Tesla earnings preview: AI pivot meets hard realities

EV deliveries rebound but challenges remain

Tesla comes off a difficult year, having reported its second straight annual decline in deliveries and conceded the BEV crown to China's BYD. An ageing line-up and a relatively high entry point weigh on demand, leaving the former leader exposed to intensifying competition. Chinese EV makers like BYD and Xiaomi offer more technologically advanced options at more appealing prices, while European legacy manufacturers are hitting their stride with compelling, affordable electric vehicles. At the same time, Tesla grapples with unfavourable shifts in US energy policies and the end of federal tax credits for EVs.

It is clear that Tesla faces a tough road ahead, and the latest update played into some existing concerns. First-quarter deliveries dropped sequentially to their lowest levels in years, while the widening gap with production underpinned demand worries. ^[1]

Nonetheless, the report also provided reasons for optimism as deliveries rose 6.34% from a year ago. Moreover, Tesla Motors Inc registered an increase in European registrations in February ^[2], breaking a 13-month negative streak and adding to the positive signals. The improvement was fuelled by the cheaper variants of the Model 3 and Model Y, and Elon Musk may be rethinking his decision to scrap plans for a low-cost EV. Reuters reported this month that Tesla is developing such a model ^[3], which could revitalize demand and it will be interesting to see if the cybercab (or a version of it) is this model. Meanwhile the recent spike in oil prices from the Middle East conflict can renews the appeal of EVs.

Delivery growth can support financials

Last year's automotive struggles translated into poor financials, as lower volumes resulted in a 3% y/y drop in revenues, marking the first ever annual decline. Net and operating incomes also took a dive, although gross margins held up, largely thanks to growth in energy generation. ^[4]

Pressures could linger as auto struggles continue, while the Middle East conflict sparks stagflation concerns which can dampen sales and push costs higher. Moreover, the dip in Q1 storage deployment to 8.8 GWh exacerbates concerns, while the product mix may also weigh on margins.

However, Wednesday's results could show resilience. The year-on-year increase in deliveries can help Tesla return to revenue growth in the first quarter. Meanwhile, the high-margins services segment and FSD sales can support profitability.

All eyes on the AI pivot

Markets will undoubtedly be looking for fresh updates on the AI pivot as Elon Musk doubles down on his vision, and the current quarter could bring crucial developments. Tesla Motors Inc is making progress with its autonomous ride-hailing service, aiming for expansion to more US cities in the coming months.

At the same time, the CEO has pinned Cybercab mass production for April, and units have already been spotted at Giga Texas as the transition from prototype to production appears to be gaining tangible momentum. However, details remain elusive; while this was intended to be a steering-less model, social media photos point to the presence of a steering wheel ^[5]. With regulatory approvals still pending, Tesla may be shifting its strategy to boost sales and accelerate its robotaxi rollout.

Furthermore, Tesla has finalized the design for its new custom AI5 chip, which will serve as the high-powered brain for its robotaxi and humanoid ambitions ^[6]. To secure its own supply, Musk also recently unveiled plans for Terafab, a massive $25 billion factory designed to build these chips in-house. ^[7]

Tesla stock outlook

The earnings report on Wednesday 22 April arrives as the stock of Tesla Motors Inc snaps a four-week negative streak, with the outcome set to dictate its trajectory for the quarter ahead. The stock is currently testing key technical hurdles provided by the 38.2% Fibonacci level and the EMA200. Clearing these would signal that the market is ready to move past the recent automotive slump. On the other hand, a rejection at these levels would reaffirm the bearish bias and leave the door open for new lows, particularly if the financial commentary fails to inspire.

Ultimately, the stock's future will likely rely more on Elon Musk's vision and less on the hard numbers. If the narrative surrounding AI and the Cybercab rollout proves compelling enough, markets may choose to overlook risks and continue to back Tesla's long-term transformation.

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