Troubling Signs for Tesla (TSLA): Is the Era of EVs Coming to an End?

Troubling Signs for Tesla (TSLA): Is the Era of EVs Coming to an End?

Posted On November 10, 2023 8:57 am

Hertz, a rental car company, once envisioned itself as the ultimate EV broker, offering battery-powered vehicles to ride-hail drivers, business travelers, and tech newbies in an ambitious plan to capitalize on the EV revolution. The company signed deals with the world’s leading automaker,Tesla, Inc. (TSLA) and the Swedish EV startup Polestar to purchase more than 200,000 EVs.

However, the company’s IEV plans are running into some challenges Last week, Hertz stated that the declining resale value of its EVs and higher repair costs are forcing it to put brakes on its EV rollout.

TSLA has been rapidly slashing its prices to boost sales as it struggles with weakened demand and heightened competition. The price cuts have further lowered the resale value of the EVs in Hertz’s fleet by nearly one-third. Also, repair costs have been higher than anticipated, almost double what the company pays to repair gasoline cars, CEO Stephen Scherr said in an interview with Bloomberg.

A part of the problem concerns Hertz’s plans to rent EVs to ride-hail drivers. Of the 100,000 Tesla vehicles acquired by Hertz, almost half were to be allocated to Uber drivers as part of an agreement with the ride-hail company. As Uber drivers tend to drive their vehicles into the ground, the higher utilization rate can lead to more damage than Hertz expected.

Hertz will slow the pace of buying EVs while it learns how to manage costs, Scherr added.

This news, coupled with several other headwinds, hints at the bearish sentiment surrounding TSLA lately. Shares of the electric vehicle maker have plunged more than 11% over the past month.

Now, let’s review in detail what has happened in the past few months and discuss several factors that could impact TSLA’s performance in the near term:

Deteriorating Financial Performance

For the third quarter that ended September 30, 2023, TSLA reported revenue of $23.35 billion, missing analysts’ expectations of $24.14 billion. The company’s gross profit declined 22.4% from the year-ago value to $4.18 billion. Its operating expenses increased 42.5% year-over-year to $2.41 billion. Its income from operations was $1.76 billion, down 52.2% year-over-year.

Furthermore, the automaker’s adjusted EBITDA decreased 24.4% from the prior year’s quarter to $3.76 billion. Its adjusted net income attributable to common stockholders came in at $2.32 billion, a decline of 36.6% year-over-year. The company posted an adjusted EPS of $0.66, below the consensus estimate of $0.73. This compared to $1.05 a year ago.

TSLA’s net cash provided by operating activities was $3.31 billion, down 35.1% from the previous year’s quarter. Also, the company’s free cash flow declined 74.3% year-over-year to $848 million.

Misses on Quarterly Delivery Expectations

Tesla missed market estimates for third-quarter deliveries due to production constraints caused by planned factory shutdowns. TSLA’s total deliveries dropped 6.7% sequentially and 35.6% year-over-year to 435,059 vehicles in the third quarter. The company’s deliveries missed analysts’ estimate of 461,640.

Further, the company reported total vehicle production of…

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