Tesla is speeding up the introduction of more affordable electric vehicles (EVs) to address a dip in profit margins and sluggish sales. The company now aims to launch these lower-cost models by late 2024 or early 2025, much earlier than its previous commitment to a late 2025 release. This strategic move comes as the electric vehicle leader struggles with a slowdown in demand.
Billionaire CEO Elon Musk shared the updated timeline during a call with analysts, stating, “We’ve updated our future vehicle lineup to accelerate the launch of new models ahead of the previously mentioned start of production in the second half of 2025. So, we expect it to be more like early 2025, if not late this year.”
This shift toward more affordable models was met with investor optimism, helping to overshadow an otherwise disappointing quarter for Tesla. The company missed Wall Street’s expectations for earnings, sales, and margins while forecasting slow growth for the rest of 2024. Despite these challenges, Tesla’s stock rose 11% by the close of trading on April 23, 2024, though it has dropped 42% year-to-date, marking the worst performance in the S&P 500 Index.
Musk also took the opportunity to criticize competitors like General Motors and Ford, who have pivoted towards hybrid vehicles, arguing that many automakers are retreating from EV production in favor of plug-in hybrids. He stated, “The EV adoption rate globally is under pressure, and a lot of other auto manufacturers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy.”
Tesla’s approach, however, has been less clear-cut. The company spent much of 2023 slashing prices to stimulate sales but found that demand for its vehicles remained weaker than expected. Additionally, Musk’s ambitious plans for a robotaxi project—despite lacking regulatory approval and clear technological solutions—has added further uncertainty to Tesla’s future direction.
Investors had anticipated a focus on a new, more affordable $25,000 model, expected to enter production by 2025. While it remains unclear whether Tesla’s promise of “more affordable models” refers to the long-discussed Model 2, many see it as a strategy to reignite interest in the brand and attract a broader customer base. When asked about the new affordable vehicles, Musk responded, “I think we have said all that we will on that front.”
Tesla has not provided a specific timeline for the new vehicles but has indicated that it is pursuing a modular, “unboxed” manufacturing process for the planned robotaxi. In a move to streamline operations, Tesla stated that the new models will be produced on existing manufacturing lines at current factories, aiming to maximize capacity and scale more efficiently.
Despite its recent struggles, Tesla remains the dominant player in the U.S. EV market. However, its profitability has taken a hit. In the first quarter of 2024, Tesla’s automotive gross margin—an important profitability indicator—fell to 16.4%, missing Wall Street’s expectation of 17.6%. This marks a significant drop from the peak margin of 30% Tesla posted in early 2022.
Adjusted earnings per share stood at 45 cents, falling short of the anticipated 52 cents. Revenue dropped by 9% to $21.3 billion, marking Tesla’s first year-on-year decline in vehicle deliveries since 2020. This was also below analysts’ expectations of $22.3 billion.
Tesla’s global vehicle inventory also increased to 28 days, up from just 15 days at the end of the previous quarter. The inventory metric shows how long it takes for a company to move vehicles from its lots, with Tesla directly selling to consumers, bypassing a traditional dealer network.
The company is not alone in grappling with the challenges of excess inventory and waning demand. Industry-wide new vehicle inventories in the U.S. rose to 72 days’ supply in early April, according to Cox Automotive.
Tesla’s Chief Financial Officer, Vaibhav Taneja, reassured investors that the inventory increase is a temporary setback. “We expect the inventory build to reverse in the second quarter and free cash flow to return to positive territory,” he said.
Looking ahead, Tesla has tempered its near-term growth expectations, acknowledging that vehicle volume growth in 2024 will likely be slower than in 2023. “In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle and other products,” the company stated.
In addition to scaling back on production targets, Tesla initiated its largest-ever round of layoffs in April, cutting more than 10% of its workforce. Reports suggest the company may eventually let go of up to 20% of its staff. This restructuring, along with the departure of two senior executives, has raised questions about the leadership and strategic direction of key initiatives at Tesla.
As Tesla pushes forward with its goal of expanding its vehicle lineup and improving profitability, the coming months will be critical in determining whether its shift to affordable models can reignite growth and strengthen its position in an increasingly competitive EV market.
Read this article from: The Straits Times