Quarterly Balance Tesla's Profit Shrinks—Musk Announces Consequences

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Elon Musk's star in Washington is waning. At the same time, Tesla is selling fewer cars. Once again, the tech billionaire promises millions of self-driving Teslas. However, skeptics have doubts.

Tech billionaire Elon Musk initiates the withdrawal from Washington. Starting in May, he will spend "significantly" less time as President Donald Trump's cost-cutter in the government apparatus, said the Tesla CEO. Instead, he will again focus more on the interests of the electric car manufacturer. Tesla had previously reported a decline in revenue and a profit slump for the past quarter.

However, Musk does not want to completely leave the orbit of the US president. He plans to continue dealing with government tasks one to two days a week – at least as long as Trump wants it. The political activities and right-wing positions made Musk less popular—and this affected Tesla.

Analyst Dan Ives of Wedbush Securities, who has long been very optimistic about Tesla's future, estimates that the damage to the brand from Musk's actions could permanently reduce Tesla demand by 15 to 20 percent. In a survey by the US business channel CNBC, around 50 percent expressed a negative view of Musk—and more than 47 percent had a negative attitude towards Tesla. In the first quarter, Tesla's deliveries fell by 13 percent.

Profit Slump of 71 Percent

Tesla's revenues fell by nine percent year-over-year to just over 19 billion US dollars. Profit slumped by 71 percent to just over 400 million dollars. Tesla thus missed analysts' expectations.

The company also confirmed that production of more affordable model variants is set to begin in the first half of 2025. However, it became clear that they will look similar to current vehicles like the Model Y and Model 3.

Fewer Cars Delivered

The results are not surprising: Tesla's deliveries fell by 13 percent in the first quarter to below 340,000 vehicles. It is difficult to determine how much individual reasons contributed to the decline. In addition to the controversies surrounding Musk, one factor is likely the transition to a renewed generation of the best-selling Model Y.

Tesla retooled the production lines at the beginning of the year, pausing manufacturing for a few weeks. At the same time, there was less incentive for potential buyers to purchase a vehicle from the previous Y variant.

Tesla Engages in Tax Avoidance

Recently, Der Standard (austrian daily newspaper) reported on the financial conduct of the manufacturer. According to the report, Tesla has registered a factory in the Netherlands. However, no cars are produced there; instead, orders are assigned to the subsidiary in Grünheide (Germany). Through this model, Tesla reportedly pays low taxes in the Netherlands and no levies in Germany.

At the end of December 2024, Tesla founded a foundation based in Switzerland, Der Standard further reports. On New Year's Eve, the Dutch operating companies were transferred to the foundation.

Millions of Self-Driving Teslas?

However, Musk announces that self-driving cars will secure Tesla's future. At the end of June, a robotaxi service is set to launch in Austin, Texas. Initially, ten to twenty vehicles of the compact SUV Model Y will be used for this purpose—the production of a Tesla robotaxi without a steering wheel and pedals is only announced for the year 2026. In case of problems, Tesla plans to resort to remote control.

Musk's position is that many Tesla vehicles already have everything necessary on board to be a self-driving car. The function for autonomous driving is planned to be unlocked for private individuals in several US cities this year. Then, one will be able to be driven to the destination while asleep, he said. Musk had already projected this by 2017 within two years.

In mid-April, Electrek reported that, contrary to announcements, the hardware in approximately four million Tesla vehicles is not suitable for highly automated driving. According to the report, this concerns customers who purchased the "Full-Self Driving" software package. Therefore, the company would need to replace the control unit for assistance systems (called HW3) in the affected vehicles or compensate their owners. It is estimated to involve about half a million units.

Skepticism in the Industry

Industry experts and competitors have expressed significant doubts about Musk's promises of self-driving cars for years. One reason is Musk's insistence on achieving this solely with cameras and AI software, without the more expensive laser sensors (Lidar) that rivals like Google's sister company Waymo rely on. While Musk's approach is significantly cheaper, critics warn that cameras alone may not provide sufficient safety.

Other manufacturers categorically reject sending autonomous cars on the road with only cameras. BMW's development board member Frank Weber recently dismissed this: "For us, it's absolutely clear that this is not possible." He argued that a camera would not recognize a pallet lying on the roadway in front of the car, during the CES tech fair in January.

Musk Keeps a Loophole Open

The dilemma for Waymo: the company's driverless robotaxis are successfully operating in several cities, but the high costs of the vehicles mean that it is more challenging to make money with them. Musk claimed that the price advantage would soon secure Tesla a market share of more than 90 percent in the robotaxi market. He explicitly denied that bright sunlight could blind the cameras.

At the same time, the Tesla CEO restricted that the big autonomy plans could still be blocked by the "regulatory situation." U.S. transportation authorities have not hesitated in the past to suspend permits for self-driving cars in case of problems.

Clock for Musk in Washington was Ticking Anyway

Musk went to Washington formally as a "special government employee." This status can only be held for a maximum of 130 days, so his time in the US capital should actually end in May anyway. On the other hand, the duration can be extended if he is active part-time.

Musk's position in the Trump environment already appeared weakened in recent weeks, especially after he threw his weight into the election campaign for an important judge post in the state of Wisconsin—and the Republican candidate he supported lost.

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