{"id":10179,"date":"2024-03-24T06:20:48","date_gmt":"2024-03-24T06:20:48","guid":{"rendered":"https:\/\/topat10.com\/?p=10179"},"modified":"2024-03-24T06:20:48","modified_gmt":"2024-03-24T06:20:48","slug":"tesla-boss-elon-musk-trolls-boeing-but-its-his-own-growth-story-where-the-wheels-are-coming-off","status":"publish","type":"post","link":"https:\/\/topat10.com\/?p=10179","title":{"rendered":"Tesla boss Elon Musk trolls Boeing, but it's his own growth story where the wheels are coming off"},"content":{"rendered":"\n

Ever the trickster, Elon Musk joked this week screwdrivers and drills are now permissible on all Boeing<\/a> flights so passengers can help keep the plane from falling apart.\u00a0<\/p>\n

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Fate loves irony though, as the tycoon likes to say, because the wheels are also coming off his own equity story. The only company in the S&P 500 whose shares have performed worse than the scandal-plagued aircraft manufacturer this year is Tesla<\/a>. It\u2019s down more than 30% since January, plumbing depths not seen since last May.\u00a0<\/p>\n

Musk now faces mounting concerns his EV company\u2014relegated to\u00a0second place<\/a>\u00a0behind BYD\u2014could deliver quarterly results that fail to show either sales or earnings are increasing. Thanks to a\u00a0series<\/a>\u00a0of deep price cuts\u00a0last year<\/a>, he managed to\u00a0buy himself<\/a>\u00a0the former at the cost of the latter.\u00a0<\/p>\n

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pic.twitter.com\/Z2UtwdHBJS<\/a><\/p>\n

\u2014 Elon Musk (@elonmusk) March 17, 2024<\/a><\/p><\/blockquote>\n

That could very well change now that volumes are also expected to ground to a halt even when compared to the very low bar of last year\u2019s first quarter, when he sold only 423,000 vehicles. Normally Tesla investors expect sequential improvement in volumes: Tepid year-over-year growth would be a major disappointment given annual increases were as high as 83% in the past few quarters. <\/p>\n

Should Tesla only manage a low single digit increase over Q1 of 2023, Tesla risks becoming a growth stock minus the growth\u2014a toxic combination that could result in severe multiple compression as fewer investors are willing to pay 60 times earnings to own a company mired in stagnation.<\/p>\n

\u201cThe impact of the price cuts are surprisingly low at this point,\u201d Wells Fargo<\/a> analyst Colin Langan\u00a0told<\/a>\u00a0CNBC after he shocked markets by\u00a0downgrading<\/a>\u00a0Tesla to sell on the back of a prediction that annual sales volumes would be flat this year at around 1.8 million cars.\u00a0<\/p>\n

Tesla appeared to confirm these fears when it warned buyers last week to order their new $43,990 Model Y now before the quarter ends lest they get hit by a $1,000 price hike taking effect in April. \u201cOrder in 2 minutes,\u201d urged its official account, directing readers to its vehicle configurator site. <\/p>\n

Far from signaling\u00a0higher demand<\/a>, it came across more as a ploy to push volumes before the quarter ends while providing an excuse should sales drop hard in the next three months. <\/p>\n

Until now company only knew one direction\u2014growth <\/h2>\n

\u201cTesla is trying to increase demand with this FOMO (fear of missing out) strategy,\u201d\u00a0wrote<\/a>\u00a0sales tracker Troy Teslike, who has been at the very forefront of those predicting soft Q1 demand. \u201cThe message is that buyers should buy now to get the $1,000 cheaper price.\u201d\u00a0<\/p>\n

The exhortation came even as rules took effect in January that allow for consumers to take instant advantage of U.S. federal EV tax credits at the point of sale, rather than wait to eventually be reimbursed with their tax filing.<\/p>\n

Meanwhile on Friday anonymous sources told\u00a0Bloomberg\u00a0that Tesla was\u00a0cutting production<\/a>\u00a0in Shanghai, its largest and most profitable plant, by nearly a third this month amid weakening demand.<\/p>\n

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Prices in the US will increase by $1k for all Model Y trims on April 1st<\/p>\n

Order in 2 mins via https:\/\/t.co\/oLrTGTu522<\/a><\/p>\n

\u2014 Tesla North America (@tesla_na) March 16, 2024<\/a><\/p><\/blockquote>\n

The reason this is so devastating is that, since the ramp of the Model Y at the start of 2020, the company has only ever known one direction\u2014up.\u00a0<\/p>\n

Apart from government-mandated pandemic lockdowns, each and every quarter has always been better than the last with just one brief exception, and that was down to factory upgrades. Even during the chip crunch, Tesla was busy manufacturing more cars while others were forced to mothball their plants. <\/p>\n

That clockwork-like reliability to produce exponential sales growth<\/a> in the face of adversity is why the company earned its rich valuation in the first place.<\/p>\n

Even longtime Tesla bulls are at least temporarily getting out. Kevin Paffrath, who manages the Pricing Power exchange-traded fund, sold all 36,840 shares in the company last week and is now actively\u00a0shorting<\/a>\u00a0it.<\/p>\n

For the moment, the market continues to give Musk the benefit of the doubt\u2014at least until Tesla publishes its Q1 production, deliveries, and earnings in April.\u00a0<\/p>\n

\u201cThe bear case depends on the multiple cracking, which may require an outcome significantly worse than our base case,\u201d UBS analyst Joseph Spak wrote last week after slashing his Q1 delivery forecast to 432,000 vehicles, trimming his full-year earnings estimate in the process.\u00a0<\/p>\n

Three levers to pull for profitable growth<\/h2>\n

Carmakers earn their profits through three key levers. The first is prices, as slow-moving vehicles need corrosive rebates and incentives before a customer will drive one off the lot, while fresher models in demand can command a premium.\u00a0<\/p>\n

The second is mix: Sell larger-sized models more skewed to popular bodystyles like SUVs and pickups in wealthier countries and you\u2019ll typically be better off than if you relied on compact hatchbacks and sedans in poorer ones.\u00a0<\/p>\n

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Well\u2026<\/p>\n

No refreshed Model 3 for me. This offer is way too low \ud83e\udd23 pic.twitter.com\/Xd7ZgfCXYg<\/a><\/p>\n

\u2014 Ethan (@EZebroni) March 19, 2024<\/a><\/p><\/blockquote>\n

Finally and most importantly there is volumes. Since almost all carmakers operate their own plants, these need to be pumping out automobiles constantly to achieve a return. Whether a factory operates at 80% utilization or just 60% can be the difference between a solid profit and a hefty loss.\u00a0<\/p>\n

Tesla\u2019s problem is that mix and pricing are likely going to be net negatives, meaning it must rely on volume growth to fuel Q1 profits, and here consensus EPS estimates have steadily crept lower.\u00a0<\/p>\n

Price cuts enraged existing owners and burned fleet buyers<\/h2>\n

Part of that can be blamed on roughly three weeks of\u00a0lost production<\/a>\u00a0at Tesla\u2019s German factory, which could cost it up to 18,000 vehicles. But Tesla\u2019s most recent data shows the company overall entered this year with 16 days\u2019 worth of supply, so it has a buffer of existing inventory.<\/p>\n

Increasingly it appears as if Musk\u2019s strategy that seemingly worked so brilliantly last year of cutting prices to maintain growth may have ultimately backfired. Not only has he trained customers to wait in the hopes of getting a better deal, he\u2019s enraged a number of existing ones\u00a0as well<\/a>.\u00a0<\/p>\n

Rental agencies Hertz<\/a> and Sixt were both\u00a0burned<\/a>\u00a0as the value of their cars in the used car market plummeted (one CEO even\u00a0lost his job<\/a>\u00a0over it), while Salesforce<\/a> rival SAP\u00a0booted Tesla<\/a>\u00a0from the list of brands eligible for its company car fleet.<\/p>\n

\u201cThey\u2019re being dumped by the corporate fleet market because their discount strategy caused resale prices to completely crash,\u201d says Europe-based EV analyst Matthias Schmidt. \u201cThat should be part of their expansion strategy, but they burned their bridges.\u201d<\/p>\n

In other words, Musk needs to spend less time trolling Boeing and more time figuring out how to reignite his own sputtering growth engines.\u00a0\u00a0<\/p>\n<\/div>\n

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