability of Musk’s business plans. Reuters this month reported that Tesla had scrapped plans for its cheapest EV yet — seen as critical to compete with Chinese competitors — though Musk denied the report.
He instead unveiled plans for a new robotaxi that features no steering wheel, another move which has unnerved employees and is ”[plunging] Tesla into chaos,” Bloomberg reported.
Tesla is accelerating the production of “new vehicles, including more affordable models,” according to a memo in a presentation to shareholders.
That announcement excited investors: despite Tesla’s year-to-date share price closing down 42% at the end of trading, the after-hours stock price rose by as much as 9%. One analyst called it a sign the company is “listening” to investors’ concerns.
Musk told investors it is “helpful” that other self-driving carmakers are already pursing full regulatory approval and are “cutting a path through the regulatory jungle.” When Tesla releases its own software, he doesn’t believe there will be “significant regulatory barriers,” he said.
SIGNALS
Will shareholders pay Musk $55.8 billion to build AI?
After surrendering a big portion of his Tesla ownership to raise cash for his $44 billion purchase of X in 2022, Musk is now attempting to win shareholder support for a $55.8 billion pay package that would see him attain a 25% ownership stake in the the carmaker, up from his current 13%. Musk has said he sees a stake of this size as crucial to helming the company’s transition into a leader in AI and robotics, though he will likely still pursue these ambitions outside the Tesla structure if he does not get the 25% threshold, Yahoo Finance reported. Whether shareholders approve that pay package — effectively endorsing the AI track — will be dependent on the firm’s Q1 performance, which one analyst called “one of the most important moments in the company’s history.”
Tesla’s marketing tactics raise eyebrows
Among the global layoffs at Tesla was a newly formed US marketing team, Bloomberg reported, yet another strategic decision that appears to go against the desires of shareholders worried about slumping sales. The company had long resisted traditional advertising on television, radio, and online, relying instead on word-of-mouth for sales, but that has changed over the past year as the threat from competitors increases, Semafor previously reported. Tesla’s move to use celebrities including Katy Perry to promote its Cybertruck was meant to turn the EV into a status symbol, according to Business Insider. However the strategy backfired after the truck was plagued by performance issues and a massive recall, leaving many unimpressed: Perry’s fans slammed the singer for promoting the problem-ridden truck.
Apple also falls victim to Chinese competitors
Tesla is not the only tech giant suffering amid intense competition from China: Apple’s iPhone shipments dropped nearly 10% this Q1, with shipments to China plummeting by 19% as competitors like Huawei and Xiaomi took over much of its market share, CNBC and Reuters reported. The decline has pushed Samsung to reclaim its title as holder of the largest global market share for smartphones, accounting for about 20.8% of sales compared with Apple’s 17.3%, Reuters reported. Chinese smartphones — while still cheaper than iPhones — are gaining traction as more premium design and software features lead customers to switch over. “Huawei’s comeback has directly impacted Apple in the premium segment,” one analyst told Reuters.