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Tesla Suffered a $2 Billion Cash Drain in Q1 2024 Due To Elevated Inventory

Tesla Suffered a $2 Billion Cash Drain in Q1 2024 Due To Elevated Inventory

The author does not provide investment advice and does not hold any positions in the mentioned stocks.

Despite being named the “most hated among the Magnificent 7″by analysts due to missing Wall Street’s expectations for quarterly deliveries by a wide margin, Tesla (NASDAQ: TSLA) shares have reached a low point for the year, down approximately 33 percent. However, a closer examination of Tesla’s quarterly delivery numbers reveals a potential for cautious optimism.

Tesla’s Financial Struggles: A Quarter to Forget

As mentioned in a previous post today, Tesla has reported that it delivered 386,810 units in Q1 2024, while producing 433,371 units. This marks the first decrease in quarterly deliveries compared to the previous year since the pandemic-induced chaos in Q2 2020. It also represents the largest deviation from analysts’ consensus expectations on record. For comparison, analysts had predicted Tesla to deliver 431,125 units in the most recent quarter, resulting in a 10.3 percent difference from the actual figures. This also signifies an 8.5 percent decline in Tesla’s quarterly deliveries year-over-year.

Unfortunately, the negative update does not stop there. In the first quarter of 2024, Tesla’s inventory skyrocketed by 46,561 units, resulting in a significant decrease of approximately $2.03 billion in cash flow.

Despite the fact that many individuals were quick to point out the disruptive events, it is worth noting that these occurrences primarily affect Tesla’s production capability and do not provide an explanation for the record-breaking increase in the company’s inventory. This strongly suggests that there may be an underlying issue with demand for the electric vehicle company.

Driving Success: High Demand for New Models

Despite the disappointing news, there is a glimmer of hope. Even BYD – widely considered Tesla’s strongest competitor in the Chinese market – also experienced a rough first quarter with only 300,114 deliveries recorded, marking a significant 43 percent decline from the previous quarter. This suggests that larger external factors are influencing the performance of both companies.

However, there is even more to the story. The recently announced SU7 electric vehicle by Xiaomi, priced at approximately $30,000, has completely sold out for the entire year within just 24 hours! This is particularly impressive considering that Xiaomi plans to manufacture 90,000 units of the SU7 in 2021. This clearly indicates a high demand for modern and eye-catching models in the market. This is good news for Tesla’s upcoming Model 3 Highland and Cybertruck, both of which are expected to enter mass production in 2025.

Tesla TTM P/S Ratio Sourced from YCharts

Despite the recent decline in the stock market, Tesla’s TTM P/S ratio is currently 5.40x, which is relatively attractive compared to past valuations.

To regain solid footing, Tesla must continue to prioritize the following aspects moving forward:

  1. Ensure a speedy rollout of the Model 3 Highland
  2. Try to achieve volume production of the Cybertruck on a war footing
  3. Increase its ad spending

Currently, Tesla’s stocks have decreased by 5 percent and are being traded at a price of $166.30.

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