Tesla Q1 Preview: Investors Brace For "Worst Results In 7 Years" With Short Interest At 3-Year-High

Tesla is slated to report earnings tomorrow and, as FT notes, investors are bracing for the "worst results in 7 years" from the EV manufacturer. 

Analysts predict that Tesla will post revenues of $22.3 billion for Q1, representing a year-over-year decline of 4.4%. This anticipated drop in revenue aligns with poor Q1 delivery data, where deliveries decreased by 8.5% year-over-year, marking the first annual decline in deliveries since 2020.

Expectations for Tesla's 2024 full year earnings are lower than those of 2023. Current forecasts by FactSet suggest Tesla's EPS will be $2.67 for 2024, reflecting a decrease of over 14% from the previous year's $3.12. Furthermore, since the close of 2023, consensus estimates for Tesla's 2024 EPS have decreased by 30%.

As we've noted, Tesla missed its Q1 delivery guidance and, so far in 2024, its stock has been decimated. For Q1 2024, Tesla produced over 433,000 vehicles and delivered 387,000. Tesla's exact delivery number for the quarter was 386,810 vehicles, far below Bloomberg estimates at the time of 449,080.

The company blamed the delivery miss on “the early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns resulting from shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin.”

James Anderson, a managing partner at Lingotto Investment Management summed it up, telling FT: “It’s always been a margin versus volume debate for them, and this is the latest twist. Whether it is a good twist depends vitally and decisively on what the shift to autonomous brings."

Deutsche Bank analyst Emmanuel Rosner commented to Bloomberg last week: “The stock will need to undergo a potentially painful transition in ownership base, with investors previously focused on Tesla’s EV volume and cost advantage potentially throwing in the towel.”

And while the entire market seems to be expecting the worst, Goldman pointed out this week that short interest in the name is at a 3 year high ahead of the report. In a note out Tuesday they wrote:

Short interest is at 3-year highs, and there is clearly skepticism on both TSLA and the EV market as a whole. Into tonight, with deliveries already announced for 1Q (stock was down 5% on this and another -14% additionally since). We think the key focus for investors will be 1) can they grow volumes in 2024? We think investors were at +10-15% y/y to start the year and are GIR is now in the 1-2% range and 2) what are gross margins and how low do they need to go? Consensus looks to be 15.8% (ex-credits) tonight and bogey seems to be below 15% for the quarter.

And so, other than wondering if the 'contrarian' play is actually getting long and hoping for anything other than the expected consensus awful report, here's some other key items investors will be looking for detail on during Tesla's Q1 call:

Musk's Pay Plan

Tesla submitted a proxy statement for its June 13 shareholder meeting last week, requesting shareholders to approve relocating the company's state of incorporation to Texas and to ratify CEO Elon Musk's 2018 pay package, which was recently rescinded by a Delaware judge.

The compensation case, which was launched by shareholder Richard Tornetta, argued that Tesla's board lacked independence in crafting Musk's pay, a view the judge supported.

The court verdict required Tesla's board to put together a new executive compensation plan, at least temporarily overhauling the record-setting package previously awarded to Musk in 2018.

A large portion of Musk's net worth hangs in the balance, with the options valued at about $51.1 billion. Excluding these options, his net worth would diminish to $154.3 billion, positioning him as the world's third wealthiest individual, a step down from his prolonged stint at the top, per the Bloomberg Billionaires Index.

Board Chairperson Robyn Denholm wrote last week: "Elon has not been paid for any of his work for Tesla for the past six years. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair."

Per Reuters, at current prices, the package currently is worth about $40 billion.

Price Cuts

Investors will be looking for continued impact on financials and commentary on the company's ever-changing pricing strategy.

Over the weekend, Tesla reduced the prices of its electric vehicles in the U.S., China, and Europe. In the U.S., the starting prices are now $42,990 for the Model Y, $72,990 for the Model S, and $79,990 for the Model X, with the latter two models eligible for a $7,500 Inflation Reduction Act credit. Prices for the Tesla Cybertruck and Model 3 remain the same, with production still low for both models. This follows Tesla's recent elimination of discounts on existing U.S. inventory, effectively raising Model Y prices from the previous week.

Amid efforts to boost sales in 2023 and 2024, Tesla has aggressively cut prices and offered discounts. This has led to a significant drop in auto gross profit margins, which fell below 20% from a peak of 30% in Q4 2021 during the industry chip shortage.

Musk commented on the price cuts over the weekend: "Other cars change prices constantly and often by wide margins via dealer markups and manufacturing/dealer incentives. Tesla prices must change frequently in order to match production with demand."

Tesla also cut prices in China. Tesla reduced prices for the Model Y and 3 in China by 14,000 yuan ($1,972) this Sunday. The new price for the entry Model Y is 249,900 yuan ($35,194), and for the base Model 3, it's 231,900 yuan ($32,659).

Prices for the imported Model S and Model X have also been cut, starting at 684,900 yuan ($96,457) and 724,900 yuan ($102,090) respectively, with reductions of 15.3% and 19.4%.

After a brief price increase and the expiration of several incentives on April 1, Tesla China responded by offering 0% interest loans on its EVs, which effectively compensated for the recent price hike and lost incentives. Tesla also cut prices by $2,443 per car on the Model 3 in Germany, Norway, France, and the Netherlands, impacting 42.5% of its European sales.

In a note out over the weekend, analyst Gordon Johnson of GLJ Research said it was the firms "strong opinion that the full extent of this weekend’s 'nightmarish' price cuts are not being fully appreciated by Mr. Market," and he called Tesla "the best short-play in the stock market today".

Robotaxis

Investors will also be looking for details on how Musk's plans for a Robotaxi reveal are coming along.

Over the weekend it was reported by Bloomberg that Musk setting an August 8, 2024 date for a Robotaxi reveal has "plunged the company into chaos". 

Bloomberg noted that Tesla has been contemplating an autonomous taxi service for about eight years but hasn't developed the necessary infrastructure or obtained regulatory approval for public road tests. Consequently, Musk has delayed plans for a $25,000 mass-market vehicle, which many investors and some insiders see as vital for Tesla's future.

Following reports of this strategic shift, key executives such as Drew Baglino, who led Tesla's powertrain engineering and energy business for 18 years, have departed from the company.

Full Self Driving/Deferred Revenue

As Investors Business Daily noted this weekend, Tesla has now renamed its Full Self-Driving system from FSD Beta to supervised FSD, potentially allowing the company to recognize more deferred FSD revenue, which could boost EPS.

Additionally, starting in April, Tesla began offering free FSD trials with new vehicle purchases and over the weekend, Tesla reduced the annual price of FSD by 33% to $8,000, following a reduction in the monthly subscription fee from $199 to $99 two weeks earlier.

Cybertruck's Future

Investors will also be looking for details about the Cybertruck, which Tesla was forced to recall en masse last week. 

Tesla is recalling the Cybertruck due to a defect where the pedal pad can dislodge and get trapped, potentially causing the accelerator to remain stuck in the "on" position.

This issue, which has occurred at least twice, arises when the accelerator is forcefully pressed. Despite this, the truck can still be stopped by pressing the brake pedal, and no injuries or crashes have been reported. The defect was traced back to an unapproved use of soap as a lubricant during assembly, which left slippery residues behind, leading to the problem, the company said. 

The press surrounding the Cybertruck thus far has been ugly, with Mashable saying: "Tesla's latest vehicle was widely mocked even before its accelerator pedal problem. Now it's a national joke."

Musk will have a chance to lay out any new plans for the truck, which he himself has referred to as a "production nightmare", on the company's call.

Workforce Reduction

It was also reported over the weekend that Elon Musk considered reducing the company's workforce by 20%, aligning with the decrease in vehicle deliveries between the fourth quarter of 2023 and the first quarter of 2024.

He instead settled for 10%. Both investors and employees alike will be waiting to hear any additional comments from Musk about his plans for continuing to reduce Tesla's workforce. 

Gigafactory Expansion

Finally, investors will be looking for more information on Tesla's planned expansion into geographies like India.

Last week it was reported that Musk had delayed a trip to India, where he was scheduled to meet Prime Minister Narendra Modi and announce a $2-3 billion investment for a new plant, citing pressing commitments at Tesla. The visit, initially set for April 21 and 22, has been postponed due to the demands of the upcoming quarterly earnings report, Musk revealed in a post on X

“Unfortunately, very heavy Tesla obligations require that the visit to India be delayed, but I do very much look forward to visiting later this year,” Musk said last week. 

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We'll know more about those demands in hours, as Tesla is slated to post earnings after the bell today.