Tesla stock fell 29% in the first quarter as global dominance declined

It's been a brutal first quarter for Tesla Investors.

The electric car maker's shares fell 29% in the first three months of the year, the stock's worst quarter since the end of 2022 and the third-worst quarter since Tesla went public in 2010. It was also the biggest loser in the S&P 500. .

One of the biggest concerns on Wall Street is Tesla's core business. The company is preparing to report first-quarter vehicle production and deliveries in the coming days, and even the bulls are anticipating sluggish results, despite price cuts and incentives for buyers dangling throughout the quarter.

As of Thursday, the last trading day of the quarter, analysts were expecting about 457,000 deliveries for the period, according to the average of estimates from 11 analysts compiled by FactSet. This represents an 8% increase from 422,875 the previous year. Estimates for this quarter ranged from 414,000 to 511,000 births.

Analysts who updated their numbers in March were the most pessimistic, with estimates ranging from 414,000 to 469,000. Independent auto industry researcher Troy Teslik expects the company's deliveries to be even lower than the lowest estimates obtained by FactSet.

Deliveries are the closest rough estimate of sales reported by Tesla but were not precisely defined in the company's shareholder communications.

Here are four main reasons why Tesla declined in the first quarter.

In China, there is competition from the onslaught of all-electric vehicles, including new models that cost less than Tesla's popular Model Y SUV and Model 3 sedan.

By the end of 2023, China's BYD has dethroned Tesla as the world's largest electric car maker. In the first quarter of this year, BYD continued to press on, launching the Qin Plus EV starting at around $15,200, followed by the BYD Seagull, an all-electric small hatchback starting at under $10,000.

Chinese smartphone maker Xiaomi is getting into the game with its first car, an all-electric SUV that costs significantly less than a Tesla Model 3 sedan. Xiaomi CEO Lei Jun said the standard version of the SU7 will sell for the equivalent of $30,408 in China. , a price he admitted meant the company was losing money on every sale. The Tesla Model 3 is about $4,000 more than that.

Tesla cut prices in response, but sales remained slow.

According to data from the China Passenger Car Association, Tesla sold 71,447 Chinese-made vehicles in January, including 39,881 vehicles sold domestically, which was a decrease from December. The numbers fell again in February to 60,365 Chinese-made Tesla vehicles, including exports.

As sales declined, Tesla cut production at its Shanghai factory, shifting employees from working six-and-a-half days a week to five days, Bloomberg first reported.

Tesla did not provide guidance for 2024 in its January earnings call, but analysts see Tesla's struggles in China as a harbinger of a rough quarter, if not a full year.

Deutsche Bank analyst Emanuel Rosner lowered Tesla's price target this week, citing weaker-than-expected China sales and the company's recent plan to cut production in the region. Rosner now expects Tesla to report deliveries of 414,000 vehicles for the first three months of 2024, and expects only mid-single-digit growth for the year from Tesla.

Red Sea attacks and activist clashes in Europe

There was also drama in Europe.

Tesla and other manufacturers such as Volvo suspended some production on the continent in January due to component shortages following attacks on shipping companies in the Red Sea. Attacks by the Iranian-backed Houthi militia continued to disrupt one of the busiest roads in the world.

Then in March, there were dramatic protests by environmentalists in Germany. Objecting to Tesla's plans to expand the scale of its car and battery factory in Brandenburg, outside Berlin, protesters set fire to electrical infrastructure near the Tesla factory. Although the fire did not spread to the plant, it left the facility without sufficient power for operations, resulting in a temporary suspension of production.

CEO Elon Musk visited the German factory after the attack to reassure employees. He also called the protest “extremely stupid.” Tesla's corporate policy chief, Rohan Patel, wrote on X that Tesla's mission is “to create zero-emission products” but to do it well, “we are also focused on creating the most sustainable factories along with a culture of doing the right thing in our community.” . “.

Meanwhile, in the Nordic countries, Tesla service technicians and other workers went on strike in support of the Swedish trade union IF Metal. The labor group has been pressuring Tesla, since October 2023, to negotiate and sign a collective bargaining agreement with its workers.

IF Metal's website says nine out of ten workers are union members in Sweden, yet Tesla has resisted unions, as it continually does in the United States, and has rejected IF Metal's efforts to negotiate.

Senior lineup, early days of the Cybertruck

While electric vehicle sales are still gaining popularity around the world, the growth rate has slowed. Although Tesla is no longer the dominant player, each new product becomes more important. There's not much in the hopper.

The Cybertruck is still in its early days and has a niche audience. The company began delivering an unpainted, angular steel model of the truck in December at a promotional event in Austin, Texas.

Musk previously stated on an earnings call that Tesla “dug its own grave” with the sci-fi-inspired Cybertruck. In an interview with Sandy Monroe, a Tesla fan and car critic, in late 2023, Musk warned that “Cybertruck is not something that will have a material impact on Tesla's financials” in 2024, and “it will likely be material in 2025.” .

Tesla is preparing to produce its updated Model 3, known as Highland, in Fremont, California. “Visually, the changes from the outside are subtle,” Forbes' Larry Magid wrote. He also disliked Tesla's controversial design decision to delete the “stems” from the sides of the steering wheel. Highland drivers use buttons and on-screen controls to switch between drive, reverse and park or to signal a turn or lane change.

Tesla has a brand new platform in the works, an affordable electric car that fans are referring to as the “Model 2.” But it will not be delivered to customers for years.

Musk continued to bet that Tesla customers and shareholders would stick with the company regardless of his increasingly inflammatory rhetoric on X and beyond.

Earlier this month, Musk met with former President Donald Trump in Florida. He has been called a “red wave” in the upcoming US election, and has shared, liked or otherwise promoted far-right accounts and content on X, where he now has a listed 178.8 million followers. He has repeatedly disparaged illegal immigrants, spoken out against corporate diversity initiatives, and made ridiculous claims that immigrants from Haiti are cannibals.

Musk's political ideology conflicts with the groups of people who are most likely to buy his products. EV proponents tend to be ideologically left-leaning, according to research conducted last year by Pew Research and Gallup.

Musk has also bet that Tesla's shareholders and board of directors will follow suit. In February, Musk said he would move for a shareholder vote to move Tesla's founding location to Texas from Delaware, after a Delaware judge invalidated a $56 billion pay package awarded to him in 2019 on the grounds that the board failed to prove ” The compensation plan was fair.”

Before the ruling, Musk began lobbying shareholders and Tesla's board of directors to give him more control over the electric car maker.

“I am uncomfortable with Tesla developing into a leader in AI and robotics without approximately 25% voting control,” Musk wrote in a January post.

Investor Ross Gerber, a longtime Tesla supporter, called the request tantamount to “extortion” in an interview with CNBC.

All of this adds up to over $230 billion in lost market value for Tesla and its shareholders since the calendar turned to 2024. This has made for a very profitable quarter for short sellers, who were anticipating such a downturn.

According to data from S3 Partners, Tesla contracts are up by more than $5.77 billion in 2024, making it the most profitable name in the United States. Short interest at the end of trading on Thursday was about 3.76% of the float, representing $18.71 billion in notional value.

Brad Gerstner of Altimeter Capital is buying the dip. Gerstner told CNBC this week that the company is now making “tremendous progress at an accelerating rate” in its self-driving technology efforts.

Musk has been making statements like this for years. In 2015, he told shareholders that by 2018 Tesla cars would achieve “full autonomy” and be able to drive themselves. In 2016, he said that Tesla would be able to send one of its cars on a cross-country trip without needing any human intervention by the end of the following year.

Tesla has yet to deliver a robotaxi, a self-driving vehicle, or technology that can turn its cars into “Level 3” automated vehicles. However, Tesla does offer advanced driver assistance systems (ADAS), including a standard Autopilot option, or a premium Full Self-Driving (FSD) option, the latter of which costs $199 per month for US subscribers or $12,000 up front.

In an effort to achieve end-of-quarter sales, Musk recently tasked all sales and service employees with installing and demonstrating the FSD to customers before their vehicles are delivered. He wrote in an email to employees, “Almost no one actually realizes how well (supervised) FSD works. I know this will slow down the delivery process, but it is a difficult requirement nonetheless.”

Despite its name, Tesla's premium option requires a human driver at the wheel, ready to steer or brake at a moment's notice.

Watch: Tesla goes through “Code Red” status