Tesla's financial position is disappointing: what's going on?

Tesla has been the worst performer in the S&P 500 stock index this year – but what’s going on?

Elon Musk’s many business interests are demonstrating a mixed bag of results. X, the social media company formerly known as Twitter, is struggling to maintain its relevance in the market as people abandon the platform as it slowly degrades in quality.

On the flip side, xAI, Musk’s AI company, set up to compete with OpenAI, is rumored to be closing a $6 billion funding round that would value it at an eye-watering $18 billion.

But it’s Tesla that is proving the most curious case of them all. Earlier this month, Musk’s electric vehicle company announced its first-quarter earnings, which were hugely disappointing. “Tesla delivered a rip the band-aid off first quarter, and disaster results that were well expected by the Street after a brutal delivery quarter as demand softened globally,” says Dan Ives, managing director and senior equity research analyst at Wedbush Securities.

At the same time, the company has laid off 10% of its workforce, with Musk reportedly angling to lay off 10% more. Executives are departing the company at an alarming rate, and in the first three months of the year, net income at the company dropped 55%.

Underwhelming sales

One reason behind Tesla’s disappointing financial position is that it’s simply not able to ship cars to customers – or rather, they’re not willing to buy them.

Tesla encountered a quarter-on-quarter decline in deliveries for the first time in four years in the first three months of 2024, in contrast to analysts’ expectations. As a result, profit margins have nearly halved, from 29.1% in 2022 to 17.4%.

“Clearly, Tesla is going through a challenging period of delivery growth, and this story will not turn around overnight, so patience is required,” says Ives.

The problem is that some of Tesla’s shareholders are worried that – typically for a company that offers self-driving vehicle technology – Musk’s eyes aren’t on the road ahead, and his hands are off the wheel.

A series of shareholders wrote an open letter to the firm in mid-April saying that Musk was too distracted with his other business interests to run the company efficiently.

“We each initially added Tesla to our portfolios because we saw Tesla as a true leader in producing products and services essential for our transition to a sustainable and green economy,” the letter said. “Over time, however, we have grown increasingly concerned with governance and leadership issues at the company.”

What can be done?

The shareholders behind the latter only own a tiny fraction of the company’s stock – although they have $1.5 billion or more of shares, that’s still less than 1%. But they hit upon a key flaw that many see in Tesla.

“Tesla needs a board that will ensure that the CEO is focused on addressing its challenges,” the disgruntled shareholders wrote. “Due to the board’s failure to restrict the CEO’s outside commitments and ensure he is focused on solving the many challenges the company faces, we have lost confidence in its members.”

At a time when competition in the EV market is hotting up, it’s important that the CEO of the brand is looking at maintaining its dominant position in the market and pushing for new innovations, keeping interest high in EVs at a time when demand is softening.

The challenge is that all require a full-time CEO who is fully committed to the cause. And at least some of those financially supporting Tesla believe that Musk is busy with too many other projects to be able to devote the time and effort required to bring the company back to an even footing.