Tesla earnings day is around the corner. So far, robotaxis are 'just a buzzword.'

By Claudia Assis

'What Elon needs now is a Tim Cook kind of guy'

Tesla Inc. is about to report earnings, and there's plenty for investors to worry about.

The electric-vehicle maker (TSLA) has been beset by lower sales and is fresh off of stock downgrades and key executive departures. And the company's choice to favor working on robotaxis over building a cheaper EV has surprised investors, and not in a good way.

The company is scheduled to report first-quarter earnings on Tuesday after the bell, in itself a departure from its years-long tradition of reporting on Wednesdays.

Meanwhile, Tesla is asking shareholders to decide on the fate of CEO Elon Musk's $56 billion pay package, which was struck down by a Delaware court in January. The company has also launched layoffs.

Tesla has already told Wall Street that it sold fewer cars than expected in the first quarter. Concerns have long swirled about a slowdown in demand for EVs, which are less profitable for carmakers and more expensive for consumers.

Then there's Musk, whose mercurial personality may have seemed easier to overlook during better times for the company and for the stock.

Danilo Kawasaki, co-founder and chief operating officer of Gerber Kawasaki Wealth and Investment Management in California, said that his firm started to trim client Tesla positions toward the end of last year due to concerns about Tesla's "management, governance and lack of leadership."

"Elon, as brilliant as he is, has become too volatile since the purchase of Twitter, alienating his own Tesla customer base and hurting sales," Kawasaki said.

The end of Tesla's planned Model 2 also came as a surprise, because having a cheaper car had always been part of Tesla's plan, Kawasaki said.

"I believe this is a response to how much Model 3s and Model Ys have depreciated in price in the last year or so," he said, and to the advancement of self-driving with Tesla's latest software version, "which is significantly better than the previous version."

Model 2 a 'lost opportunity'

Musk at first denied a Reuters report earlier in April that Tesla was shelving its Model 2, as the cheaper EV had been popularly known, but he later unveiled a renewed focus on robotaxis, scheduling an event for August.

Back in 2019, a Tesla "autonomy day" showcasing robotaxis was met with skepticism, with one analyst likening it to a TED talk.

The Model 2 was "enshrined" in Tesla's "iconic" 2006 master plan, said Sandeep Rao, a senior researcher at investment-management company Leverage Shares.

The shelving of the project tells investors that "the company is conceding this price segment to hybrids," he said.

Hybrids and plug-in hybrids have emerged as a bridge for consumers who want to eschew a gas-powered vehicle but balk at higher EV prices.

Hybrids have "a far larger customer base than Tesla's current addressable market. It's a lost opportunity, especially considering that legacy carmakers have been making massive inroads" in Tesla's market, Rao said.

Rao also questioned Tesla's apparent pivot to robotaxis.

"Truly autonomous driving is computationally intensive and is expected to take a few more years to be anywhere close to regulatory approval," he said. "It is unlikely that the robotaxi would be a truly autonomous driving solution. Overall, it's just a buzzword until Tesla furnishes more details."

If the robotaxi is built on a Model 3 platform with slightly better Full Self Driving technology, it won't be much, he said. Tesla recently made FSD, its suite of advanced driver-assistance systems geared to city driving, free for a month to new customers.

"If there has been a quantum leap in FSD usability, the company wouldn't hold off until August to announce this," Rao said.

Tesla's future now tied to 'cracking the code on full driverless autonomy'

Overall, Rao expects relatively few surprises for the quarter, given what's already known about weaker sales. Delivery figures for the Cybertruck are likely to be of interest thanks to that EV's high sales price and, presumably, its margins, he said.

The recent executive departures at Tesla, however, are "a matter of concern," Rao said.

Tesla recently lost Drew Baglino, who spent 18 years at the company, most recently as senior vice president of powertrain and energy engineering. His departure, which was termed a "gut punch" by one analyst, follows the August departure of Chief Financial Officer Zachary Kirkhorn, who was replaced by Vaibhav Taneja.

Kirkhorn and Baglino were "both company veterans in good standing with analysts," Rao said.

Analysts polled by FactSet expect Tesla on Tuesday to report adjusted earnings of 49 cents per share on sales of $22.3 billion. That would be down from adjusted earnings per share of 85 cents on sales of $23.3 billion in the first quarter of 2023.

The most recent downgrade of Tesla's shares came on Thursday from Emmanuel Rosner at Deutsche Bank, who trimmed his rating to hold from buy. That buy rating had been "predicated on the next-gen vehicle priced at [$25,000] coming late next year, which would allow the company to reaccelerate volume, margins and [free cash flow], and potentially come to dominate the Western EV market," he said.

Sidelining the Model 2 would create "significant" earnings and cash-flow pressure on estimates and "make the future of the company tied to Tesla cracking the code on full driverless autonomy, which represents a significant technological, regulatory and operational challenge," Rosner said in his note.

Tesla has also embarked on layoffs, which is "not surprising given Tesla's latest production and sales numbers," Kawasaki said.

"There is no question that Tesla has a lot more competition; we are in a higher-interest-rate environment, which increases financing costs; and some self-inflicted wounds created by Elon himself [are] alienating potential and existing customers," he said.

"I look at Elon like a Steve Jobs, a one-of-a-kind generational genius who has made an enormous impact in the world," Kawasaki said. "What Elon needs now is a Tim Cook kind of guy, someone who can operate the business while Elon can be the creative genius he is."

-Claudia Assis

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04-20-24 0524ET

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