Tesla reports their 1st quarter deliveries on Wednesday morning, April 2nd. We think the Street has the right whisper number for Wednesday at 355k, which would be down 8% y/y. The in print number calls for 378k, which would be down 2% y/y. As a point of reference, the Street was at 470k in November 2024, meaning the whisper numbers have come down 25% in 5 months.

This decline can be attributed to two main factors. First, Tesla has faced some level of brand damage as a result from Elon’s DOGE efforts. The Tesla brand has unintentionally become a political statement.

Second, Tesla has been retooling the Model Y. The new Model Y has delayed the overall supply of vehicles for the quarter, also attributing the decline.

Although we believe the rest of CY25 will improve from this quarter, CY25 will be a transitional year.

CY25 Revenue: We believe deliveries (auto is 80% of sales) in CY25 will be down 5% y/y, versus the Street at up 3%. Our flat revenue projection is attributed to the smaller (10% of revenue) but high-growth (~45%) energy business.

We believe the biggest impact on auto revenue in March was brand damage, and that headwind will continue in part for the balance of CY25. Second, the company has been offering attractive incentives on older Model Y vehicles in inventory. Discounted purchasing prices and lower financing terms have helped stimulate demand and clear out existing stock ahead of the refreshed Model Y (new version started shipping in January). This causes the ASP (average selling price) to decrease, meaning less revenue per vehicle.

CY25 Energy (10% of sales): Additionally, Tesla’s Energy Generation and Storage segment accounts for 10% of the overall business. While vehicle deliveries decline y/y in the near-term, Energy has been growing at over 50% for the past 3 years, on average. We believe Energy will grow at +45% this year, zeroing-out the revenue decline caused by the deliveries slump. (Services is the other 10% of revenue.)

CY26 Revenue: We expect revenue to be up 35% y/y in CY26 due to the availability of more affordable models and an easing brand headwind. On Tesla’s last earnings call for the Dec-24 quarter, Elon reiterated the availability of a more affordable model in the first half of 2025. We believe we will see the impact of a lower-cost Tesla vehicle and brand improvement in 2026.

“We will be introducing several new products throughout 2025. We are still on track to launch a more affordable model in the first half of 2025 and will continue to expand our lineup from there. From a dollar-for-dollar basis, we believe we have the most compelling lineup today compared to the industry, and it will continue to get better from there.” – Elon Musk, Jan 29, 2025

For context on CY25 and CY26 earnings, it’s helpful to look back to CY24. Non-GAAP EPS for CY24 was $2.42, down 22% from $3.12 in CY23, while revenue rose 1%. How did this happen? Tesla’s all-important metric: Auto Gross Margins Ex Credits fell from 18% in CY23 to 15% in CY24. Reduced ASPs on vehicles and entering into an investment period (retooling, automation, new models, etc.) has squeezed these margins and will likely continue through this year.

CY25 Earnings: We expect Auto Gross Margins Ex Credits for CY25 to decline to 12%, from 15% in CY24. While this decline may seem small, given the company’s fixed cost nature, fractional changes (in both the positive and negative direction) to gross margin can have an outsized impact on earnings, which caused us to lower our CY25 EPS estimate to $2.00-$2.20, versus the Street’s $2.74.

CY26 Earnings: For CY26, we expect both revenue and earnings to accelerate. On the revenue side, the company will benefit from availability of a lower priced model, as well as an improving brand given the current Elon narrative will likely start to retreat. As for earnings, we expect higher vehicle volumes will result in improving Auto Gross Margins Ex Credits. Combining 35% revenue growth with 16-18% Auto Gross Margins Ex Credits, lands us comfortably in the $3.00–3.40 EPS range for CY26, still below the Street’s $3.76.

The bottom line is based on our Auto Gross Margins Ex Credits assumptions, Tesla is still making money through this transitionary and investment period. As an added reassurance to investors, Tesla finished CY24 with $37B in cash and cash equivalents and investments.

We’re buckled up for a difficult CY25 based on a vortex of negative events, including navigating brand damage, EV sales growing at a slower pace, potential for a recession, and aggressive investments in the business.

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

Our long-term confidence remains unchanged based on a fundamental belief that cars should be electric and autonomous, along with robotics playing a bigger role in our lives. That view lands Tesla in a prime position to benefit from where the world is going.

Disclaimer