Tesla Stock’s Earnings Disaster: Why This EV Leader’s Problems Are Far From Over

Stocks to sell

Investors hoping that the worst is over for Tesla (NASDAQ:TSLA) following the company’s first-quarter earnings might be in for a rude awakening. Tesla stock has rallied hard in the days since the electric vehicle maker reported its Q1 results, rising 20% in its best showing of the year.

The rise in TSLA stock comes despite the company reporting dismal earnings. Investors support the automaker’s plan for a cheaper electric vehicle, but lower prices haven’t boosted Tesla’s sales in the past year.

Lower Prices

Tesla has repeatedly lowered the prices on all its electric vehicle models over the past 12 months, dropping the price of its cheapest EV, the Model 3, by 20% to a current average starting price of right around $40,000.

Tesla’s vehicles have never been cheaper than they are right now. But while the price reductions have hurt Tesla’s profit margins, they have done little to spur sales. Deliveries (the closest approximation of sales) in Q1 of this year totaled 386,810, a drop of 8.5% from a year earlier.

Analysts were expecting Q1 deliveries of 457,000. It marked the first year-over-year decline in Tesla’s deliveries since the onset of the Covid-19 pandemic in 2020. Tesla’s deliveries are sliding as the company continues to bleed market share.

Tesla’s global market share stands at 51% today, down from 62% at the start of 2023. In the critically important market of China, Tesla has been displaced as the top EV maker by domestic Chinese rival BYD. Other Chinese automakers are also gaining ground.

Warning Signs

Beyond declining sales and a loss of market share, Tesla faces many other serious problems.

These include massive recalls of its vehicles over safety issues; production problems with its newest vehicle, the long gestating Cybertruck; and a massive drop in market capitalization after Tesla stock fell over 40% to start the year, placing it dead last among stocks listed in the benchmark S&P 500 index at several points in recent months.

Tesla has responded by announcing that it is cutting 10% of its global workforce. Consumers are losing interest in EVs and pivoting to gas-electric hybrids, of which Tesla makes none.

While investors might hope that an affordable, mass market electric vehicle from Tesla might cure the company’s problems, they shouldn’t ignore the most recent earnings print, which was terrible by almost every metric.

Tesla reported its biggest revenue decline since 2012, while net income fell 55% from the previous year. The company also issued weak guidance, warning again that its sales are likely to continue slowing. And lets not forget that Tesla has a notorious history of not delivering on new products, or, at best, delivering late.

Stay Away From Tesla Stock

While Tesla stock is rising after a steep sell-off to start the year, investors should be cautious about taking a position.

The electric vehicle maker is by no means out of the woods and continues to face big problems that are likely to get worse before they get better.

Plans to develop a cheaper electric vehicle have not changed the underlying story that Tesla is a deeply troubled company. Developing an affordable EV also doesn’t paper over the many problems at the automaker. For these reasons, Tesla stock is not a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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