Tesla (TSLA 5.46%) stock slid 3.3% through 12:50 p.m. ET Monday on disturbing news. First, Bloomberg reported today that CEO Elon Musk, who announced layoffs of 10% of Tesla's workforce last week, actually wanted to lay off 20% of the employees to match the sequential decline in Tesla's shipments between the fourth quarter of 2023 and the first quarter 2024.
Second, Piper Sandler says there's a good reason that shipments declined: Simply put, "Tesla's production capacity has outstripped demand."
NASDAQ: TSLA
Key Data Points
Tesla's biggest problem
Now, the fact that demand for electric cars has been slowing is not really news. Still, the contraction in demand for Teslas is shocking. The 386,810 EVs that Tesla shipped in Q1 represented a 20.1% sequential decline, and Piper notes this slack demand affected "essentially all [Tesla] models, in all global regions."
On the one hand, Tesla is cutting prices to spur demand and fix this problem. On the other hand, Piper says that Tesla cutting prices is a "clear indicator" that Tesla has a demand problem on its hands -- not a supply problem.
Even worse is the demand problem with Tesla's full self-driving automotive software. Piper notes Tesla cut its FSD price from $12,000 to $8,000 Saturday. And because software margins are much higher than hardware margins, this price cut is "even more material to Tesla's earnings potential," warns the analyst.
Is Tesla stock a sell?
He's probably right about that. Last week, Adam Galas at Morgan Stanley -- long one of Tesla's most full-throated cheerleaders -- admitted that even he thinks Tesla's car business is actually only worth about $62 a share. The other $248 of Tesla's value (Galas has a $310 price target on Tesla stock) comes from Tesla's other ventures, such as solar power, robotics, artificial intelligence, and FSD.
Elon Musk just cut the value of the FSD business by one-third when he cut the price of FSD. At the very least, that means Tesla is worth less today than it was on Saturday. At the worst, it might make Tesla stock a sell.
