Tesla Veers Off Course with Wide Q1 Delivery Miss

On a global level, the push for car buyers to switch to EVs hasn’t been as swift or as easy as some investors had hoped it would be. In particular, China has been a sticking point for U.S.-based automakers as customers have demonstrated a preference for domestic manufacturers such as BYD (OTCMKTS:BYDDY).

Granted, Tesla CEO Elon Musk has warned that China-based EV manufacturers will “demolish” their American rivals if trade barriers aren’t put in place. In fact, that demolition may already be in effect, with TSLA stock in free fall and wide-eyed investors left to pick up the pieces.

Why did Tesla stock decline today?

Off by 5% to 6% at midday on Tuesday, Tesla stock has declined sharply from its late-2021 peak of around $400. Before anyone assumes that the shares are a screaming bargain though, it’s important to consider the reason for the sell-off.

It’s not difficult to identify the culprit. Tesla just released its vehicle production and delivery figures for the first quarter, and the market isn’t pleased with the numbers.

First, I’ll acknowledge the positive news. In Q1 2024, Tesla produced 433,371 vehicles and delivered 386,810 vehicles. Therefore, Tesla has a delivery-to-production ratio of 386,810/433,371 or around 89%, which isn’t bad at all.

That’s all of the good news that I could dig up, and it took some mental gymnastics to get there. Beyond the delivery-to-production ratio, it’s hard to find anything encouraging about Tesla’s quarterly operational report.

Unfortunately for the company and its shareholders, those 386,810 deliveries fell far short of the analysts’ consensus estimate of 449,080 deliveries. This result also represented a major plunge compared to the 484,000 vehicles that Tesla delivered in the prior quarter.

Furthermore, Tesla’s 433,371 produced vehicles didn’t match up to the consensus forecast of 452,976 units. In other words, even if Musk had prepared investors for a challenging quarter, the actual results revealed serious issues going on under the hood at Tesla.

It’s evident that Tesla and Musk understood how bad the quarterly operational results were. The automaker offered an excuse or two, blaming 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.”

The market isn’t in the mood to tolerate excuses, however. Tesla’s status as a Magnificent Seven member was already in jeopardy, and now it looks more and more like a giant in decline.

Tesla’s “unmitigated disaster”

It’s also worth mentioning that Tesla appears to be highly reliant on its relatively lower-priced vehicles. In the first quarter, the company produced 412,376 and delivered 369,783 combined Model 3 and Model Y units. In contrast, Tesla only produced 20,995 and delivered 17,027 “other models,” a category that includes the pricey Cybertruck, Model S and Model X.

It’s probably not a good sign for the EV industry generally if Tesla can’t easily sell its higher-price-tag models. If consumers lean toward more affordable models, whether out of preference or out of necessity, this could be problematic for the profit margins of automakers like Tesla.

At the end of the day, Tesla’s latest operational report signals an unfortunate directional change for a company that once seemed invincible. In fact, the first quarter marks Tesla’s first quarterly EV-delivery decline in almost four years. Thus, investors might get the impression that Musk’s strategy of price cuts isn’t working out as intended.

For one expert on Wall Street at least, this report evidently casts a dark cloud over Tesla.

“While we were anticipating a bad 1Q, this was an unmitigated disaster 1Q that is hard to explain away,” Wedbush analyst Dan Ives wrote in a note.

The aforementioned quarterly data points seem to confirm Ives’ consternation. Looking ahead, the Wedbush analyst doesn’t sound particularly optimistic about Tesla’s ability to reverse the damage:

“We view this as a seminal moment in the Tesla story for Musk to either turn this around and reverse the black eye 1Q performance. Otherwise, some darker days could clearly be ahead that could disrupt the long-term Tesla narrative.”

Calling the Q1 2024 operational report a “seminal moment” for Tesla might be overdramatic. Automakers have their good and bad quarters, and Tesla was in the doghouse in 2022 before its stock zoomed higher in 2023.

Nonetheless, to quote the classic TV show I Love Lucy, Tesla and Musk have some “splaining” to do. Until the automaker demonstrates its turnaround prospects through more favorable data points, investors should consider steering toward more promising opportunities.