Tesla is poised to reveal its lowest gross profit margin in over six years amid a tumultuous week filled with layoffs, price cuts, and investor demands for clarity on product direction. The upcoming earnings report will place CEO Elon Musk in the hot seat, as investors are eager for answers regarding the fate of the highly anticipated Model 2, originally promised for 2025. Reports indicate that Tesla has abandoned plans for the model in favor of focusing on a self-driving robotaxi built on a small-car platform, a move that has left investors uncertain about future sales growth.
Investor sentiment has been impacted by the uncertainty surrounding the Model 2 and the sluggish production of the Cybertruck electric pickup, prompting some like Graham Tanaka, a portfolio manager at Tanaka Growth Fund, to liquidate their positions in Tesla. Tanaka highlighted the missed deadlines for the Model 2 and slow ramp-up of the Cybertruck as factors contributing to increased risks in holding Tesla stock moving forward. The Model 2 was seen as a vital component of Tesla’s business strategy, and its delay has raised concerns among shareholders.
Elon Musk’s recent cancellation of a meeting with India Prime Minister Narendra Modi, where major investments in an auto factory were expected to be announced, has added to the uncertainty surrounding Tesla’s future plans. With slowing sales growth and rising inventories, Tesla recently announced price cuts on several models, further impacting profit margins. Analysts predict Tesla's annual deliveries may decline for the first time in 2024, reflecting a shift from the company's previous pattern of double-digit growth.
As Tesla faces challenges with mass-producing its newer 4680 batteries needed for the Cybertruck and other models, the company’s battery chief, Andrew Baglino, resigned last week. Layoffs are expected to affect over 10% of Tesla’s global workforce as the company grapples with production hurdles. Wall Street analysts anticipate a drop in automotive gross margins, excluding regulatory credits, to 15.2%, the lowest since 2017. The struggle to scale up production of the Cybertruck continues to cast a shadow over Tesla's ability to meet its targets.
Despite these challenges, Tesla remains the most valuable automaker globally, though its market capitalization has declined by two-thirds from its peak in 2021. The company's valuation has historically been driven by expectations of mass-market EV sales and advancements in self-driving technology. Recent shifts in strategy towards a self-driving robotaxi and uncertainty around the Model 2 have raised concerns among investors, who may consider exiting the stock if sales growth expectations are not met.
In the face of mounting pressure, Musk has hinted at a future reveal of a "Robotaxi" in 2024 and has slashed the price of the Full Self-Driving option to boost consumer interest. The company's goal of producing 200,000 Cybertrucks by 2025 might face challenges, as evidenced by a recent recall of nearly 3,900 vehicles produced between November 2021 and April 2022. As Tesla navigates critical decisions on product strategy and production challenges, investors eagerly await clarity on the company's path forward.