Tesla shares have had a rough start to the year, declining the most of any Magnificent 7 company.
At the time of writing, the Tesla Inc (NASDAQ: TSLA) share price is down 34% for the year to date. From its December 2024 peak, it is down 48%.
Several factors have contributed to this decline.
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Elon Musk: Asset or liability?
When Tesla CEO Elon Musk became involved in Donald Trump's presidential campaign, Tesla's share price climbed. During this period, Trump signalled that Musk would likely assume a role in his new administration.
On November 14, President-elect Donald Trump named Elon Musk and Vivek Ramaswamy to lead a newly formed Department of Government Efficiency (also known as "DOGE"). The newly created department would focus on cutting government waste. This appeared to please investors. In the month following Trump's victory over Vice President Kamala Harris, Tesla's share price almost doubled.
However, Musk's association with the Trump administration soon attracted controversy. Last month, it was reported that monthly sales of new Tesla cars had fallen 45% in Europe. At the same time, Chinese-owned BYD Ord Shs A (SHE: 002594) recorded a 94% increase in sales in Europe. This coincided with a sharp decline in Tesla's share price, leaving many investors believing that Musk's involvement in DOGE had become a liability.
Tesla's first-quarter earnings report
This week, Tesla released its highly anticipated first-quarter earnings report.
The company missed expectations on the top and bottom lines. Tesla reported revenue of $19.3 billion, trailing the anticipated analyst estimate of $21.3 billion. Net profit after tax (NPAT) plummeted a staggering 71% to $409 million, from $1.39 billion a year ago.
Automotive revenue dropped 20% to $14 billion from $17.4 billion in the same period last year. Management attributed this to the need to update lines at its four vehicle factories to start making a refreshed version of its popular Model Y SUV. Lower average selling prices and sales incentives were also cited as a drag on revenue.
Despite these challenges, Tesla increased its free cash flow to $664 million, a material improvement from negative $2.54 billion in the prior equivalent quarter.
The other notable revelation was CEO Musk's pledge to "significantly" cut down on his time spent at DOGE, starting next month with just 1-2 days in the role. This would afford him more time to spend on Tesla, amid the disappointing results.
What is Tesla's future?
Despite Tesla's woeful first-quarter performance, its share price has rallied nearly 10% since then. Musk's decision to spend more time at Tesla appears to have been well received by investors.
Tesla is most widely known as an electric vehicle maker. However, given its current market capitalisation of $785 billion, investors appear optimistic about the company's other initiatives, including full self-driving technology and robotics.
It's still early days for these markets. Whether this vision plays out, only time will tell.
