Tesla's tough quarter has investors anxious

Tesla's first-quarter delivery figures that are expected to be released next week are forecast to be relatively soft amid intensifying competition and lagging demand — a dynamic that has investors on edge ahead of the release.

The EV maker, led by Elon Musk, is bracing for a slowdown in 2024 after years of rapid sales growth, with analysts lowering their expectations for the company's first-quarter deliveries to account for a slowdown. Tesla delivered 422,875 vehicles in the first quarter of 2023 — a level that it may struggle to reach this quarter.

Wedbush Securities noted that delivery estimates have fallen from about 475,000 to 425,000 vehicles as a "perfect storm of demand issues hit" and hurt the company's sales figures. Those headwinds have caused Tesla's stock to struggle as a result, declining by 29.2% year to date through Friday.

"The biggest and most concerning issue for Tesla (and its investors) remains China as rising EV competition and a lingering price war has made this key market very challenging for Tesla the last year and especially the last quarter," wrote Dan Ives, managing director and senior equity analyst Wedbush Securities, in a note to investors.

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Ives said the arrival of Tesla's delivery numbers "will not be a moment of celebration for the bulls and instead be a rip the band-aid quarter" for the company's investors. 

He wrote that while Tesla is in a lull between periods of growth, investors are getting impatient, which is "being exacerbated" by Musk's discussion about developing artificial intelligence (AI) tools outside of Tesla, issues with the board, a Delaware court voiding Musk's compensation package and "now a likely move to incorporate in Texas."

Ives explained that while there has been negativity about Tesla in the past, this time it is warranted due to sluggish growth and compressed margins amid the competition with low-cost Chinese EV makers like BYD.

Xiaomi, another Chinese EV rival, rolled out a new electric Sedan on Thursday that is expected to undercut the price of Tesla's Model 3 by about $4,000, according to a report by Barron's.

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Musk has aggressively discounted Tesla's EVs since late 2022 in an effort to boost sales amid the high interest rate environment, which has increased the cost of car payments for customers. While those cuts have helped support demand, they come at the expense of the company's profit margins.

Musk said the price cuts are needed to maintain demand for Tesla's vehicles and to keep production facilities operating as efficiently as possible. Some of those discounts have been temporary tweaks to pricing, such as Tesla's $1,000 price cuts for its Model Y rear-wheel drive and long-range variants in February that elapsed at the beginning of March.

"This is the essential quandary of manufacturing: factories need continuous production for efficiency, but consumer demand is seasonal," Musk wrote in a post on X, formerly Twitter, responding to a post by Tesla indicating the March price change.

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Tesla's production facilities have experienced some interruptions this quarter, as well. 

Houthi militants' attacks on shipping in the Red Sea and Gulf of Aden caused shipping to be rerouted away from the area and the Suez Canal to around the Cape of Good Hope at the southern tip of Africa. 

That created longer shipping times that caused Tesla to suspend most of its car production at its Gigafactory near Berlin from Jan. 29 to Feb. 11 due to a shortage of parts.

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Tesla's Gruenheide factory was also idled for nearly a week in early March due to an arson attack by an environmental activist on an electricity transmission facility that powered the plant.