Trading Desk: Tesla Keeps Sliding

Tesla’s (TSLA) recent woes continued this week as the company reported a disappointing first-quarter delivery figure. Not only was the result significantly lower than analysts’ expectations, but it also marks the first year-over-year decline in Q1 deliveries since 2020. This news has sent Tesla’s stock tumbling, further eroding its already strained market performance.

Tesla’s Q1 delivery total of 386,810 vehicles missed the mark by a wide margin, falling substantially short of the estimated 449,080 deliveries. Moreover, Tesla’s production figures also declined, with 433,371 vehicles built versus expectations of 452,976. This paints a picture of sluggish production and, most importantly, softening demand.

The market has reacted swiftly to this news, with Tesla’s stock plummeting 6% in early trading. Wedbush analyst Dan Ives describes this as an “unmitigated disaster”—a harsh assessment reflecting Tesla’s struggle to maintain its once-dominant growth trajectory. Ives believes this is a pivotal moment for Tesla and Elon Musk, where they need to address the deteriorating situation or risk further damaging their long-term narrative.

Deutsche Bank’s Emmanuel Rosner highlights a growing discrepancy between Tesla’s delivery and production numbers. He suggests that beyond known production bottlenecks in certain factories, there might be a more fundamental demand problem emerging. This raises questions about the effectiveness of Tesla’s recent price hikes for the Model Y SUV in markets like the US and China. Rosner believes Tesla may need to reverse course on its pricing strategy, potentially further impacting average selling prices (ASP) for the remainder of the year.

Against the Trend

Tesla’s recent performance stands in stark contrast to the surging momentum of its electric vehicle (EV) competitors. While Chinese automakers like BYD (BYDDF) and NIO (NIO) report record sales and aggressive expansion plans, Tesla faces mounting challenges in an increasingly crowded EV landscape. This divergence underscores the shifting dynamics of the global automotive market, where legacy automakers are also gaining ground in the EV race.

Intensifying Competition: The EV market is no longer Tesla’s exclusive domain. Competitors offer compelling vehicles with improved range, features, and competitive pricing, eroding Tesla’s early-mover advantage.

Supply Chain Constraints: Like many automakers, Tesla has grappled with supply chain disruptions and rising costs for crucial components, impacting its production capabilities.

Pricing and Demand: Tesla’s recent price cuts suggest a softening of demand. Consumers now have a wider array of EV options, potentially leading them to consider alternatives beyond Tesla’s lineup.

In the Broader Market

Tesla’s predicament aligns with a broader trend affecting the technology sector. The Nasdaq 100 Index (tracked by QQQ) is undergoing a period of volatility as investors reassess the lofty valuations of high-growth tech companies. This sentiment shift could lead to rotation away from stocks like Tesla and toward more established companies with a focus on value and profitability.

Tesla’s dominance in the EV market is being tested. While the company remains a formidable player, its future success depends on its ability to navigate increased competition, streamline production, and maintain its innovative edge. The broader market’s focus on valuation adds another layer of complexity, potentially impacting investor sentiment towards Tesla.

Tesla’s first-quarter earnings report, scheduled for release on April 23rd, will offer further insights into the company’s financial performance. I’ll watch closely for signs of a turnaround strategy and offer any updates on the demand situation. The coming weeks will be crucial for Tesla to stem the downward momentum and restore confidence in its long-term prospects.