Tesla Announces Shift to More Affordable Cars as Q1 Profits Decline by 55%

Tesla’s first-quarter earnings saw a significant drop, with net income falling 55% to $1.13 billion from $2.51 billion in the previous year. Despite this decrease, Tesla’s stock experienced an unexpected rise after the market closed on April 23, driven by the company’s announcement of speeding up the production of lower-priced models.

Located in Austin, Texas, Tesla revealed plans to start manufacturing smaller, cost-effective vehicles sooner than initially expected. These models, including the anticipated Model 2 priced at around $25,000, will feature some of the current model’s technologies but will be built on the same production lines as existing products. During a conference call, CEO Elon Musk indicated that production might begin in the latter half of next year, or even earlier.

Tesla confirmed that the new models would not require new factories or massive production line overhauls, emphasizing a strategic shift towards more capital expenditure-efficient growth amid uncertain times. This approach is expected to result in modest cost reductions but could help boost vehicle sales volumes.

Despite a lack of detailed information on the specifics of the new models, Musk expressed confidence in increasing Tesla’s sales over the previous year’s 1.8 million vehicles. He also hinted at a future fully autonomous robotaxi, expected to be a significant growth driver, set to be revealed on August 8.

Tesla’s shares surged by 11% in after-hours trading on April 23, although they are still down by over 40% this year, contrasting with a 5% increase in the S&P 500 index. Morningstar analyst Seth Goldstein noted that Tesla’s clearer future guidance has helped mitigate investor concerns about the production of the Model 2 and the company’s growth trajectory.

However, Tesla is not without challenges. Its first-quarter revenue dipped 9% to $21.3 billion, and global sales fell nearly 9%, reflecting heightened competition and a slowdown in the electric vehicle market. Adjusted earnings per share also missed estimates, coming in at 45 cents against an expected 49 cents.

In response to the tough market conditions, Tesla recently reduced prices across several models and cut its “Full Self Driving” package price by one third. Additionally, Tesla announced a 10% workforce reduction, emphasizing a broad approach to cost-cutting across the company.