Musk warns of 'uncertain economy' as Tesla sees drop in year-on-year revenue

Electric vehicle manufacturer Tesla's stock plummeted by over 4 per cent following the release of the company's first-quarter earnings report.

It revealed that Tesla's adjusted earnings per share were on par with expectations, with Refinitiv's average analyst estimate clocking in at 85 cents. However, the company's net income dropped by 24 per cent from the previous year, reaching $2.51 billion. GAAP earnings also saw a decline, coming in at 73 cents, down 23 per cent from the year-ago quarter.

Despite these declines, Tesla's revenue for the first quarter came in at $23.33 billion, which exceeded Refinitiv's estimated revenue of $23.21 billion. Even with the lower earnings compared to last year, the company's core segment of automotive revenue reached $19.96 billion for the quarter, up 18 per cent from the same period last year. Total revenue increased by 24 per cent.

However, first quarter automotive regulatory credits for 2023 amounted to $521 million, down from $679 million year-on-year. Tesla also acknowledged that the underutilisation of new factories, higher raw material costs, commodity prices, logistics and warranty costs, and lower revenue from environmental credits all contributed to the decline in earnings.

During an earnings call, Tesla CEO Elon Musk emphasized the uncertain macroeconomic environment that could impact people's car shopping plans. He warned that uncertainty in the economy could lead people to postpone "big new capital purchases like a new car". Musk also warned of potential "stormy weather" ahead for the next 12 months, particularly as the Federal Reserve continues to raise interest rates.

Despite these headwinds, Musk said the company's strategy is to push for higher volumes and a larger fleet, versus lower volumes and higher margins. He added that he expects Tesla vehicles to "over time be able to generate significant profit through autonomy". However, the company has yet to complete its mission of conducting a hands-free trip across the US, which it first discussed in 2016.

He said, “We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here, versus a lower volume and higher margin,” but noted he expects Tesla vehicles “over time will be able to generate significant profit through autonomy.”

Tesla's energy division also saw a significant increase in revenue, with Tesla Energy revenue soaring to $1.53 billion, up 148 per cent compared to the same period last year. The company's energy storage systems deployment also increased by 360 per cent, to 3.9 GWh.

Tesla's first-quarter earnings call was livestreamed via Twitter, a first for the electric vehicle maker. Musk, who sold billions of dollars worth of his Tesla holdings in 2022 to finance a $44 billion buyout of the social media company, where he is now also CEO, also confirmed that Tesla is now building "alpha versions of the Cybertruck" on a pilot line, with production expected to take place in Austin, Texas. Musk said he anticipates an event to kick off Cybertruck deliveries in the third quarter of 2023.

Looking ahead, Tesla plans to produce 1.8 million vehicles in 2023, with a potential "upside" volume of 2 million vehicles this year. The company also plans to build a factory in Monterrey, Mexico, and set up a factory to make Megapacks in Shanghai.

Tesla shares have rebounded this year after a difficult 2022, gaining 48 per cent so far in 2023. Despite margin pressures, the company's strong revenue growth and ambitious expansion plans have kept investors optimistic.