Tesla's Q1 2024 Earnings: A Deep Dive and Market Reaction

Tesla's latest quarterly earnings report has sparked considerable discussion and a surprising market reaction. The company missed on revenue, earnings, and seemingly everything else, yet its stock price surged by 7% in after-hours trading. This begs the question: what's driving this seemingly paradoxical situation? Let's examine the report and the surrounding context.

Broader Economic and Trade Context

Before diving into Tesla's financials, it's crucial to understand the wider economic backdrop. Recent developments in trade relations and monetary policy are playing a significant role in market sentiment.

US-China Trade Tensions

US Treasury Secretary Janet Yellen has indicated that the trade war with China may be de-escalating. This suggests a potential easing of tariffs and a more cooperative approach between the two economic giants.

Federal Reserve and Interest Rates

Adding to the mix, former President Trump has made conflicting statements about Federal Reserve Chair Jerome Powell. Initially critical, Trump has now seemingly softened his stance, suggesting he never intended to fire Powell, while still suggesting interest rate cuts. This uncertainty surrounding monetary policy further complicates the market outlook.

US-Japan Trade Relations

There is also uncertainty surrounding US-Japan trade relations. Trump initially renegotiated a trade deal with Japan, then criticized it, and is now seeking a new agreement. This inconsistency raises questions about the stability and predictability of US trade policy.

Tesla's Q1 2024 Financials: A Mixed Bag

The numbers themselves paint a picture of considerable challenges for Tesla in the first quarter of 2024.

Key Metrics

• Revenue: $19.34 billion (missed expectations of $21.41 billion).

• EPS: $0.27 (missed consensus of $0.42).

• Automotive Revenue: Dropped by 20% year-over-year.

Disappointing Performance

The automotive revenue decline is particularly concerning, indicating a slowdown in vehicle sales. Gross margins have also shrunk. Operating margins have declined significantly compared to the prior year. Overall, the financial performance appears to be a disaster.

Positive News?

So, with the Q1 earnings report seemingly bad across the board, why did the stock price go up?

Bright Spots and Future Potential

Despite the disappointing financials, there are some positive signs and potential catalysts that might be fueling investor optimism.

Energy Generation and Storage

• Energy generation and storage revenue grew by 67%.

• Storage deployments increased by 151%.

While impressive, the mismatch between deployment growth and revenue growth in the energy sector raises some concerns. The energy margin might be decreasing.

Robotaxi Development

• Tesla remains on track for a pilot launch of a robotaxi service in Austin by June.

This is a significant milestone, as Tesla has a habit of pushing back launch dates. The robotaxi is scheduled for volume production in 2026.

Supercharger Network

• Tesla's Supercharger network continues to expand, with electricity delivery growing by 26-27% for Tesla and non-Tesla customers.

Tesla delivered 1.47 trillion Wh of electricity to Tesla and non-Tesla customers.

More Affordable Vehicle

• Plans for new, more affordable vehicle models remain on track for production in the first half of 2025.

However, this model will share similarities with existing vehicles, potentially limiting its appeal.

The Enormous Catalyst: Robotaxis

Tesla has said they expect to be selling autonomous rides in Austin in June. What really matters is when the Financials are going to improve.

Focus on Full Self-Driving (FSD) and Elon Musk

Elon Musk has said he will spend less time in Washington and more time running Tesla after its profit plunges. Musk also addressed the question of when FSD would contribute significantly to Tesla's earnings. The timeline is currently set for around the middle of next year. It is too early to tell if this timeline will be met. This makes Musk supportive.

Why the Stock Increase?

Why did Tesla's Stock price increase?

• Trade War tensions easing.

• The new Robotaxis.

• Musk spending more time running Tesla.

Valuation and Investment Considerations

Tesla's current valuation is high, with nosebleed P/E ratios. Considering Tesla's current valuation and the current growth rate, investors should ask themselves whether it's necessary to invest in it or not. It may be worth waiting a year for FSD to become more clear.

• Key Question: Can Tesla maintain its leadership in automation and EV technology?

• Consider: Energy business potential, FSD milestones, and individual investment rationale.

Tesla has a lot of long-term goals that are going to impact reports. Investors need to be patient to see the result of their investments in Tesla.