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To say the past few days have been turbulent at Tesla would constitute a gross understatement. After all, the EV giant is now shedding employees in an indiscriminate fashion, one that has seen entire units axed, including Tesla's entire supercharger team. What's more, Tesla is now apparently rescinding its job offers to interns, who are widely considered the cheapest talent rung.
With Tesla now having one of the oldest product lineups in the industry ex-Cybertruck, and with consumers cooling off on the EV mania as range and residual value concerns take precedence, some believe that Tesla is headed back to its days of relentless cash burn.
Tesla's Probable Return To Relentless Cash Burns
The newly launched Xiaomi SU7 sold more than the Model 3 in its first month on the market.
April deliveries in China:
• 7,058 Xiaomi SU7
• 5,065 Model 3Chinese buyers are looking for a luxurious interior with high-quality materials, but Tesla continues to offer its plain and…
— Troy Teslike (@TroyTeslike) May 11, 2024
Tesla's aging product mix (excluding the Cybertruck) is currently one of its biggest hurdles, one that is pushing away marginal demand in an industry where the overall momentum is slowing. Consider the case of Xiaomi's new SU7 EV, which is materially eclipsing the Model 3's sales momentum in China.
Deliveries this quarter are expected to be much lower than the 466,140 units delivered in last year's Q2 mainly due to the Model 3 tax credit issue in the US.
Model 3 Standard Range and Long Range versions don't qualify for the $7,500 tax credit because they use imported… https://t.co/dGNiPEo1O5
— Troy Teslike (@TroyTeslike) May 11, 2024
As the Model 3 faces increased competition in China and regulatory headwinds at home, with battery sourcing requirements rendering the EV ineligible for the $7,500 tax credit, many analysts now expect Tesla to record another quarter with negative year-over-year growth in deliveries.
This brings us to the crux of the matter. Tesla is now facing the specter of a precipitous plunge in demand for new vehicles, akin to what Detroit's "Big Three" faced during the financial crisis of 2008, when new vehicle sales plunged by 18 percent.
24) Q1 begun the unravelling, with FCF of -$2.5bn with deliveries down 9% with the gap between deliveries and supply exploding. If deliveries normalises to 2022 levels now price cuts have slowed and subsidies flatlined, company could easily burn $4-5bn+ a quarter. pic.twitter.com/sldZOTa5KC
— Zero Sum Bond (@ZeroSumBond) May 7, 2024
Tesla's deliveries declined by 9 percent year-over-year in Q1 2024, with Free Cash Flow clocking in at -$2.5 billion, and signs suggest that this sales-related malaise is set to only get worse. If Tesla's deliveries decline to 2022 levels, the EV giant can feasibly start burning between $4 billion and $5 billion in cash every quarter, especially when paired with Tesla's already-instituted steep price cuts and flatlining tailwind from subsidies.
Bear in mind that Tesla's recent stock price recovery owes its existence to two factors: the Robotaxi's unveiling event in August and the possibility of a China-wide FSD rollout. As to the former, the Information publication recently cited former employees who've asserted that the Robotaxi is a "long way from release." This makes sense, given the FSD's continuing hiccups, as evidenced by the fact that the NHTSA has now given a 01st of July ultimatum to Tesla to provide additional information regarding its December 2023 Autopilot-related recall. Specifically, the NHTSA wants a comparison of how many times drivers have been prompted to place their hands on the steering wheel pre- and post-recall. This information is intended to help the NHTSA in determining whether the Autopilot played any role in the 20 crashes involving a Tesla vehicle since the December recall.
$TSLA Reportedly CEO Musk proposed testing Robotaxis in China; China says it may support domestic testing but has not yet approved full implementation of FSD in China - Chinese press (Tesla Inc)
(More at https://t.co/kl3VTkY6GI)— TradeTheNews.com (@Trade_The_News) May 8, 2024
Speculations regarding a China-wide FSD rollout gained steam when Tesla signed an agreement with Baidu for mapping data. However, recent pronouncements from the Chinese politburo suggest that Tesla is only permitted to test its FSD capabilities and that a formal rollout is currently not in the cards.
The EV Giant's Perplexing Accounting Issues
51) Following on from Capex, on other accounting mysteries, Tesla continues to record substantially lower warranty claim rates compared to other OEMs despite Tesla having the most problems per 100 cars of any major OEM. pic.twitter.com/1dHzPro84i
— Zero Sum Bond (@ZeroSumBond) May 12, 2024
As if these problems were not enough, Tesla is also plagued with perplexing accounting issues. For instance, Tesla continues to record relatively subdued warranty claims vis-a-vis the industry average despite its cars experiencing the highest number of problems among major OEMs, as per a tabulation by Warranty Week.
To keep its warranty claims expenses subdued, Tesla has been recording them as Goodwill/SG&A items, as per anecdotal evidence. This strategy worked to defer warranty costs while volumes were growing. But now, with declining volumes, Tesla faces the specter of ballooning warranty claims expenses. It is hardly surprising, therefore, that Tesla has been trying to delay service appointments, hoping that customers would choose to repair their EVs from somewhere else rather than wait a couple of months for an appointment with Tesla technicians. But, as Zero Sum Bond rightly points out, this practice is resulting in burgeoning insurance costs for its vehicles.
60) So Tesla leased 120k vehicles itself (exc. external lessors) over the last 24m and didn't note once in Q1/24 & Q4/23 that falling residuals had an impact? Worth noting that the impairment for HTZ was as of Dec31, with used Tesla prices having falling an additional 17% since. pic.twitter.com/ZHaB6Fqi67
— Zero Sum Bond (@ZeroSumBond) May 12, 2024
In another confounding issue, Tesla takes residual value risks on the vehicles that it leases to itself. Additionally, it also provides residual value guarantees to external lessees. However, with used car prices plummeting by a third on an annual basis, the company has yet to absorb a significant impairment loss.
Do you think Tesla will be able to weather the current storm à la the 2018 downturn? Let us know your thoughts in the comments section below.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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