Tesla (TSLA, Financial) is seeing a stock surge after reporting predictably weak 1Q25 results due to declining global EV demand, market share losses in China, and ongoing ASP/margin compression. Despite a 40% stock drop since the Q4 earnings report, the market views Q1 as a "trough quarter," shifting focus to 2H25 and beyond. Elon Musk anticipates limiting his government work to 1-2 days per week, signaling stronger growth prospects ahead.
Q1 deliveries fell 13% year-over-year to 336,681 vehicles, leading to a 20% drop in automotive revenue to $13.97 million, missing expectations. This decline was driven by reduced deliveries and a significant drop in ASPs, likely in the high single-digit to low double-digit percentage range.
Tesla's current vehicle lineup lacks affordable models, forcing the company to lower prices to maintain market share, resulting in a 40% year-over-year EPS decline to $0.27 and a 110-bps contraction in gross margin to 16.3%.
The Energy Generation and Storage business remains a bright spot, with revenue growth of 67% to $2.73 billion, fueled by a 154% surge in energy storage deployments. The U.S. continues to be the largest market for Tesla's energy storage revenue.
Supporting the stock is Musk's positive commentary on autonomous driving, new vehicle launches, and Optimus humanoid robots. Musk expects fully autonomous rides in Austin, Texas by June, with substantial financial impacts by mid-2026. While the Cybercab business faces execution and regulatory risks, it presents a significant revenue opportunity, potentially reaching $20-$30 billion or more.
Production of more affordable Model Y and Model 3 versions has been delayed, disappointing investors. However, Musk remains committed to launching new vehicles, with U.S. production of the low-cost Model Y slated for between 3Q25 and early 2026, and the stripped-down Model 3 version potentially beginning production in 1H25.
Tesla's weak 1Q25 results highlight challenges such as demand headwinds, market share losses, and margin compression. Despite this, the company's long-term innovation pipeline, strong balance sheet, and Musk's optimistic outlook for 2H25 and beyond have spurred a sharp stock rebound as investors focus on future growth catalysts.