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Tesla's shares (TSLA.O) saw a modest increase of 2.3% to $145.34 in early trading on Tuesday, as the market anticipated the electric car manufacturer's first-quarter earnings,

Tesla shares rise ahead of quarterly results – is it a buy?

Tesla’s shares (TSLA.O) on Tuesday jumped 2.3% to $145.34 in morning trading ahead of the electric car manufacturer’s publication of first-quarter results: Its gross profit margin was expected to fall to the lowest level since 2016 after the company lowered prices and demand ebbed. The results were due after the bell.

When Tesla’s CEO Elon Musk sits down for his company’s first-quarter conference call with investors – probably on 6 April – he will hear many questions. The key one is, will there be—or ever have been—such a thing as a so-called Model 2, the low-cost car he announced in 2020 would be available by 2025.

Early this month, Reuters reported that Tesla had shelved the Model 2 and was now planning to build a self-driving robotaxi using the same small car platform. Musk answered on social media that Reuters got it wrong, but has not since said what was right or wrong.

The Model 2, as far as investors could see, was to be a big boost to future sales.

Latest stock trends: US stocks rise, Tesla price drops

Tesla – Musk to meet India Prime minister

Meanwhile, Musk was to meet India’s Prime Minister Narendra Modi on Monday to discuss large-scale investments in an automotive plant to produce a small, inexpensive model – only to cancel at the 11th hour, saying he was working at Tesla.

Forecasts bet on downbeat numbers this week for the latest quarter, given Tesla’s projected slower sales growth amid initial reports of downward revisions to its deliveries last month and rising inventory. The carmaker also announced the latest round of price cuts over the weekend (it slashed prices for the Model 3, Model Y, and other models) with analysts concerned about more margin compression.

Other analysts, meanwhile, predict that Tesla’s annual deliveries will decline for the first time in 2024 after years of double-digit annual growth. In fact, Tesla had warned that this year’s growth in deliveries would be much lower than in years past, a sign that the price cuts weren’t enough to boost demand.

As of this writing, the company’s stock is down at least 43% this year, making it one of the worst-performing members of the S&P 500 market index. Per data from Visible Alpha, a platform that compiles Wall-Street consensus analysis: this year’s automotive gross margin, excluding credits for regulatory compliance, is expected to fall to 15.2% (from 19% in the year-ago period) and will be the lowest since late 2017. Actual revenue for the March quarter, based on LSEG data, is expected to be down 5.05%, to $22.15 billion.

Musk has been promising us fully autonomous vehicles for years – as if they’re imminent – when it’s still likely to be decades before all the engineering and regulatory issues are sorted. He still dominates the headlines with his social-media comments about his plans for Tesla’s strategy for true self-driving. ‘8/8 unveil of our robotaxi,’ he wrote in May 2023, emphasising the ‘8’, then adding: ‘Full speed to autonomy is super obvious.’

Tesla layoffs

In a filing with the Texas Workforce Commission on Monday, Tesla (TSLA.O) stated its intention to terminate 2,688 workers at the company’s plant in Austin, Texas, a so-called Worker Adjustment and Retraining Notification (WARN) notice required under the WARN Act, a US labour law that mandates at least 60 days notice from companies seeking to shutter facilities or lay off more than 50 workers.

The news comes in the wake of a second round of job cuts last week, in which Tesla laid off more than 10% of its workforce amid faltering demand and an electric vehicle pricing war. Some 285 people were laid off at a Tesla sales and service centre in Buffalo, New York in early June.

Those layoffs go into effect on 14 June.

Tesla (TSLA.O) said on Tuesday it would cut up to 400 jobs, or about 3%, at a German gigafactory outside of Berlin, in an effort to avoid involuntary layoffs and instead use a voluntary departure plan as part of a less dramatic reduction than a broader company plan calling for more than 10% of its jobs cut across the company.

Tesla, which is one of the world’s largest automakers, has hired aggressively in recent years but is just one automaker now facing higher battery costs and supply chain challenges alongside growing price competition, an issue made worse since the electric vehicle maker’s chief executive Elon Musk personally intervened to dramatically change Twitter’s image.

Tesla announced in a statement that it had acknowledged the ‘currently weak sales situation for electric vehicles’ and was discussing the layoffs with the plant’s works council. Joerg Steinbach, economy minister of the German state of Brandenburg where the plant is located, regretted the layoffs but also said they were ‘relatively moderate’ and that he was relieved that they would take place in an ‘orderly’ fashion.

Tesla’s car gigafactory, which employs more than 12,000 staff, is its only factory in Europe, while the staff reduction represents a further fourth of all jobs at the plant. Tesla announced in November that it would lay off up to 300 temporary staff, one of multiple such global layoffs.

Announced hours before Tesla releases its first-quarter results later that day, investors are bracing for what could be the lowest gross profit margin the group has seen since 2016 as electric vehicle demand is hit across the globe.

Tesla (TSLA.O) will report its lowest gross profit margin in more than six years on Tuesday, following a tumultuous week that included mass layoffs, pricing cuts for vehicles, and a barrage of investor questions demanding details about Tesla’s product roadmap. When the company releases its earnings on the post-results call, Musk will likely be peppered with questions about an affordable car, code-named the Model 2, that he hinted at in January.

On 5 April, it was reported by Reuters that Tesla had called off the Model 2, and was instead moving forward with a self-driving robotaxi that was essentially a clone of the already existing small car architecture. The internet was buzzing as Musk claimed: ‘Reuters is lying’—and so far, he hasn’t bothered to correct or refute anything they reported, let alone the present status of the effort. The Model 2 was the big past hope for Tesla sales.

Graham Tanaka, a portfolio manager at the Tanaka Growth Fund, and an enthusiastic Tesla holder since 2010, liquidated his last position on concern about the Model 2 and the slow start to the Cybertruck electric pickup. ‘The Model 2 was to kind of expand the business model, but at the very least it’s been pushed out … Longer-term, I don’t feel like there’s a reason to own Tesla shares next year.

Add to that the fact that Musk had arranged to visit the prime minister of India Narendra Modi on Monday to announce investments in an automobile plant that will (hopefully) make a small, cheap auto. Musk cancelled that trip at the last minute, citing ‘heavy Tesla needs’.

And now, quarter-on-quarter sales growth for Tesla is likely to have collapsed this quarter, which will show up in the financial report this Tuesday. On Monday morning, the carmaker announced that deliveries in Q3 were 8.5% lower than a year ago, and inventories were up. And this weekend, Tesla announced another global price cut on its Tesla Model 3, Model Y and other models, which will add to margin pressure.

And some analysts argue that Tesla’s annual deliveries could actually drop for the first time after years of double-digit growth, after it warned in January that this year’s delivery growth would be ‘substantially lower’, raising concerns that discounting might not be sufficient to drive sales. Tesla shares are down about 43% so far this year, through the afternoon of Monday 13 March.

Wall Street analysts see Tesla’s automotive gross margin, excluding regulatory credits, at 15.2%, the average of 20 estimates compiled by Visible Alpha. That’s a decline from 19% a year ago and the lowest since the fourth quarter of 2017.

The automaker is sure to be asked about its continuing inability to mass-produce its new 4680 batteries of a generation that the Cybertruck and other vehicles hope can cut prices. Last week, Tesla’s head of batteries, Andrew Baglino, exited the company amid mass layoffs that have eliminated more than 10% of its workers globally.

But for hot tech stocks such as Tesla, that hasn’t mattered. To date, the company’s market cap of around $468 billion (off two-thirds from its November 2021 high) has been predicated on sales potential for mass-market EVs and future development of autonomous driving technology.

Since that announcement of this strategic pivot away from the Model 2, therefore, analysts have hedged that such a pivot of Tesla’s strategy may likewise take some time to change the composition of Tesla’s investor base – and to replace those investors who were contemplating a quickening sales ramp with more patient investors focused on the development of Tesla’s self-driving Teslas. Tesla has always predicted that fully autonomous vehicles will come to market ahead of any driverless ones.

Developing fully autonomous vehicles would require some non-trivial engineering and regulatory hurdles to leap over before such shipping can actually take place – which means that it may still be a few years. But Tesla also is currently saddled with a bunch of lawsuits and regulatory investigations of its Autopilot and Full Self-Driving systems, (which are not yet fully autonomous).

The automaker has also, recently, offered a complimentary trial of its Full Self-Driving feature, and slashed the option’s price from $12,000 to $8,000 over the weekend, in an attempt to urge some consumer interest. While Tesla attempts to ramp up sales and margin, the Cybertruck – as notoriously difficult as it has been to ramp – will likely do little to aid the company’s cash position. Tesla hasn’t reported Cybertruck production numbers specifically, but the company issued a recall for nearly 3,900 Cybertrucks produced between the vehicle’s November 2021 debut and April.

On Tuesday’s call with analysts, they’ll want to know if he still plans to build 200,000 Cybertrucks a year by 2025, a target he has repeatedly said that Tesla won’t be profitable enough to provide cash flow until then.

Most recently, Tesla (TSLA.O) has announced price cuts in China, Germany, and in the United States:

China:

Tesla has lowered its starting price for the updated Model 3 in China to 231,900 yuan, down 14,000 yuan from the original list price. The more expensive Model Y saw its initial price cut to 249,900 yuan down 22,000 yuan. Demand for US electric vehicles in China saw a spike in March after drivers embraced them as a new choice amid the country’s first per-vehicle mile restrictions.

United States:

Tesla recently lowered the prices of its Model Y, Model X, and Model S by $2,000 each in the US and took $2,000 off the price of its ‘Full Self’ driving mode.

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