Tesla Shareholders Prepare for Worst Results in Seven Years

Tesla shareholders are bracing for the worst performance from the car manufacturer in seven years in quarterly results due this week, as the company grapples with slowing demand and a brutal price war.

Investors also want to know if Musk’s company is in the midst of a major directional shift, following Tesla’s report that it is slowing plans for a cheaper $25,000 electric car (unofficially known as Model 2) in favor of focusing on robotaxis, the Financial Times reported.

Musk has denied any changes to the Model 2 plan, but he also stated that focusing on autonomy is a ‘blindingly obvious move’, and last week announced that Tesla’s robotaxi will be launched on August 8.

Investors, who are already struggling to digest the constant decline in the stock price, disappointing sales figures, and the questionable plan to relocate the company’s headquarters from Delaware to Texas, face another conundrum: will Tesla become a major manufacturer or a smaller provider of autonomous technology.

– For them, it has always been a debate about margin versus volume, and this is the latest twist. Whether this will be a good turnaround fundamentally and decisively depends on what the transition to autonomy brings – said James Anderson, a partner at Lingotto Investment Management, who holds Tesla shares.

The public unveiling of robotaxis in August ‘could be the time for the start or end of (Tesla’s) long-promised’ self-driving technology, he added.

Tom Slater from Baillie Gifford, among Tesla’s 15 largest shareholders, said this year will be ‘quieter’ for Tesla sales, but added that investors are excited about the potential of its self-driving cars.

– If you look at all the reviews of the latest version of their full self-driving software, it is a huge step forward – he said during a recent presentation.

Negative Cash Flow Expected

Tesla’s ‘full self-driving’ capability, which customers can access for $99 a month, allows the car to steer, brake, and accelerate without human intervention. However, the option is not fully autonomous as it still requires driver attention.

Tesla investor Christopher Tsai from Tsai Capital said that while he expects competition for electric vehicles to intensify and Tesla to lose market share, ‘we also believe the company will significantly increase production and deliveries in the years to come and enhance its leadership in autonomous driving’.

Gary Black, managing partner of The Future Fund, another shareholder, said many investors have asked him what the company will do this week. ‘A lot depends on how Musk determines when the right time is for the $25,000 car,’ he said, adding that he still expects production to start in 2026 despite the priority on robotaxis.

However, Barclays analyst Dan Levy said investors seeking clarity on Tesla’s strategy are likely to be disappointed. – Plans for Model 2 are likely to attract the most attention, but don’t expect a satisfying answer – Levy said.

The company’s quarterly results are also expected to be unfavorable. Analysts predict they will show the lowest gross margin since early 2017, when it just began producing its first mass-market car, the Model 3.

Levy said he expects a ‘moderately negative’ free cash flow, which would be the first quarter of negative cash flow since early 2020.

It is worth noting that Tesla has already reported an eight percent decline in car sales in the first three months of this year compared to the same period in 2023.

Bad news and questions about the direction of the business could even prompt a change of opinion among the company’s biggest fans.

– We view Tesla’s pivot as a thesis change and are concerned that the stock will have to go through a potentially painful transition in its ownership base. Investors who were previously focused on Tesla’s EV volume and cost advantage may potentially throw in the towel and ultimately be replaced by AI/tech investors with longer time horizons. There is significant risk in betting on autonomy – concluded Emmanuel Rosner, a Deutsche Bank analyst, who downgraded the stock rating from buy to hold.