Electric cars

Tesla, cuts not enough. Capitalisation under 500 billion

The share price slipped again, only to revise to 514 billion. Year-to-date drop to 37%. Expectation for first-quarter financial results

16 April 2024

4' min read

This has not happened since late April 2023. Tesla extended its sharp stock market decline, briefly pushing below the $500 billion capitalisation mark at the opening of the session on Wall Street. An hour before the close it was still losing 3%, but had returned to $514 billion. The prospect of job cuts and the departure of two top executives such as Drew Baglino and Vice-President Rohan Patel, only 24 hours earlier, further soured investor sentiment towards the world's leading auto maker, still about 200 billion ahead of the second-largest, Toyota (which has practically doubled in value since a year ago).

It is the trend that worries: -37% this year. Tesla, already one of the Magnificent Seven tech stocks, is at the tail end of the S&P 500 index in 2024, even the second largest decline. Another sign is the sudden drop in the price-earnings ratio: from over 70 (the levels of Nvidia, computing based on artificial intelligence) to 55, still at a sidereal distance from the 'traditional' car manufacturers, from Toyota (12) to Volkswagen (around 4). Chinese rival BYD is over 17.

The turning point came in October, when demand for electric cars slowed down. The extent of this weakness became evident on 2 April, when the Austin, Texas-based company released first-quarter delivery figures, significantly lower than analysts' expectations. Numbers that reignited investors' concerns about the growth trajectory. Then came news that the company would abandon plans to produce a smaller, cheaper vehicle to focus on building robotaxis, which will be unveiled on 8 August. Monday's news about the heavy job cuts, 10% of the workforce of around 14,000 employees, was the latest blow. These cuts would affect the US, China and Germany.

"The large-scale layoffs announced on Monday leave little doubt that the drop in deliveries is due to lower demand and not supply," commented Ryan Brinkman, analyst at JPMorgan Chase.

The downturn in demand, which is creating quite a few problems for electric car manufacturers globally, is an even more disastrous scenario for Tesla. This is because the company led by Elon Musk has so far enjoyed a strong premium valuation. A premium that may not be forever. Musk himself has said that the company will be 'worth practically zero' if it fails to solve the problem of self-driving cars. Last summer, the tycoon had announced a leap into the future thanks to a billion-dollar investment in the supercomputer Dojo.

Analysts and investors argue, however, that while building a self-driving car is critical to the company's prospects, building an affordable Ev, the famous $25,000 Model 2, is important to broaden the customer base and fuel growth. It could take decades before self-driving cars are adopted en masse. Moreover, we should not expect a decisive contribution from the controversial Cybetrtruck, the strange futuristic pick-up truck that is already suffering a production halt just a few months away from its long-awaited launch, apparently due to problems with the accelerator pedal (after complaints from several customers about rust stains on the brand new bodywork). In any case, no more than 250,000 units per year were estimated for the Cybertruck. Tesla was aiming to exceed 2 million in all in 2024, a goal that appeared more distant after the sales figures for the first three months.

"Although Tesla is proactive in cutting costs," it is all the more complicated this time around due to "the disastrous first quarter of deliveries and the general pressure on the company," said Dan Ives, analyst at Wedbush.

"The shift from car sales to software sales," wrote Stephen Wilmot, of the Wall Street Journal, "may be the reason for the departure, after 18 years, of Drew Baglino, the company's chief hardware engineer. But if Tesla wants to be considered an artificial intelligence company rather than just a car manufacturer, it must present concrete data to back up its claims. Only with detailed and reliable information on the performance of the (driver assistance, ed) software already installed, Full Self Driving, will it be clear when Tesla can think about taking legal responsibility for the driving functions, paving the way for a truly autonomous 'robotaxi'. We need data on the performance of the product, such as the average distance travelled before human drivers have to intervene. This is not just for investors. Regulators and the public also need to be involved'.

Tesla will present its first quarter financial results on 23 April. The stakes are high. Investors, whose patience is being tested by Musk's choices, will try to understand why a strategic shift is being made at a time of great uncertainty for the industry.

"We need to hear the rationale for cost-cutting, the strategy to follow, the product roadmap and an overall vision from Musk, otherwise many investors might take a different direction," Ives commented further.

Alberto Annicchiaricovicecaposervizio
Luogo: Milano
Lingue parlate: inglese (C1), buona comprensione di francese e spagnolo
Argomenti: economia, auto, tech, social media, seo, blogging, viaggi, food
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