Tesla (TSLA) is one of the most popular stocks among retail investors. While the company always gets outsized attention, its Q1 2025 earnings, which were released yesterday, April 22, after the close of markets, were particularly eagerly awaited.
The earnings came with the backdrop of an over-41% YTD drawdown in TSLA stock, which made it the worst-performing “Magnificent 7” stock ahead of its quarterly confessional. Moreover, Tesla has been in focus due to CEO Elon Musk’s close association with President Donald Trump. Musk is an advisor to Trump and heads the Department of Government Efficiency (DOGE), which advises the president on cutting excess government expenditure.
Tesla Misses Q1 Earnings Estimates
Investors weren’t exactly expecting fireworks from Tesla’s Q1 2025 earnings, but the actual results turned out to be far worse than expected, with revenues falling 9% year-over-year to $19.34 billion. Moreover, Tesla’s automotive revenues fell 20% YOY, led by a 13% drop in deliveries.
Its GAAP net income fell to just $409 million, which was 71% lower than the corresponding quarter last year. Importantly, if not for regulatory credits of $595 million, Tesla would have posted a GAAP loss in the quarter. These credits have helped pure-play EV makers like Rivian (RIVN) and Tesla at the cost of legacy automakers, who have been slow with their electric vehicle (EV) ramp-ups. While there were fears that Trump, who vowed to end the “EV mandate” on the first day of his presidency, would do away with these regulatory credits, they have remained in place.
As for guidance, Tesla refrained from revising its previous guidance that it provided during Q4 2024 earnings, where it forecast “vehicle business to return to growth in 2025.” It instead pushed the can down the road by saying, "We will revisit our 2025 guidance in our Q2 update.”
Musk Admits Tesla Is Facing Challenges
During the Q1 earnings call, Musk acknowledged that the company is facing several challenges. He, however, stressed, “We’re not on the ragged edge of death, not even close. So there are some challenges, and I expect that this year will be – there’ll probably be some unexpected bumps this year.”
Meanwhile, in a typical “Musk way,” the billionaire painted a bullish long-term story for Tesla. These include predicting Tesla eventually becoming the world’s biggest company, which is as valuable as the next five companies combined.
Musk further said that the volumes of its Optimus humanoid could rise to 1 million units annually as soon as 2029. As for the robotaxi business, he criticized Alphabet-backed Waymo (GOOG) for the high cost of its vehicles and said that Tesla could command a “99% market share or something ridiculous” in the U.S. robotaxi market.
Musk Will Step Back from His DOGE Responsibilities
Overall, Tesla’s Q1 earnings report was a disappointment – a possibility I discussed in my pre-earnings coverage of the company. However, the stock is in the green today for two main reasons. Firstly, Trump’s comments that he has “no intention” of firing Federal Reserve Chair Jerome Powell, coupled with reassuring comments on U.S.-China trade tensions by Treasury Secretary Scott Bessent, who foresees a “de-escalation,” have led to a broader market rally.
Secondly, Musk’s comments about spending “far more” of his time at Tesla and stepping back from his role at DOGE in the next month, helped calm nerves. Incidentally, reports of Musk leaving DOGE popped up around the time Tesla released its Q1 deliveries as well. These reports helped buoy sentiments despite Tesla reporting a far worse-than-expected 13% yearly drop in deliveries.
Is Tesla Stock a Buy as Musk Steps Back from DOGE?
To be sure, Musk stepping back from DOGE to focus on Tesla is a positive development for Tesla shareholders who perhaps deserve more time commitment from the billionaire CEO. Moreover, it is becoming apparent that Musk’s political activities are hurting Tesla’s sales as well as its brand.
Musk's return to the steering wheel would be a good start. Tesla still needs some deft maneuvering to restore investor confidence, as many questions were left unanswered during the earnings call. These include more clarity on the 2025 delivery outlook, competition from Chinese automakers, and Tesla’s long-awaited unsupervised full self-driving (FSD) release.
Overall, while Musk spending more time at Tesla could help buoy sentiment as the company navigates a difficult macroeconomic and competitive environment, I am still not sold on the stock’s near-term outlook, even as I continue to hold some shares. Musk’s intention to spend more time at Tesla is a late acknowledgment of the company’s troubles, and while I agree with Musk on the current situation not being a “near death” experience, the company’s short-term outlook hasn’t been this uncertain in years.
On the date of publication, Mohit Oberoi had a position in: TSLA , GOOG , RIVN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
