Electric vehicle (EV) maker Tesla (TSLA Quick QuoteTSLA - Free Report) released its first-quarter 2024 results yesterday. The dismal results didn’t come as a shock as investors were prepared for it. Both earnings and revenues missed estimates. The company reported adjusted EPS of 45 cents, which plummeted 47% year over year and marked the lowest quarterly EPS since 2021. Revenues came in at $21.3 billion, down 9% year over year, in what was the biggest drop since 2012.

(Read more: Tesla Q1 Earnings Miss Expectations, Decline Y/Y)

Despite the discouraging numbers, shares of TSLA popped as much as 13% in after-hours trading, with CEO Elon Musk sharing his plans to produce new affordable EV models sooner than expected. He also confirmed showcasing the company’s purpose-built robotaxi or Cybercab in August.

But prior to this 13% jump in after-hours trading, shares were down more than 40% on a year-to date basis. In fact, Tesla was the worst-performing S&P 500 stock in the first quarter of 2024.

Actually, when it comes to stock investments that spark heated debates and divided opinions, few contenders rival Tesla. In 2021, Tesla’s market capitalization hit $1 trillion. Three years down, it is now valued at some $450 billion, shedding more than half of its value.

So, what’s going on with the company? What were the key takeaways from its latest call transcript? And is the stock a bargain now, considering the steep decline in prices of late? Here’s all that you should know if you are thinking of parking your hard-earned money in Tesla.

TSLA in Hot Waters Now

Tesla is currently facing a myriad of challenges. For starters, deliveries are falling amid slower-than-expected adoption of EVs as consumers are more inclined toward hybrid options now. In the last reported quarter, deliveries contracted 20.1% and 8.5% on a sequential and year-over-year basis, respectively. This was the first year-over-year decrease in quarterly deliveries since 2020. 

In an attempt to boost sales and move cars out of the showrooms, Tesla has been luring buyers with generous discounts and incentives, but seemingly that’s not helping much to spur deliveries. Tesla has resorted to several price cuts across its models of late. Last weekend, Tesla slashed $2,000 off the price of its popular Model Y, Model S, and Model X vehicles in the United States. It has been continuously slashing prices in China amid intense competition from local players. Frequent price cuts have put pressure on Tesla’s margins. Gross profit margins have plunged since their highs in 2022 and are back to near-pandemic levels.Total gross margin came in at 17.4% in first-quarter 2024, down 199 basis points year over year. 

Apart from diminishing deliveries and shrinking margins, the company is battling intense competition. With new pure-play EV entrants like Rivian and legacy automakers steadily shifting gears to electric, Tesla no longer enjoys a first-mover advantage. In fact, Tesla is the only one with a share to lose. All other players are gaining market share at its expense. The company’s dominant market position is likely to become thinner. Concerns are deeper with respect to the China market, which is full of home-grown players like BYD Co Ltd (BYDDY Quick QuoteBYDDY - Free Report) , NIO, XPeng and Li, among others. As China is a big market for Tesla, stiff competition is likely to erode its share in the country. In fact, BYD overtook Tesla to become the biggest EV seller for the first time ever in the last quarter of 2023. 

What’s also been affecting Tesla’s brand image is a slew of unmet promises by the company. Musk has consistently missed the initial release deadlines for almost all Tesla vehicles.

Critics also argue that Musk is juggling too much following the Twitter acquisition in late 2022, renamed X. On top of that, Tesla is seeking shareholder approval for Musk's $56 billion pay package, previously rejected by a judge as an "unfathomable sum" earlier this year. Well, Tesla’s performance of late certainly doesn’t justify such a hefty pay package.

The much-hyped Cybertruck is dealing with issues of its own. Last week, Tesla initiated a voluntary recall for Cybertrucks after reports surfaced that the vehicles were getting stuck at full speed due to a loose accelerator pedal, posing a risk of crash. Nearly 4,000 Cybertrucks were recalled due to this defect, affecting all trucks sold since the vehicle's market release in November.

Not All is Gloom and Doom

What’s working great for Tesla is its energy generation and storage business. The energy and storage business saw record-high deployments of Megapack in the last reported quarter,leading to record profitability with margins at 24.6%.Tesla foresees continued growth in energy storage deployments, with expectations set for a 75% increase in 2024 compared to 2023. Expansion efforts at the Lathrop facility are on track, with the addition of a second production line enabling the company to double its exit rate from 20 to 40-gigawatt hours per year by the end of the year.This expansion underscores Tesla's commitment to meeting the growing demand for its energy storage products.

Musk Bets on AI & Affordable EVs

In its latest earnings transcript, Musk spoke about developments in its strategy regarding affordable EVs, robotaxis and artificial intelligence (AI).

Musk notified that the company has expedited its timeline for launching new models, aiming for production to begin as early as late this year or early 2025 instead of the second half of 2025 as was previously planned.These new vehicles, including more budget-friendly options, will leverage aspects of both next-generation and current platforms, allowing for efficient production on existing manufacturing lines.

What likely garnered the maximum attention during the call was Musk's remarks on Tesla's focus on autonomy and its transformation into an AI-robotics company. Quoting him, “The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet. We really should be thought of as an AI-robotics company. If you value Tesla as just an auto company, it’s just the wrong framework. If somebody doesn’t believe that Tesla will solve autonomy, I think they should not be an investor in the company.”

Basically, Musk is urging investors to view Tesla primarily through the lens of AI and robotics rather than solely as an automotive company. Now, these comments echo Tesla's past approach of promising groundbreaking technological advancements, particularly during challenging times, in a bid to regain investors' faith and ignite enthusiasm about the company's prospects. And the tactic seems to have worked. Despite reporting lousy earnings numbers, shares of the company gained in after-hours trading.

The CEO confirmed Tesla would be “showcasing” its robotaxi on Aug 8. Highlighted in Tesla's investor letter today was the remarkable 130% surge in A.I. training, crucial for its robotaxi initiative.

Recently, Tesla slashed its Full Self-Driving (FSD) monthly subscription price by 50% in a bid to make the FSD suite more accessible to customers who are either budget-conscious or skeptical of the technology's capabilities. Musk said that the company is in talks with a major automaker regarding licensing its FSD.

Discussing Tesla's humanoid robot project, Optimus, Musk stated that Optimus will be performing useful tasks in the factory by the year end. He went on to say, “Optimus will be more valuable than anything else Tesla does combined. And then I think we may be able to sell it externally by the end of next year.” Just that Musk also emphasized that these are “just guesses.”

Buy TSLA on the Promise of AI Breakthrough?

Investing in Tesla solely based on its ambitious promises and plans would be premature. Tesla's recent performance has been tumultuous, with challenges including weak deliveries, falling revenues, shrinking margins, recalls and layoffs. The company also recorded a negative cash flow of $2.5 billion in the first quarter of 2024 for the first time since the start of the pandemic, owing to significant investment in AI infrastructure (close to $1 billion).

Also, the company will not be immune to valuation concerns, which may start to mount as its slower growth is leaving TSLA at stretched premiums in terms of price-to-earnings and price-to-sales. TSLA shares currently trade at 65.77X forward earnings, way higher than the industry’s 26.79X. Tesla’s forward sales multiple sits at 4.29X, well above the industry’s 1.61X.

Then, on the other side of Tesla’s story are the hopes of a turnaround. It aims to launch a new lineup of affordable vehicles and transition into an AI company and is banking on its robotaxi venture. The robotaxi could be a game changer but regulatory barriers remain. Musk's track record of missing deadlines adds further uncertainty.

However, if Tesla can deliver on its promises, particularly regarding a lower-priced model and advancements in self-driving technology, it could signal a significant revival. If not, it will get very difficult for this once beloved EV maker to regain investors’ faith. Investors should approach cautiously, considering Tesla's history of delays and the need for tangible results to justify optimism.

In light of the current circumstances, we think Tesla should be avoided for now.

The company carries a Zacks Rank #5 (Strong Sell) currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.