Tesla Q1 earnings report interpretation: Can Musk's new promises really be trusted?

On April 23 local time, Tesla released its first-quarter 2024 financial report.

Specifically, Tesla's total revenue for the first quarter was $21.301 billion, down 9% year-over-year, with automotive revenue at $17.378 billion, down 13% year-over-year; gross profit was $3.696 billion, down 18% year-over-year; gross margin was 17.4%, lower than the previous quarter (17.6%) and the same period last year (19.3%).

Operating profit fell 56% year-over-year to $1.171 billion; operating margin was 5.5%, lower than the previous quarter (8.2%) and the same period last year (11.4%); adjusted EBITDA fell 21% year-over-year to $3.384 billion, with an adjusted EBITDA margin of 15.9%, compared to 18.3% in the same period last year.

In fact, you don't even need to look at the numbers—just the stock price's K-line chart tells you that this earnings report was destined to be very ugly. It was an expectedly poor performance, fully in line with the pessimistic forecasts from major institutions.

But after the official release of this report, Tesla's stock price suddenly surged by over 12%. What's going on?

The answer lies in the "new expectations," or rather, the "new pie in the sky," which has gained recognition from many in the market.

This earnings report reflects the past—it's the realization of negative factors, and the risks have largely been priced in over the past few months through the stock's steep decline. Although the numbers are entirely unsatisfactory, the future plans have given people new hope. Trading stocks is all about expectations, and funds that partially endorse or believe in Elon Musk's future plans have started buying, leading to Tesla's post-earnings surge.

These expectations can be summarized in three points:

1. New Affordable Electric Vehicle

The company plans to start production of a new affordable electric vehicle in early 2025. This is earlier than expected, as the market had anticipated production to begin in the second half of 2025. A previous report claiming Tesla had abandoned this plan also reassured investors. Tesla aims to become an affordable car brand.

Tesla stated: "We have updated our future vehicle lineup to accelerate the launch of new models and plan to start production in the second half of 2025. These new vehicles, including more affordable models, can be produced more efficiently on existing production lines without the need for new factories or production lines."

2. FSD (Full Self-Driving)

The company said it is in talks with a major automaker about licensing FSD (Full Self-Driving).

Tesla noted in its earnings report: "Tesla is currently between two major waves of growth: the first began with the global expansion of the Model 3/Y platform. We believe the next wave will be driven by advancements in autonomous driving and the launch of new products, including those built on our next-generation vehicle platform. To this end, we have been investing in the hardware and software ecosystem required for vehicle autonomy and ride-hailing services."

3. Robotaxi

Musk is more focused on the company's long-term development, including autonomous taxis. This product is essentially an extension of the second point.

Musk confirmed that Tesla will unveil its Robotaxi on August 8, 2024. Management shared the latest progress on the Robotaxi, which will use an "unboxed" manufacturing approach.

Earlier this month, Musk announced the Robotaxi launch plan on social media, which the industry sees as the company's "all-in" move on autonomous driving and Robotaxi.

Tesla is doing everything it can to keep telling investors new stories, setting itself apart from traditional automakers (which typically have valuations around 10x). It's not a car with AI, but AI with a car as its 载体。

These three "new pies in the sky" sound exciting, but their implementation faces significant challenges.

First, the new affordable electric vehicle faces the most direct issue: intense competition. The domestic new energy vehicle market is becoming increasingly cutthroat, with new models emerging constantly and price wars escalating.

Tesla recently cut prices for the Model 3 and Model Y to boost sales, but the results were underwhelming. Brand appeal alone won't solve this problem for the new vehicle.

Second, FSD's future business model resembles the App Store, relying on long-term subscription revenue. While FSD's promotion in Europe and the U.S. could attract more customers and boost sales, the concept faces hurdles in China, Tesla's key market, due to regulatory conflicts. I doubt the government will revise current rules for it.

Third, the Robotaxi is even more uncertain given FSD's unclear prospects. Autonomous driving isn't a new concept. Cruise, the first to operate autonomous taxis in the U.S., has already suspended all operations due to frequent safety incidents.

How is Tesla's car better? When will it launch? Given Musk's history of overly optimistic timelines, investors believe Tesla's Robotaxi may take 5 to 10 years—or longer—to hit the road, if ever.

Of course, investing is about finding direction amid uncertainty. Despite these issues—some of which I personally find hard to overcome—Musk's "pies" have won over many in the market. Maybe it's just his charisma.

"The numbers are bad but the words are dreamy." This earnings report reflects Tesla's recent negatives while painting a rosy future. The market remains divided on its expectations, and time will tell who has the last laugh. $Tesla(TSLA.US)