Why Tesla Stock Popped After Worse-than-Expected Earnings

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Tesla (NASDAQ:TSLA)’s latest quarterly results weren’t expected to be good based on sales trends and other factors, but they turned out even worse than analysts had estimated. However, the company’s stock price rose some 10% in pre-market trading on Wednesday following the release of its Q1 earnings results after the market closed on Tuesday.

Let’s take a closer look to see what drove Teslaʻs stock higher following a disappointing quarterly report.

Tesla’s worst quarter in a decade

Tesla had perhaps its worst quarter in more than a decade, as its revenue dropped 9% year over year to $21.3 billion. According to multiple sources, it was the biggest quarterly revenue drop since 2012. Further, Tesla’s revenue failed to meet the consensus analyst projection of $22.2 billion.

The automaker’s net income fell 55% to $1.1 billion or 34 cents per share, while its adjusted net income plunged 48% to $1.5 billion or 45 cents per share. Tesla’s adjusted earnings per share fell well short of the projected estimate of 51 cents per share.

The subpar performance was not unexpected, as Tesla had previously reported a decline in deliveries in the quarter — the first year-over-year drop since 2020.  

“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs. While positive for our regulatory credits business, we prefer the industry to continue pushing EV adoption, which is in-line with our mission,” Tesla management said in the earnings release.

The company reported a 9% decline in vehicle deliveries in the quarter to 386,810, while production fell 2% to 433,371 vehicles. The delivery decline was in part due to the Model 3 update in the Fremont factory and production disruptions at the Giga Berlin facility due to a fire. A reduced average selling price (ASP) for Tesla’s vehicles also impacted its revenue.

With these factors, the automaker’s earnings were hurt by rising operating expenses, which climbed 37% to $2.5 billion in the quarter. The jump in operating expenses was driven in part by investments in artificial intelligence, cell advancements and other R&D projects, and costs associated with ramping up the Cybertruck.

What boosted Tesla stock?

If Tesla’s numbers over the past three months weren’t bad enough, the outlook for the rest of 2024 is not much better. In their earnings presentation, management said the companyʻs vehicle volume growth rate may be “notably lower than the growth rate achieved in 2023.” They called it a lull between growth waves as the company prepares for the launch of its next generation of vehicles.

To that point, Tesla management said they are accelerating the launch of new, more affordable models. Initially, the plan was to start production in the second half of 2025, but now the automaker is targeting late 2024 or early 2025, CEO Elon Musk said on the Q1 earnings call.

“These new vehicles, including more affordable models, will utilize aspects of the next-generation platform as well as aspects of our current platforms and will be able to be produced on the same manufacturing lines as our current vehicle line-up,” Tesla management stated.

The firm also said it intends to improve efficiency and reduce expenses, which involves laying off 10% of its workforce or about 14,000 workers, according to multiple reports last week.

Tesla Chief Financial Officer Vaibhav Taneja confirmed those plans on the Q1 earnings call, addressing the “hard but necessary decision to reduce our head count by over 10%. The savings generated are expected to be well in excess of $1 billion on an annual run-rate basis.”

Tesla stock has tumbled about 35% year to date, and it is as cheap as it has been in a long time at 33 times earnings. The lower valuation, the accelerated plans for a new, cheaper model, and the efficiency improvements may have convinced some investors to jump back into Tesla stock.

It all sounds good, but investors should be patient and see how the automaker executes on these plans.