Al Root
All is not right at Tesla -- and the company's dreadful first-quarter delivery number just confirms it.
Tesla delivered just under 387,000 units in the first quarter, down about 9% year over year. The number missed the lowest Street estimates by some 20,000 vehicles. "Shockingly disappointing," "unmitigated disaster," "weak," and "surprising" were words analysts chose to describe the quarter in Tuesday reports.
But the reason behind the miss is what appears truly shocking. "The discrepancy between deliveries and production implies about 46,000 in incremental inventory, which confirms that beyond the known production bottleneck, there may also be a serious demand issue," wrote Deutsche Bank analyst Emmanuel Rosner in a Tuesday report.
In January, Tesla acknowledged that something wasn't quite right, that it was stuck "between two major growth waves." The first wave began with the expansion of the Model 3 and Y platform. The second, it hopes, will be driven by the lower-priced Tesla that investors typically call the Model 2.
Admitting a problem, though, isn't the same as fixing it. And getting Tesla growing again -- at rates growth investors deem acceptable -- won't be easy.
The problem starts with CEO Elon Musk. He's "exacerbated" issues with his efforts to build an AI company outside of Tesla, with the compensation issue that has arisen from the Delaware court decision, and a possible move to incorporate in Texas, writes Wedbush Dan Ives. Instead of being a distraction, Ives would like to see Musk more focused on Tesla's business, which would help boost investor confidence.
The first thing Musk can do is accelerate the development of the Model 2 program. The car isn't due to hit the streets until late 2025 at the earliest. When it arrives, it will enter a global market with a lot of sub-$30,000 all-battery electric vehicles made by China's BYD, Xiaomi, and others. "You gotta the $25,000 car out quickly," says Gary Black, co-founder of the Future Fund Active ETF and a Tesla investor.
That can't happen overnight. To plug the gap, Black would like to see Tesla launch an organized advertising effort to help boost sales. Selling EVs to car buyers has become a lot harder, and the early EV adopters are long gone. So are the days when Tesla could sell all it could make with no ads.
Musk "needs an Apple-like strategy to convince [internal combustion engine] drivers why they should go EV," Black says.
Advertising costs money, but so do price cuts. Tesla's recent price cuts have cost the company some $20 billion a year in sales, according to Barron's estimates. Lower prices boost sales volumes and vice versa, but price cuts amounting to more than $10,000 per car multiplied by 1.8 million units sold over the past year imply a huge number.
While Tesla moves into repair mode, investors still have to worry about the stock, which trades for almost 60 times estimated 2024 earnings. If things don't change soon, the stock, already down 33% this year, could drop even more.
Tesla stock was off 5% in midday trading at $166.48 per share -- the S&P 500 was down 0.9% -- and shares traded as low as $163.43 early Tuesday. That has brought support at $164 back into play, says Katie Stockton, founder of Fairlead Strategies, Below that, the stock might find support at $148, and then at $100, near where Barron's said to buy the stock in early 2023.
The one thing Tesla stock has going for it is how quickly it has dropped. "I think oversold conditions will prevent a decline of that magnitude, but we have no counter-trend indications yet," Stockton adds.
Oversold is a trading term for when a stock goes down a lot, fast, and it can mean that all the bad news is reflected in a stock price. As for "counter-trend," that just means there has been no good news lately to push Tesla stock higher. Stockton, though, isn't making a fundamental call on Tesla. She's looking at the charts to see where shares can go over the short- and medium-term.
The $100 level is on the radar screen of John Roque, senior managing director and head of technical strategy at 22V Research. He predicted the late 2022 slide which ended just above $100. He's looking for that level again.
If Musk doesn't come up with something -- and quick -- we might end up back there sooner than anyone thinks.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 02, 2024 15:19 ET (19:19 GMT)
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