Supply Chain Matters provides key highlights and added supply chain and production perspectives on Tesla’s recent report of Q1-2024 financial performance.

 

Dismal Quarterly Performance

After reporting rather disappointing electric vehicle deliveries and production performance during the first quarter, this week’s report on financial performance was equally concerning.  In its reporting, The Wall Street Journal characterized this performance as dismal.

Financial headlines included quarterly total revenue declining 9 percent to $21.3 billion. Net income declined 55 percent to $1.1 billion, a reflection of increased price discounting and a building inventory of unsold vehicles. In the latter category, global vehicle inventory expressed in days of supply was reported as 28 days, compared to 15 days in the year-earlier quarter.

Operating margin reportedly declined to 5.5 percent compared to 11.4 percent in the year-earlier quarter. Auto related revenues declined 13 percent in the quarter.

This report comes after the company reported an upwards of ten percent reduction in its global workforce, along with the departure of two rather significant executives, and a revised vehicle development strategy for the coming year.

Calling of an Audible

We can best represent our reaction to Tesla’s recent events in an athletic analogy, namely the head coach calling an audible when the results of the game are becoming rather tenuous.

As noted in our commentary of the workforce reduction, there were strong indications that founder Elon Musk was placing near-term development of a robotaxi model as a high priority.

Leading up to this week’s formal reporting, Wall Street media had indicated that existing investors were becoming super concerned with the robotaxi vehicle strategy as a means to boost vehicle demand, causing the company’s stock to be in a near free fall.

The best descriptor of what has occurred comes from a report by Bloomberg titled: Tesla Speeds Cheaper EV Plans, Calming Fears Over Strategy.

The audible was reportedly a vow “to launch less-expensive vehicles as soon as late this year, easing concerns about disappointing earnings results and diminished growth prospects.

What Musk has now indicated is that the company will accelerate new model development utilizing some aspects of a next generation platform slated for production in the latter half of this year.

Bloomberg had separately reported that the next generation project had morphed into an effort to “wring cost reductions out of components and production methods, then apply those innovations to cheaper iterations of the Model Y and Model 3, the company’s two most popular EV’s.

Further added is that the revised next generation new models will be aimed at production among Tesla’s existing global production facilities vs. planned new facilities.

The immediate result of these added developments has reportedly precipitated a bounce back in the company’s share prices and perhaps a temporary sigh of relief.

 

Added Supply Chain Perspectives

Since our readership provides a focus on product management, production and supply chain management business process needs, there are obviously a lot of implications related to these latest product development strategy changes.

To cite just a few, turning to key suppliers for added cost reductions in components presents complexities when the company has already indicated that overall vehicle output is not expected to increase in 2024. Suppliers have their own product margin challenges, and with existing EV plug-in industry vehicle demand decreasing, and with price discount declines continuing, suppliers are going to be somewhat wary about supporting added component price declines without added commitments to assured volumes.

Tesla has further just announced another set of vehicle price reductions associated with China, Europe and the U.S. market. That adds to competitive and profitability pressures as other global EV producers follow with their own reductions, especially China based producers. The latter are already demonstrating a propensity to aggressively increase vehicle exports to other key markets leveraging a lowest cost advantage.

Tesla has further lost a number of key executives related to vehicle development and  engineering.  That includes 18 year veteran Drew Baglino, the head of powertrain and energy engineering and Rohan Patel, the head of policy and business development. In August last year, Powertrain Engineering head Colin Campbell, a 17 year veteran departed, as did former CFO Zach Kirkhorn, noted as being the de-facto Chief Operations Officer.

And finally, the Tesla Cybertruck is presenting added challenges in design, production and customer delivery output. Buyers are reportedly confused by a current halt in vehicle deliveries, reportedly due to what is believed to be issues related to the vehicle’s accelerator becoming stuck. The overall production process has been reported as being rather challenging.

All of these collective challenges and strategy pivot implications are bound to provide added challenges for this EV maker’s internal production and supply management teams, and for the supplier network in general.

And least we mention in concluding that Bloomberg in its reporting indicated that Tesla’s head of investor relations, the spokesperson to Wall Street analysts, indicated on the earnings call that he will be departing the company.

 

Bob Ferrari

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