Analyzing the factors behind Tesla’s 29% stock drop in Q1 2024.
TL;DR
Tesla’s shares experienced a sharp decline in the first quarter of 2024, triggering worries among investors due to increased competition and operational disruptions. Short sellers have capitalized on this downturn, amassing profits of over $5.77 billion, while the company’s market cap has taken a massive hit of more than $230 billion.
Tesla’s Struggles in China
The first quarter of 2024 was undoubtedly turbulent for the electric vehicle giant. Shares plummeted by a significant 29%, marking one of the worst quarters for Tesla since its IPO back in 2010. This decline was the third-steepest quarterly drop on record and positioned Tesla as the top loser in the S&P500 during this period.
One of the major concerns among investors and analysts revolved around Tesla’s core business, particularly its sales figures. Despite offering price cuts and incentives to attract buyers, the company witnessed sluggish results. Analysts were anticipating around 457,000 deliveries for the quarter, indicating only an 8% increase from the previous year. However, estimates varied widely, ranging from 414,000 to 511,000 deliveries.
Unrelenting Competition in China
In the Chinese market, Tesla faced fierce competition from a wave of fully electric vehicles that came with lower price tags compared to Tesla’s popular models like the Model Y SUV and the Model 3 sedan. Companies like BYD and Xiaomi introduced new electric vehicles at significantly lower prices, putting additional pressure on Tesla. Despite responding with price reductions, Tesla’s sales in China saw a decline. According to data from the China Passenger Car Association, Tesla’s China sales dropped in both January and February, leading to reduced production at its Shanghai factory.
Challenges in Europe
Two significant issues come into focus – production disruptions due to Red Sea attacks and activist clashes, along with strikes in Nordic countries that are affecting Tesla’s operations.
Red Sea Attacks and Activist Clashes in Europe
The production landscape in Europe took a hit with the suspension of operations by Tesla and other manufacturers like Volvo in response to a shortage of components caused by attacks on shippers in the Red Sea. These disruptions, attributed to Iran-backed Houthi militia attacks, have continued to impact one of the busiest shipping routes globally.
In a dramatic turn of events in March, environmental protests in Germany added to the turmoil. Activists, protesting Tesla’s expansion plans for its car and battery factory in Brandenburg, set fire to electrical infrastructure near the Tesla plant. While the fire was contained and did not spread to the factory, the production was temporarily halted due to a lack of power.
CEO Elon Musk visited the German factory post the attack, reassuring employees and condemning the protest as ‘extremely dumb.’
Strikes in Nordic Countries
Meanwhile, in Nordic countries, Tesla’s operations have been affected by strikes involving Tesla service technicians and other workers expressing solidarity with the Swedish labor union IF Metall. The relentless pressure from the labor group, advocating for a collective bargaining agreement with Tesla since October 2023, has led to ongoing disruptions in Tesla’s operations.
IF Metall highlighted that nine out of ten workers in Sweden are union members; however, Tesla has resisted negotiations with the union, mirroring its approach in the U.S.
These challenges in Europe add to the complexities Tesla is facing globally, impacting its production schedules and operational efficiency in the region.
Product Lineup Concerns
The latest happenings in the electric vehicle industry, two prominent concerns surface in the realm of Tesla’s product lineup that are worth discussing – slow growth in the EV market impacting Tesla’s sales and the delayed financial impact of Cybertruck’s niche appeal.
Slow Growth in EV Market Impacting Tesla’s Sales
It has been a tumultuous time for Tesla investors, with shares taking a steep 29% plunge in the first quarter of the year. This marked the worst period for the stocks since the end of 2022 and the third-steepest quarterly drop on record. Investors are grappling with concerns about auto sales as Tesla faces intensified competition from China and disruptions in European markets.
The uncertainty lingers as Tesla is poised to report its first-quarter vehicle production and deliveries. Despite price cuts and incentives offered to buyers throughout the quarter, analysts are not overly optimistic about the results, with expectations of around 457,000 deliveries, just an 8% increase from a year earlier. Notably, Tesla’s delivery figures serve as a close approximation of sales but lack precise definition in the company’s shareholder communications.
Cybertruck’s Niche Appeal and Delayed Financial Impact
One of the focal points within Tesla’s product lineup is the Cybertruck, an unconventional vehicle that has drawn attention for its futuristic design and unique features. However, Tesla CEO Elon Musk has cautioned that the Cybertruck’s impact on the company’s financials may not be significant until 2025, indicating its niche appeal and limited immediate financial contribution.
While the Cybertruck holds promise in the long term, the current landscape of the EV market paints a picture of slowing growth rates worldwide. As Tesla strives to maintain its position amidst increased competition and market challenges, the success of the Cybertruck and its integration into the broader product lineup remains a topic of keen interest and scrutiny among industry analysts and enthusiasts alike.
Short Sellers’ Profitability
Tesla has encountered challenging times recently, with its shares plunging 29% in the first quarter of 2024, marking the worst period since the end of 2022 and the third-steepest quarterly drop on record. This has raised concerns among investors, particularly regarding auto sales, as the company faces intensified competition in China and disruptions in Europe.
According to data from S3 Partners, Tesla shorts have surged by more than $5.77 billion in 2024, highlighting it as the most profitable short position in the U.S. market. The company’s market cap has also suffered a significant setback, amounting to over $230 billion in losses since 2024.
