TSLA is the first of the portfolio companies to report Q1 2025 results. Since the last company in the portfolio isn’t expected to report its Q1 results until early June, I’ll share my thoughts about TSLA’s Q1 results here.
TSLA (reported results on 22Apr)
TSLA was the first portfolio company to report results this earnings cycle. The results for Tesla’s existing auto line up were not good by every measurable metric. Sales, deliveries, and margins were all down. Net income was down a staggering 71%. There were two main reasons for the weakness. First, TSLA introduced the new, refreshed, and improved Model Y. This switchover caused disruption while all four factories (Shanghai, Berlin, Fremont, and Austin) switched their production lines from the old Model Y to the new Model Y. TSLA said that production of the old Model Y continued well into February and that the switchover is now complete. In addition, the Company said that all inventory of the old Model Y was successfully sold old. This transition was quite impressive especially since the old Model Y was the best worldwide selling car in 2024. Not only was production during Q1 2025 massively disrupted, but many customers must have decided to delay purchase of a Model Y because the new Model Y version has some significant improvements which undoubtedly caused interested purchasers to delay buying. If this switchover were the only reason for the weak Q1, I would not at all be concerned.
The second reason for weakness was brand damage. Brand damage was acknowledged by management on the earnings call. The cause of brand damage, in addition to being obvious, was also acknowledged by management: Elon’s unwavering political support of President Trump and his efforts in slashing government spending. With respect to TSLA, Elon’s efforts and outspoken opinions in the political realm are a massive unforced error. It has tainted a brand that previously had such a positive image, so much so that TSLA didn’t need to advertise its vehicles to achieve high sales and marketshare. In fact, TSLA’s Model Y even achieved the status of the best-selling car in the world. What’s even worse is that TSLA’s loyal customers were more left-leaning on the political spectrum; many Telsa customers care about climate change and the environment, and many of them now find it hard to stomach that Elon supports President Trump who has taken a position of climate change denier. The outrage against Elon’s actions and outspoken opinions is no small thing. One of my friends who sold his Model Y during Q1 labeled his car as the “4th Reich car”. Another friend is also planning on selling her Model Y soon. I was planning on purchasing the new Model Y during 2025 to replace my 2014 BMW, but I’ve now placed this plan on hold. I’m generally not a partisan or political person, and my decision not to buy a Tesla at this time has to do with the potential for vandalism; while I think the new Model Y is the best available car for me, I really don’t need a brand new car that comes with the worry of vandalism. The brand damage is very real, and it is also 100% due to Elon’s direct actions and public comments and opinions. None of the CEOs of my other portfolio companies have a CEO who is actively engaged in efforts that directly damage their companies. On the earnings call, Elon stated that starting in May (2025) he intends to cut back on his DOGE efforts and spend more time on running TSLA. He elaborated that cutting back on DOGE means that he will only spend 40% of his time on DOGE but that he sees this effort continuing through the end of President Trump’s term. In order words, while Elon will spend more effort on TSLA, he will continue to do brand damage to TSLA through at least January 2029.
At the end of February, TSLA was a very large allocation position in the portfolio. I have since sold all of the shares but retained the call options. Selling all the shares was 100% due Elon’s brand damaging actions. One might ask why I would keep any position at all. TSLA’s value has been and continues to be all about the future of autonomy, first in cars and now in cars plus humanoid robots. I still believe that TSLA will soon achieve autonomy for transportation. Management reaffirmed that the Company expects robotaxis on the roads of Austin, TX in June 2025. The plan there is progressing on track with no delays announced just two months before the June robotaxi launch goal. In addition, TSLA has made regulatory progress with FSD. In the United States, the Secretary of Transportation, Sean Duffy, announced on Thursday (24April) that the National Highway Traffic Safety Administration (NHTSA) has set a new framework for Automated Vehicles; this is a step in the direction of paving the way for regulatory approval of AVs for commercial and personal use. In February, TSLA launched supervised FSD in China for owners of HW4 cars. China has since placed some additional restrictions on software that assists with driving. In Europe, TSLA is still awaiting approval to begin testing but believes that FSD (Supervised) will be available in some countries before the end of 2025. There have recently been reports that FSD (Supervised) is already being tested within Norway. Thus, the reason for holding TSLA remains that FSD is still under appreciated and should unlock value for the shares.
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