Ever the trickster, Elon Musk joked this week that screwdrivers and drills would be allowed on all Boeing flights to help passengers prevent the plane from falling apart.
But fate favors irony, because, as the tycoon likes to say, the wheels are also turning off his own stock story. Tesla is the only company in the S&P 500 whose stock has fared worse this year than the scandal-hit aircraft maker. It has fallen more than 30% since January, and the depth of the pipe has not been seen since May last year.
Musk is increasingly concerned that his EV company, which has now been relegated to second place behind BYD, may release quarterly results that show neither sales nor profits are increasing. Thanks to a series of big price cuts last year, he was able to buy himself the former at the expense of the latter.
That could well change, as sales are expected to remain stagnant, even compared to the very low standards of the first quarter of last year, when he sold just 423,000 cars. Typically, Tesla investors expect sales volumes to improve sequentially, but the year-over-year growth has been slow, given that the annual growth rate in the past few quarters was as high as 83%. would be a huge disappointment.
If Tesla only grows by low single digits in the first quarter of 2023, there is a risk that Tesla will become a growth stock minus growth. This toxic combination could result in severe multiple compression, with fewer investors willing to pay 60 times earnings to own a company stuck in the quagmire. Stagnation.
Wells Fargo analyst Colin Langan said after shocking the market by announcing a downgrade of Tesla, citing an outlook for annual sales to be flat at about 1.8 million units this year. “The impact of price cuts is surprisingly small,” he told CNBC. car.
Tesla addressed those concerns last week by warning buyers to order the new $43,990 Model Y now, before the end of this quarter, to avoid a $1,000 price increase that goes into effect in April. It seemed to confirm that. “Order within 2 minutes,” the official account urged, directing readers to a vehicle configurator site.
Far from hinting at rising demand, it was taken as a ploy to increase sales before the end of the quarter while providing an excuse in case sales drop significantly over the next three months.
Until now, the company had only recognized one direction: growth.
“Tesla is trying to increase demand with this FOMO (fear of missing out) strategy.” I have written Sales tracker Troy Teslaik was at the forefront of those predicting weak demand in the first quarter. “The message is that buyers should buy now to get $1,000 less.”
The recommendation also comes as a rule went into effect in January that allows consumers to take advantage of the U.S. federal EV tax credit immediately at the point of sale, without having to wait for a refund on their final tax return.
Meanwhile, anonymous sources told Bloomberg on Friday that Tesla is cutting production at its largest and most profitable Shanghai factory by nearly a third this month due to weak demand. thing.
The reason this is so devastating is because since the introduction of the Model Y in early 2020, the company has only ever known one direction: up.
Barring government-mandated pandemic lockdowns, every quarter has always been better than the previous quarter, with one exception: factory upgrades. Even during the semiconductor crisis, Tesla was busy building more cars while other companies were forced to idle factories.
The company's clockwork reliability, which allows it to dramatically increase sales even in the face of adversity, is what earned the company such a high reputation in the first place.
Even longtime Tesla bulls are retreating, at least temporarily. Kevin Paffras, who runs the exchange-traded fund Pricing Power, sold all 36,840 shares of the company last week and is now an active short seller.
For now, the market will continue to give Musk the benefit of the doubt, at least until Tesla releases its first-quarter production, deliveries and revenue numbers in April.
“The bearish scenario depends on multiple cracks,” UBS analyst Joseph Spak said last week, after lowering his first-quarter delivery forecast to 432,000 vehicles and lowering his full-year profit forecast in the process. “In that case, a significantly worse outcome than the base case scenario may be required.” .
Three tools you need to achieve profitable growth
Automakers make money through three main means. The first is price. Slower vehicles require higher rebates and incentives before customers actually drive them, while newer models in demand can command a premium.
The second is mix. Selling large models that lean toward popular body styles, such as SUVs and pickups, in rich countries is usually more profitable than relying on compact hatchbacks and sedans in poorer countries.
Finally, and most importantly, volume. Almost all car manufacturers operate their own factories, so they need to continually produce cars to make a profit. Whether the factory runs at his 80% capacity or just 60% will determine whether he will earn a solid profit or lose a large amount of money.
Tesla's problems mean its mix and pricing will likely be net negative, meaning it must rely on increased sales volumes to grow first-quarter earnings, and here's the consensus EPS estimate. Values have been steadily declining.
Price cuts infuriated existing owners and set fleet buyers aflame
Part of that may be due to about three weeks of lost production at Tesla's German factory, which could result in a loss of up to 18,000 vehicles. But Tesla's latest data shows the company entered the year with 16 days' worth of supply overall, so it has a buffer of existing inventory.
Mr. Musk's strategy of lowering prices to maintain growth seemed to work very well last year, but it increasingly looks like it may have ultimately backfired. Not only did he train his customers to wait and hope for a better deal, he also infuriated many existing customers as well.
Rental agencies Hertz and Sixt both came under fire as the value of their cars plummeted on the used car market (one of their CEOs lost his job because of it), while Salesforce rival SAP Tesla has been excluded from the list of eligible brands for company cars.
“They're being dumped from the corporate vehicle market because their discounting strategy has completely destroyed their resale prices,” said Matthias Schmidt, a Europe-based EV analyst. “It's supposed to be part of their expansion strategy, but they burned their bridges.”
In other words, Mr. Musk needs to spend less time trolling Boeing and more time figuring out how to reignite his sputtering growth engine.
This article originally appeared on Fortune.com
