Things are undoubtedly bad at Tesla. Its sales are dwindling. Its profits are plunging, as is its share price. There are regular protests outside its showrooms. The Cybertruck is a flop. And somehow, it’s actually a lot worse than that.
The 71% drop in net income it just reported may have been overshadowed by CEO Elon Musk’s announcement that he would be stepping back from his controversial duties at the Department of Government Efficiency (DOGE). But that drop is just one indication of serious financial sickness at the EV maker, problems brought on by falling sales for the first time in its history and falling prices for electric vehicles.
The bottom line problem at Tesla is its vanishing bottom line. A deeper look at its first quarter report shows it’s now losing money on what should be its ostensible reason for existence – selling cars.
It was only able to post a $409 million profit in the quarter thanks to the sale of $595 million worth of regulatory credits to other automakers.
But if the Trump administration gets its way, the company can kiss those regulatory credits keeping it in the black goodbye, too.
The interesting thing is, Tesla is perhaps the most obvious and extreme example, but they’re not the only auto manufacturer this is happening to right now. Nissan is in a bit of a tail spin as well.
There are so many problems slamming in to the auto industry right now. Even beyond the tariff instability.
In the US in particular, As cars have gotten more reliable and longer lasting, the market for new “budget” cars has dried up. Car buyers who might have once bought budget are now buying used cars that probably have a good many years left. The sales of new cars have been declining since 2016 but new car price have been skyrocketing, keeping up revenue growth for automakers.
This seemed ideal for automakers as it meant they could drop the lean margins of cheap cars and focus on higher margin markets, which looked much better to shareholders. Those companies that focused on this budget market have suffered, the best example being Nissan. The ideal for automakers is that people will buy “up” the value chain over time, buying higher end or “less used” vehicles when they trade in their old vehicle, going from a twice used, to a once used and eventually to a new car.
This kind of came to a head during the pandemic. Not only was the supply of lower end used vehicles dwindling as less and less entered the market due to less being made a few years back, there was also a shortage of new cars due to supply chain break downs and an increase in demand. Many people were taking out insane financing on massively over priced cars, both new and used. Now a lot of people are underwater on those auto loans from the pandemic because the trade-in/sales price is less way than what they have left on the loan. Many are also defaulting on those insane pandemic auto loans and their repossessed cars are ending up back on the market, increasing supply in the used market.
Many who are underwater on their auto loans but can still make payments can’t afford to make even larger payments, so rolling over the principle from the last loan into a new loan on another car is impractical. So they aren’t buying, let alone moving up the market to buy new or higher end. The demand being suppressed in the used market and the supply being bolstered by repos means used prices are massively depressed. This depressed used market carries over to the new market in turn, as most people buying new probably couldn’t afford to do so without trading in their old car, so a depressed used market hurts their purchasing power. Why would someone buy a new car when the only new one the could afford is probably worse than the existing car.
Tesla is getting a lot of focus because of the political entanglement of their high profile CEO, but the whole industry is under strain. Nissan is frantically looking for buyers to help them out of the debt hole they’re in, and groups like Stellantis (owners of Chrysler, Fiat, Jeep, Ram and Dodge) are desperately chasing new revenue streams as absurd as ads in the central console.
…nah man, that’s on the domestic dealers + automakers choosing not to market small affordable cars in favor of big profitable road-tanks, and it’s not the first time they’ve priced themselves out of the market like this…
It’s a fundamental and inevitable outcome of how these businesses are structured and run. Were the decisions to chase larger more premium vehicles short sighted? absolutely. Was the pursuit of Financialization in car sales to make up for pricing out lower income buyers obviously a bad idea? Without a doubt. Could they have made any other decisions? Not without being replaced by shareholders.
The solution to this problem is not just to “kick the bums out”, these companies need to have their management and ownership restructured in a way that generates incentive structures to maintaining a stable long term market rather than quarterly revenue growth.
Some companies, like Nissan, didn’t pursue the big premium trend and they got burnt as well, largely because the trends of the rest of the market and surplus of used cars is undermining their new sales. To some extent their choice to so heavily pursue sales to fleets like rental companies didn’t help.
In fairness(?) Ford bet big on small cars in the wake of the Great Recession, and that worked well for a while, but by the time they decided that the only non-truck (from a CAFE standpoint) that they were going to keep selling was the Mustang, they were losing money on every Focus and Fiesta they sold.
A lot of that was their godawful automatic transmission that was forcing them to spend zillions in warranty repairs, but at the end of the day the margin on economy cars is so slim that you can’t afford to make mistakes. Rather than bet on perfect execution in a market that was already shrinking in the US, they decided to focus on higher-margin products… and that’s fine in the short term, but as you mention it’s going to leave them exposed once nobody can afford to spend $50k+ on a horrifically overpriced big pickup anymore.
Good riddance. Nazis dont deserve to be rewarded. They deserve the worse of the worse.
The Nazis actually made good cars. Tesla is all the worst parts without the good cars.
Volkswagens aren’t that great but I get your point.
The original Beetle (at least the ones I worked on from the 1950s and 60s) didn’t have stellar product quality, but it was well-engineered to be maintainable by someone without specialist knowledge or tools. VWAG has definitely gotten worse at quality over the following decades.
Good thing I didn’t use the word great, and I’m talking about the cars they made in the 30s and 40s hence the past tense of “made.”
Good, great etc schematics…swear yall are insufferable on this site.
Good and great are used differently for a reason. It’s not really a semantic difference.
At this point of negative journalism, any company that didn’t choose to bend the knee to Trump’s lunacy would have been denied. The right hates electric vehicles. The right hates these pesky journalists. The right says they’re clever enough to see a grifter. However, when an electric car company run by an un-qualified rich boy from South Afrika utilises the media to inflate their numbers so they can sell more electric cars to the people they betrayed (not their “new customers”, they won’t buy into electric because of their personal politics) it’s all “why have trans people existed for so long?”
Monkeys amongst apes.
Things at tesla are not as bad as they should be.
Not yet a smoldering crater, then?
The only thing in this world trending in the right direction is their stock price
Unfortunately Tesla is up 34% from its low in March (I know because I shorted them before their earnings)
Lol shorting Tesla is a wild move. It’s a meme stock, the price doesn’t reflect anything real.
Not wild, just poorly timed.
Of course, since this is the darkest timeline
Give it some time. I’m sure they could be a whole lot worse still.
Good.
This is a big fact almost no one speaks of. Tesla has only ever been profitable by manipulating the carbon footprint regulations and selling Ford and GMC carbon credits. Not a single tesla vehicle has ever been profitable as an actual vehicle. You know, the product they claim to be selling. The real product is pollution hiding. N ot correcting, not fixing, not even slowing pollution. No, its a shell game. Tesla is making money by shifting the blame of pollution for profit. Oh, they build vehicles also.
Not a single tesla vehicle has ever been profitable as an actual vehicle.
This honestly couldn’t be further from the truth.
Tesla’s vehicles once ramped have always been extremely profitable (except probably the CyberTruck as it hasn’t properly ramped due to low demand)
Any losses you see are due to their aggressive growth involving capital expenditures and research and development. It’s not that the vehicle isn’t profitable.
The ZEV credits are just bonus money that they can then leverage to expand faster.
Edit: If you want to try and see this another way that might make sense… The Model S and X were very profitable, but they didn’t make enough money to fund the expansion for the Model 3 and Y. Ditch the Model 3 and Y, and remain a boutique luxury car company, and they would posted profits instead of losses. It wasn’t the cars losing money, it was the growth. The ZEV credits accelerated that growth immensely by giving them more breathing room.
Ah, so the actual reason for the loss is that they can’t expand capacity without squandering vast amounts of money. That’s much better.
A thing would need to officially be a flop to be considered squandered like the Cybertruck is looking like.
They might have a few failures ahead of them yet though, but you can’t call a mid flight project squandered.
Edit: e.g part of that loss could be attributed to them finalizing and now starting production at the megapack factory at Shanghai. Short of Elon backlash stopping sales of their commercial batteries, that won’t be squandered and will make a billion or two or three in profits this year.
You have just argued against the article itself. Should we believe you?
The article doesn’t say they’ve never made a profit on any of their cars. If that’s what you got from that, you should try reading it again.
Also, if you make 1 billion in profit on something, and then spend 2 billion researching and developing and setting up a factory to build a new product, you end up with a loss of 1 billion. That does not mean your first thing is unprofitable. This is pretty basic stuff.
The vehicles are profitable, they just didn’t provide enough profit this quarter to cover their R&D and capital expenditures for growth.
Edit: Sorry, and in case it wasn’t clear, their R&D and capital expenditures dwarf the ZEV credits every quarter.
Where can I learn more about this stuff?
Not from a Jedi
- What is carbon offsetting and how does it work? (theguardian, May 2021)
the only reason anyone has bought a cybertruck for a business is because incentives for heavy vehicles make it possible to almost entirely write them off on taxes
OhNoAnyway.jpg.
I’m always happy to see bad news for Tesla (and by extension, Elon), but they’ve survived so much despite their mismanagement it feels like we’ll never be rid of them.
Never’s a long time.
I’d like to see their charging network survive in some way, maybe under someone else’s control. From what I’ve heard from EV owners the Tesla charging stations are the only ones that are readily available especially outside of cities (at least here in Australia).
In the US, the Tesla charging network is the most reliable and most widespread.
It’s one of the reasons many people buy a Tesla; there’s no faffing around with third party charging stations that are a crapshoot IF they work and IF they’re not in a dodgy location.
Hopefully Tesla goes under so much, they have to sell the charging network.
Be of good cheer! That kinda market valuation doesn’t disappear overnight, just too much money to piss away quickly. But our man Musk is on the case!
And you’ll love this, Musk is committing the ultimate capitalist sin: Losing money. No problem going in the red, if your business plans aren’t made of half-ply toilet paper and ghosts. LOL, even Trump will shit on him as soon as it’s clear that Elon is a “loser”.
Its profits are plunging, as is its share price.
Looks at share price: Up 10% in the last month…
Dead-cat bounce.
The market can remain irrational longer that you can remain solvent.
The problem isn’t that you can’t predict when a stock is mispriced, that’s sometimes very easy, it’s predicting when all the other dipshits will come to the same conclusion because ultimately that’s all that matters.
Right now musk still has a personality cult and there are a lot of morons buying the stock like their worldview depends on it. They don’t read the earnings reports, they don’t read unbiased news, they mostly don’t even own the cars, they just think it’s going to the moon because…for lack of a better word, propaganda.
People interested in cars have been scratching our heads with Tesla for years. Like at one point it was worth more than every other car market combined and its value kept going up. I mean there seems like years of irrational prices to the point it would be silly to bet against it
Nailed it. I’d add that investors are treating it as a meme stock, and as you said, it’s unrealistic. Fuck me, talk about a house of cards.
Fuck me…
Is there enough time‽
Doubt Tesla will fail in the next two minutes, so sure.
But still down 20% from the start of the year, when Trump was supposed to make it soar.
It’s not going to survive this high for long with the abysmal sales figures coming from the rest of the world, even if the Musk cult currently still keeps pretending everything is going great.It’s still way up from a year ago. The insane climb after the election was unsupported hype, which has been corrected. Say what you want about tesla, but the stock price looks pretty healthy.
Wait, you mean The Commercial on the White House lawn back in March didn’t move more units?! surprisedpikachuface.jpg
How is it possible that tesla is losing sales in markets where EVs are growing? Not a good sign
Normal people don’t want a sports car
Publications LOOOOVE to write these articles and then sit on them until the stock gets like a 1-day 5% drop so they can misrepresent the situation. Take a look back 6 months or 12 mos. and it’s even greater.
sit on them until the stock gets like a 1-day 5% drop so they can misrepresent the situation
ok, but that didn’t happen here
Point is, it only looks bad if you look at a very specific period of time.
ok but your comment isn’t related to this particular case
It was only able to post a $409 million profit in the quarter thanks to the sale of $595 million worth of regulatory credits to other automakers.
Without the regulatory credits, and capital gains Tesla would be $500 million in the red.
And sales continue to drop in all markets. Tesla is no longer competitive in China and EU, only in USA due to tariffs on cars.
A couple of years ago Tesla boasted the highest margins in the industry on their cars, now they are so low, that if prices continue to drop, Tesla will soon be at s deficit on every car sold if they try to follow, or if they don’t reduce prices, their cars will simply be too expensive. Damned if you do, damned if you don’t.Maybe they will get bailed out like the airlines did though. I want to see them burn, but nothing seems to work the way it’s supposed to anymore.
Airlines run on paper-thin margins and are critical to the economy and country as a whole. Yeah, we kinda have to keep them afloat. Tesla does not enjoy that sort of role.
Afloat. An airline.
I’m already out.
What about Aeroflot?
Or instead of trying to keep Airlines’s from sinking, we could invest in intercity rail, so there would be travel options. Imagine having a choice
Funniest thing about Tesla was the idea they’d make evs more economical and realible after starting in the luxury space. They did exactly the opposite and now shareholders are paying dearly.
It also wants to end the right of California and eight other states to demand tougher emissions regulations than the federal standards that would ban the sale of gasoline-powered vehicles by 2035. Without tough emissions rules at the federal and state level, there would be no regulatory credit sales.
The sale of those federal and state credits has been quite lucrative for Tesla, bringing in $8.4 billion in revenue since the start of 2021 alone, money that basically went straight to its bottom line.
Is this the greenwashing scam companies use to pretend that they are working toward a carbon-neutral production line? They’re just speculating on future production and selling today’s emissions to today’s buyers on tomorrow’s promise?
How fucked.
Technically it’s the intended result. It helped fund one or more purely EV manufacturers for the future. Legacy companies chose not to invest n new technology for the longest time, but had to pay the price. At some point that price is too high but the innovators are awarded and the technology has become cheaper, so the surviving legacy manufacturers can adopt it. Ts a good thing that it helped fund a successful EV manufacturer by penalizing the laggards. That was the goal
The only real failure is the credits were apparently too cheap since legacy manufacturers still had to be forced, and are still regressing the first chance they get
What happened to moving the choice to the states?
An Enron-like Tesla documentary is coming.
I think it’ll be more of an Enron slash Theranos docudrama… questionable accounting and overvaluation mixed with a superstar CEO stuck in a faking-it-till-you-make-it corporate death loop with investors drunk on hype.
Weren’t they selling like 3000 cars a day at every single dealership in Canada? Seems like sales should be fine.
Funny how now they are making money selling regulatory credits. Lol
I think your comment is misunderstood.
The 3000 cars a day were just for a few days before the government credits were set to expire.
Yeah some people don’t get sarcasm.
Anyway I think musk took the Canadian credits and smuggled them across the border without paying tariffs so he could then sell them as US regulatory credits. It all makes sense now.
Without the /s, it could have been a standard Muskie comment. Hard to tell online.
Because they weren’t selling 3000 a day. They were selling a huge number a minute, one day (maybe a couple).
I’m often stunned that internet people take everything a face value, even an obvious post like yours. OTOH, Americans’ read at an average of 7th-8th grade levels. Go figure.
