Tesla reported first quarter deliveries of 337k, down 13% y/y. This result missed even the already-reduced whisper estimate of an 8% decline, marking one of the weakest quarters in recent memory. The company produced 363k vehicles during the quarter, meaning production outpaced deliveries by about 8% — a dynamic that has historically been typical for Tesla’s March results.

Still, the steep decline in deliveries — particularly against a broader EV market that we estimate grew 10% y/y globally — is a red flag. The company cited the Model Y refresh as a contributing factor, noting several weeks of lost production. However, that production disruption didn’t fully explain the scale of the miss. In the deliveries press release, the company noted,

“While the changeover of Model Y lines across all four of our factories led to the loss of several weeks of production in Q1, the ramp of the New Model Y continues to go well.”

I estimate brand damage cost Tesla around 80k deliveries in the quarter. This is based on the assumption that Tesla would have grown at least in line with the overall EV market in March, which was up 10% y/y. I believe roughly 90% of the shortfall was due to brand-related issues, with the remaining 10% attributed to the Model Y refresh transition. While it caused temporary disruption in production, discounts of roughly 10% on outgoing Model Ys likely offset the impact of the production change over.

Shares of TSLA were initially down 5% in the pre-market following the release of disappointing delivery numbers. CY25 will be a difficult year as the company navigates brand damage, macro uncertainty, and an intensified investment phase.

However, shares rallied back throughout the day, ending up over 5%, on reports that Elon will be stepping down from his post at DOGE — likely by the end of May — and refocusing his attention on Tesla. This helped boost investor confidence that the brand damage chapter may be nearing an end over the next several quarters.

In light of the Q1 results, we have lowered our CY25 delivery outlook. Prior to the March deliveries, we expected a 5% y/y decline, with 1.7m vehicles delivered. That has now been lowered to 1.63m, or a 9% y/y decline.

We believe June deliveries will be worse than March’s, down 15% y/y as the aforementioned headwinds continue before seeing a slight improvement in September. Our projected delivery growth (or decline) by quarter is as follows:

• Q1: -13%
• Q2: -15%
• Q3: -10%
• Q4: 0%

While the second half of the year is expected to stabilize somewhat, the damage from early 2025 is significant enough to weigh down the entire year’s numbers.

As for CY25 earnings, I expect the weaker delivery figures to ripple through Tesla’s earnings. For 2025, I estimate non-GAAP EPS will now be at $2.00, well below the Street consensus of $2.74. That gap reflects reduced fixed cost absorption, increased discounting, and slower operating leverage.

We are anticipating a major rebound year for deliveries in 2026, growing 35% y/y. This may seem absurd, but here’s the math on how it works. As stated above, we are expecting 1.63m deliveries for CY25. For perspective, at this time last year (beginning of April 2024), Street estimates for CY25 deliveries were at 2.35m. A 35% increase in CY26 on 1.63m deliveries gets us to 2.20m — still 6% below the previously expected CY25 number.

Much of the rebound will be driven by a recovering brand, renewed EV demand, and the anticipated launch of a lower-priced vehicle platform. Here’s how we see delivery growth by quarter:

• Q1: 26%
• Q2: 53%
• Q3: 45%
• Q4: 19%

In terms of earnings, we expect higher vehicle volumes will drive improvements in Auto Gross Margins Ex Credits. Combining 35% revenue growth with 16–18% Auto Gross Margins Ex Credits lands us comfortably in the $3.00–3.25 EPS range for CY26 — still below the Street’s $3.76. The bottom line is that, based on our margin assumptions, Tesla is still making money through this transitionary and investment-heavy period. As an added reassurance to investors, Tesla finished CY24 with $37B in cash, cash equivalents, and investments.

We’re buckled up for a difficult CY25, driven by a vortex of negative forces: lingering brand damage, slower-than-expected EV sales growth, the potential for a recession, and continued aggressive investment in the business.

This challenging outlook is likely to add volatility to TSLA shares, especially given the stock still trades at 120x our non-GAAP CY25 EPS estimate and 80x CY26.

Our long-term confidence remains intact. We fundamentally believe the future of transportation is electric and autonomous, with robotics playing an increasingly important role in everyday life. Tesla’s investment thesis hinges on long-term bets: the successful development of autonomy and breakthroughs in robotics. Simply put, Tesla is overvalued if viewed solely as a car company. The upside lies in the expectation that it will solve autonomy — achieving unsupervised FSD and enabling robotaxis — and that Optimus will become commercially viable.

That said, I remain bullish on Tesla’s ability to deliver in these areas. The path forward starts with reaccelerating deliveries. CY26’s growth should set the tone for the years to follow, and I believe EV adoption will continue gaining momentum — especially as Tesla introduces more affordable models.

Disclaimer