Tesla’s profit drops 55% but confirms affordable models

Tesla is riding a rollercoaster. Its falling delivery numbers from the first three months of the year have slashed revenue in half, forcing workforce cuts around its global operations. To heal the wound, the company announced that it would produce affordable models at the beginning of next year, despite several previous reports claiming it was axed.

After the slump in deliveries was published, no good news was expected at Tesla’s first earnings call of the year. The EV maker revealed a significant 55% reduction in its first-quarter net income as the company grapples with increasing competition and a market that continues to face significant pressures. Production was also down by 8.5% year-on-year.

Short of expectations

Tesla posted revenues of $21,3 billion (€19.9 billion), marking a 9% decrease year-on-year, and a net income of $1,3 billion (€ 1.2 billion), which fell short of expectations. The company’s market valuation has already seen a nearly 40% decline since the year’s start, exacerbated by recent critical announcements, including significant layoffs, the controversial recall of the futuristic Cybertruck over problems with the accelerator pedal, and speculation about future product lines. The company will cut its global workforce by 10%, including 400 interim workers at the Grünheide factory in Germany.

Despite the financial downturn, Tesla’s shares surged 8.59% in after-hours stock trading, a reaction possibly fueled by future strategic promises. The company confirms a publication by news agency Reuters, which stated, based on internal memos, that the affordable project called NV9—better known as the Model 2—has been abandoned in favor of a robotaxi. However, Tesla claims that the production of cheaper entry-level models, based on a mix of the existing and future architecture, is on the agenda for the start of 2025.

Artificial intelligence

It seems the stock exchange is more interested in the company’s efforts in artificial intelligence. Tesla said that it “increased AI training compute by more than 130% in Q1.” Lifting a veil on its activities, the automaker disclosed a substantial $2.8 billion investment in artificial intelligence infrastructure. This includes robots like the Optimus and advanced formats of autonomous driving. The first Tesla Robotaxi will be unveiled in August.

The investment also addresses production capabilities and expansions to its Supercharger network. Tesla is eyeing a plant in India for local production. Still, Elon Musk’s preliminary voyage to the country was canceled due to the bottleneck of current worries troubling the car maker.

Correction phase?

A return to the company’s stellar increase in EV sales isn’t around the corner. Despite the IEA’s outlook of significant growth for global EV sales this year, Tesla warned that its volume growth in 2024 is expected to be notably lower than in 2023.

This might spark a carousel of price adaptations, which are particularly important to revitalize the Chinese market, which is the key driver for the growth projected by the IEA. The automaker faces fierce competition in China from local manufacturers that are rapidly gaining ground. It seems that Tesla navigates through what could be described as a correction phase.