To The Moon

After the US stock market closed yesterday, $Tesla Motors(TSLA)$ released its first-quarter report, and its stock price surged 13.3%.

Looking at the first-quarter report, Tesla's performance tanked. Revenue dipped 8.7%, and net income plummeted 55%, falling far short of analysts' expectations.

However, during the earnings call, Tesla CEO Musk talked up the bright future of autonomous driving, and announced that the cheapest model could hit the market by the end of the year, reversing the market's pessimistic expectations.

Now, where will Tesla go after this surge? Can autonomous driving and cheap models really save Tesla?

Before answering that, let's take a peek at the first-quarter report.

Revenue

In terms of revenue, Tesla achieved $21.3 billion in the first quarter, down 8.7% from the same period last year, less than $22.3 billion expected by analysts:

The decline in revenue was mainly affected by low sales volume, Tesla sold 386,800 vehicles in the first quarter of this year, down 8.5% year-over-year.

Considering Tesla had already released its sales figures before the report, it's not surprising that revenue fell short of expectations.

Management attributed the decline to the Model 3 upgrade, shipping delays due to the Red Sea conflict, and the shutdown of the German factory due to arson.

Competition

But in reality, fierce competition and the slowdown in bettery electric vehicle penetration are the main culprits.

Take China, for example. Tesla is now facing fierce competition from Huawei, $XIAOMI-W(01810)$ $Xiaomi Corp.(XIACY)$ , $BYD Co., Ltd.(BYDDF)$ $BYD COMPANY(01211)$ , and $NIO Inc.(NIO)$ $NIO Inc.(NIO.SI)$ $NIO-SW(09866)$ $XPeng Inc.(XPEV)$ $XPENG-W(09868)$ $Li Auto(LI)$ $LI AUTO-W(02015)$. According to the China Passenger Car Association, Tesla's sales in China in March were only up 0.2% year-over-year, at 89,064 units.

In the European and American markets, consumers are gradually favoring plug-in hybrid vehicles. According to the Wall Street Journal, plug-in hybrid sales in the US market surged 43% in the first quarter, while bettery electric vehicle sales flattened out, only growing 2.7% for the quarter.

During the earnings call, Musk mocked competitors' hybrid strategies, claiming that bettery electric vehicles will eventually dominate the market. But whether Musk wants to admit it or not, at this stage, hybrid vehicles are globally popular. Take BYD, the world's largest new energy vehicle manufacturer, for example. Although it sold 300,000 vehicles in March, only 140,000 were bettery electric vehicles, with hybrids accounting for over half!

Fierce competition and sluggish demand prompted Tesla to slash prices to boost sales. In the first quarter, Tesla's average revenue per vehicle was $42,600, a year-over-year decline of 4.7%.

Profitability

This put tremendous pressure on Tesla's profitability. In the first quarter, the company's gross margin was 17.4%, lower than the 19.3% in the same period last year but higher than analysts' expectations of 16.5%.

With gross margins on the decline, Tesla increased its sales and marketing expenses while also boosting R&D spending on autonomous driving, driving up its expense ratio.

Under the double blow, Tesla's net profit margin (adjusted) fell to 5.3% from 10.8% in the same period last year. Therefore, Tesla's net income declined much more sharply than its revenue in the first quarter.

What saved Tesla?

Amid this crisis, Musk is counting on autonomous driving and cheap models to salvage Tesla's shaky stock price.

For instance, Tesla recently slashed the subscription price of its Full Self-Driving (FSD) to $99 per month in an attempt to boost FSD adoption. At the same time, Musk mentioned that Tesla is in negotiations with a major automaker to license its FSD technology.

Regarding cheap models, there were rumors in the market that Tesla had scrapped the plan and was instead focusing on autonomous taxi services. But during the earnings call, Musk said that the cheaper model would hit the market either later this year or in early 2025.

This news ignited Tesla's stock price, giving investors a glimpse of potential sales growth.

However, cheap models also face fierce competition and profitability issues. Given Tesla's PE ratio of 65, cheap models are not a panacea for saving Tesla.

As for autonomous driving, a big concern is the fierce competition in this field. Huawei, Xiaomi, Li Auto, and XPeng are all investing heavily in it and have achieved some success. With Tesla's FSD price cut, it's still a question mark whether this income can transform Tesla from a carmaker to a tech company.

And regarding the humanoid robot Optimus, it might hit the shelves by the end of 2025, but considering its high cost, it's still a long way from mass application.

In general, Tesla's stock price skyrocketed after the first-quarter report, mainly because the market expectations were extremely pessimistic before. The news from the earnings call gave the market a bit of relief. Looking ahead, Tesla still faces fierce competition. Whether AI can hold up the current stock price is a big question!