• Tesla expects modest vehicle production and delivery growth in 2024 with Q1 Model 3 volumes down due to assembly line shutdowns to prepare for the next-generation Model 3.
• Tesla’s robotaxi venture, referred to as “Cyber Cab” during the earnings call, will operate a Tesla-owned fleet of vehicles and allow Tesla owners to lend vehicles to the service.
• Prices for the FSD (full self-driving) Supervised service were slashed during Q1 and it was offered for free for 30 days to ramp up data collection and miles trained on the FSD model. Talks with at least one other major OEM are underway to potentially license FSD Supervised.
• Tesla expects that its future-generation vehicles will begin production before H2 2025. The lower-cost EV is still in the works at Tesla.

Tesla ended Q1 2024 with its total revenues down 9% YoY. While automotive revenues declined 13% YoY, energy generation and services revenues helped to marginally offset the automotive declines. Tesla reiterated that it was in between two large growth phases. The early growth phase benefited from the growth of deliveries and production of EVs, and the next phase will benefit from the ramping and implementation of robotaxi services. Preparation for the next growth phase materialized in increased capex, which was up 34% YoY in Q1 as investment into AI capabilities ramped up.

The battery electric vehicle (BEV) manufacturer continued to feel the impact of price cuts made in 2023. Operating margins continued to decline, reaching 5.5% from 11.4% last year and driving operating income down to $1.2 billion but offset by improvements in battery and raw material costs.

Several key topics were covered during the earnings call to provide more clarity, including upcoming plans and projects. This comes after Elon Musk denied news agency Reuters’ report on Tesla’s robotaxi and low-cost vehicle projects. Tesla clarified that future generation vehicles including a lower cost vehicle were still in the works, but the tone of comments suggest that leadership believes that robotaxi development is a more pressing matter right now.

Vehicle production slowdowns

Total vehicle production declined 2% YoY primarily due to changes being made to the production line ahead of the Model 3 update at Fremont. There were also production issues, including shutdowns, that stemmed from the arson attack on the Giga Berlin factory. While the Model 3 and Model Y production volumes fell during the quarter, other models’ production grew by 8% and partially offset lower volumes.

More concerning was a more dramatic drop in deliveries and growing inventories despite declining production. Deliveries of the Model 3 and Model Y fell 10% while overall deliveries fell 9%. Meanwhile, global days of supply grew 87% YoY. This was partially attributed to shipping delays caused by geopolitical instability in the Red Sea region.

Tesla did note it benefits from an industry-wide shift toward hybrid vehicle manufacturing as it would receive a larger share of appropriated funds from the Inflation Reduction Act’s allotment for electric vehicle production. It also noted that cost savings from battery production would continue with the declining cost of raw materials. Notions of the potential sale of 4680 batteries were shut down by Tesla as it does not see a reasonable path toward meaningfully converting those sales to net income with industry-wide price erosion. It would rather produce batteries for its own vehicles at this time.

Strategic focus shifts to FSD 12.3 and robotaxi development

Tesla announced that over one billion miles had been driven with FSD. Tesla recently cut FSD prices to $99/month to entice more Tesla owners to adopt the service. This not only had a positive impact on service revenues but, more importantly, also ramped up data collection for the service to improve it more rapidly. Tesla is also offering one month of FSD for free with new vehicle purchases and leases.

To process all this data, Tesla is investing heavily in its AI training capacity, with 35,000 H100 NVIDIA GPUs dedicated to FSD training. It anticipates adding another 50,000 H100 GPUs for training purposes throughout the rest of 2024.

Tesla is open to licensing FSD, with one major OEM negotiation in the works according to Musk. There may be more than one OEM striking a deal to license FSD in 2024. This would help further diversify Tesla’s revenue streams and may impact LiDAR adoption rates with more OEMs choosing to lean on visual processing.

The company leadership provided some clarity on the robotaxi strategy during the Q1 2024 earnings call. Tesla noted that it would operate an in-house fleet of vehicles for the service on its own platform while allowing Tesla owners to lend their vehicles for ride-hailing at their leisure as passive income. Early-look mockups of the app displayed features such as remote vehicle climate control and entertainment control.

Outlook on future vehicles and Supercharger Network developments

It was noted that more announcements on future vehicle development and production would come after the August 8 robotaxi announcement. Some further color was provided stating that Tesla was moving up its production timeline for a potential affordable EV during H1 2025. This was not firm but was encouraging to those hoping for an earlier arrival of a $25,000 Tesla. Future-generation Tesla vehicles are expected to be produced on existing manufacturing lines.

While these updates were provided during the earnings call, it has become clear that FSD and the robotaxi venture are taking up most of Tesla’s focus in the near term to speed up time to market. In the days following the earnings announcement, Tesla made further workforce reductions which largely impacted the Supercharger Network team and followed charging network project cancellations earlier in the quarter. While Tesla is seeing increased service revenues from other OEMs adopting the North American Charging Standard (NACS) ports and joining the Supercharger Network, the expansion of the network may hamper potential growth in this revenue stream with fewer site installations and potential downtime increases.

Key takeaways

• It is becoming more and more clear that Tesla is going all in on FSD and its Cyber Cab venture. The majority of R&D expenses will be allocated as such and Tesla is committed to scaling its data centers to accommodate the growing amounts of data it is using to build out its model.
• Tesla leadership was careful about the way it described models in the pipeline. The officials continuously used the phrase “future vehicle lineup” or a variation of it to describe the vehicles expected to begin production in early 2025.
• With hybrids gaining market share over BEVs in Q1 2024, Tesla saw declines in production and deliveries YoY as well as sequentially. An “affordable EV” might help reverse that trend but Tesla is not committing to a timeline for it.
• The recent workforce reductions have been aggressive and could lead to a 20% reduction in the aggregate round or labor actions. This includes nearly the whole Supercharger team. The move comes as demand has increased within the network with more OEMs adopting the NACS and gaining access to the network. This could lead to complications with downtime and delayed expansion of the network.