Despite a miss on earnings, the Tesla shares surge was seen up to 20% to $164.00 within hours of the results being announced on Tuesday after the company said it would accelerate the launch of more affordable vehicles, countering reports earlier this month the company would scrap these plans.

Tesla Q1 revenue declines

Tesla reported a 9% decline in Q1 revenue on Tuesday, the biggest drop since 2012, and it also missed analysts’ estimates, as the electric vehicle company weathers the effect of ongoing price cuts.

A surge in Tesla shares were seen in extended trading after CEO Elon Musk told investors that production of new affordable EV models could begin sooner than expected.

Tesla earnings

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

Tesla earnings per share: 45 cents adjusted vs. 51 cents expected

Tesla revenue: $21.30 billion vs. $22.15 billion expected

Revenue declined from $23.33 billion a year earlier and from $25.17 billion in the fourth quarter. Net income dropped 55% to $1.13 billion, or 34 cents a share, from $2.51 billion, or 73 cents a share, a year ago.

Capital expenditures rose to $2.77 billion, up 34% from a year earlier.

Free cash flow turned negative in the quarter, with the company reporting a deficit of $2.53 billion. A year ago, Tesla reported free cash flow of $441 million, a number that reached $2.06 billion in the fourth quarter. Tesla attributed the negative figure to a $2.7 billion buildup in inventory and $1 billion in capital expenditures on “AI infrastructure.”

Revenue in Tesla’s energy division increased 7% to $1.64 billion, while services and other revenue rose 25% to $2.29 billion compared to the same period last year.

Sales drop of Tesla

The drop in sales was even steeper than the company’s last decline in 2020, which was due to disrupted production during the Covid-19 pandemic. Tesla’s automotive revenue declined 13% year over year to $17.38 billion in the first three months of 2024.

Tesla Model 2 launch,

Musk said on the call that the company plans to start production of new models in “early 2025, if not late this year,” after previously expecting to begin in the second half of 2025. Musk also touted Tesla’s investments in artificial intelligence infrastructure, and said the company is in talks with “one major automaker” to license its driver assistance system, which is marketed in the U.S. as the Full Self-Driving, or FSD, option.

In its shareholder deck, Tesla reiterated a pessimistic outlook for 2024, telling investors that “volume growth rate may be notably lower than the growth rate achieved in 2023.”

Tesla shares

Prior to the surge in shares after hours, Tesla shares were down more than 40% this year, reaching their lowest since January 2023, on concerns about weak deliveries, competition in China and the company’s ongoing price cuts.

Earlier this month, Tesla reported an 8.5% year-over-year decline in vehicle deliveries for the first quarter.

Slow EV sale

Sales growth across EVs is slowing, and Tesla and key rivals have been slashing EV prices to try to spur demand. Tesla’s gross profits plummeted 18% in the first quarter, partly due to price cuts this year.

After discussing operational challenges in the first quarter, including Red Sea supply chain disruptions, Musk said on the call that, “We think Q2 will be a lot better.”

Tesla said total sales included revenue from earlier sales of its FSD option. The release of a feature called Autopark in North America allowed the company to recognize the deferred revenue.

Restructuring at Tesla

Tesla embarked on a massive restructuring this month, with two executives, Drew Baglino and Rohan Patel, resigning. Musk said last week in a memo that the automaker was cutting more than 10% of its global workforce.

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