Tesla shareholders brace for worst results in seven years – The Irish Times

Tesla shareholders this week are bracing for the automaker’s worst quarterly earnings performance in seven years as the company grapples with declining demand and a brutal price war.

But they also want to know whether Elon Musk’s company is in the midst of a major change in direction, following reports that it was delaying plans for a cheaper $25,000 electric car – unofficially known as the Model 2 – in favor of an emphasis on self-driving. “robotaxis”.

Musk has denied there has been any change to the Model 2 plan, but has also said focusing on autonomy was “a blindingly obvious move” and last week announced a Tesla robotaxi on August 8 would be launched.

Investors, already digesting a steadily declining stock price, disappointing sales figures and a controversial plan to move the company’s headquarters from Delaware to Texas, face another conundrum: whether Tesla will become a large-scale manufacturer, or a smaller supplier of autonomous technology.

“It’s always been a margin versus volume debate for them, and this is the latest twist,” said James Anderson, managing partner at Lingotto Investment Management, which owns Tesla stock.

“Whether it is a good turn depends critically and decisively on what the shift to autonomous policy entails,” he told the Financial Times.

The robotaxi’s public unveiling in August “could be the time for (Tesla’s) long-promised” self-driving technology, he added.

Tom Slater of Baillie Gifford, a top 15 Tesla shareholder, said it would be “quieter” for Tesla sales this year, but added that investors were excited about the potential of its self-driving cars. “If you look at all the reviews of the latest version of their full self-driving software, it’s a huge step forward,” he said during a recent presentation.

Tesla’s “full self-driving” mode – which customers can access for $99 per month – allows the car to steer, brake and accelerate without human intervention. But it’s not fully autonomous because it still requires the driver to pay attention.

Tesla investor Christopher Tsai of Tsai Capital said that while he expected competition for electric vehicles to increase and Tesla to lose market share, “we also believe the company will significantly increase production and deliveries in the coming years and expand its lead over the area of ​​autonomous driving will expand. ”.

Gary Black, managing partner of The Future Fund, another shareholder, said many investors were asking him what the company would do this week. “A lot depends on how (Musk) frames the timing of the $25,000 car,” he said, adding that he still expected production to start in 2026 “despite the robotaxi prioritization.”

However, Barclays analyst Dan Levy said investors looking for clarity on Tesla’s strategy are likely to be disappointed. “Plans for Model 2 will likely receive the most attention, but don’t expect a satisfactory response,” Levy said.

The company’s quarterly results are also expected to be disappointing. Analysts predict they will post the lowest gross margin since early 2017, when the company had just started production of its first mass-market car, the Model 3.

Levy said he expected “modestly negative” free cash flow, which would be the first quarter of negative cash flows since early 2020.

Tesla is already reporting an 8 percent decline in car sales in the first three months of the year compared to the same period in 2023.

The gloomy news and questions about the direction may even lead to a change of heart among some diehard fans.

“We view Tesla’s shift as a change in position and are concerned that the stock will have to undergo a potentially painful transition in ownership base,” said Deutsche Bank analyst Emmanuel Rosner, who downgraded the stock from buy to hold.

“Investors who previously focused on Tesla’s EV volume and cost advantage may throw in the towel and ultimately be replaced by AI/tech investors with a longer time horizon.”

He added: “There is significant risk in going (all in) on autonomy.” – Copyright The Financial Times Limited 2024