Layoffs, vehicle recalls, scrapping of an entry-level electric car and, now, dismal quarterly earnings—Elon Musk’s Tesla seems to be going through a rough patch.

In the run-up to the electric vehicle maker’s much-awaited results for the first quarter of 2024, CEO Elon Musk seemed to have found himself under a lot of pressure. And investors were looking for reassurance that these setbacks were merely temporary.

But Tuesday’s earnings announcement did little to assuage concerns. Lacklustre car sales translated into significantly reduced earnings for the quarter ended March, deepening concerns about the company’s position and future in the EV market.

Its revenue fell short of analysts’ expectations and quarterly vehicle deliveries hit their lowest levels since the third quarter of 2022. The only respite was the company’s stock movement. Despite everything, Tesla’s shares surged in after-hours trading (more on this later).

Let’s take a look at the numbers and Tesla’s growing troubles.

A bad new year: The EV maker posted a 9% year-on-year decline in revenue to $21.3 billion for the March quarter—the steepest drop in 12 years. Its total gross profit came in at $3.6 billion, down 18% year-on-year.

The revenue slump is both because of a drop in sales and price cuts, which have resulted in lower average selling prices. Just last week, Tesla marked down prices of its Model Y, Model X and Model S cars by $2,000 each in the US. The EV maker has slashed prices amid fierce competition from American and Chinese automakers. With demand cooling, there is an oversupply in the US market. Sluggish sales growth has prompted Tesla and competitors, like Ford, to slash prices to stimulate demand. However, despite cutting prices, Tesla seems to be struggling to attract buyers.

Its net income declined by a whopping 55% to $1.13 billion from the year-ago period.

Total deliveries fell 9% year-on-year and its automotive revenue dropped 13% to $17.38 billion. Meanwhile, its capital expenditure surged to $2.77 billion, up 34% year-on-year, and free cash flow turned negative during the quarter—the company had a deficit of $2.53 billion compared to a $441 million surplus a year ago. Tesla attributed the negative cash flow to inventory buildup and the higher capital expenditure to “AI infrastructure”.

The results seem to have reinforced the concerns of Tesla’s investors that declining sales and profits could be a sign of broader challenges facing the carmaker. There is heightened competition from both established automakers and emerging players from China (like BYD).

Also, investors were banking on Tesla’s plans to introduce the Model 2, a small, entry-level EV priced at about $25,000. But earlier this month, Reuters reported that the project has been scrapped. Even though Musk has called the report false, uncertainties about the company’s growth trajectory have not eased.

Why are markets still optimistic? Despite the grim financials, Tesla’s stock surged over 13% to $163.96 in extended trading—rebounding from its lowest level in 15 months. The reason? Musk threw in a sliver of hope during the earnings call. He said Tesla was planning to accelerate its production plans for new models, including affordable ones, to “early 2025, if not late this year”. Before this, the company had planned to start production of new models in the second half of 2025.

However, he also said the new vehicles would be “produced on the same manufacturing lines as our current vehicle line-up”. The company outlined plans to ramp up production by “more than 50% growth over 2023 production” before investing in new manufacturing lines. This means Tesla will not be making fresh investments for new factories in Mexico and India.

The announcement was well timed. Musk, who was supposed to meet Prime Minister Narendra Modi over the weekend, said on Saturday that he was postponing his India trip owing to “very heavy Tesla obligations”.

The markets have reacted positively to the news as it shows that Musk, infamous for his whimsical ways, is factoring in the gravity of the current situation.

“I think it’s a positive that he’s not just barreling ahead with an expansion plan, ignoring the challenges in the market and the fact that he's doing a cheaper vehicle from the existing product line,” said Elliot Johnson, chief investment officer at Evolve ETFs.

While the plan is being met with optimism for now, it is yet to be seen how it actually pans out as Tesla has missed delivery and price targets a few times. And even though it showcased its purported robotaxi-based ride-hailing service in its first-quarter shareholder deck, Tesla’s long-standing promise of a self-driving vehicle still remains unfulfilled.

But there’s more to Tesla’s problems.

Increasing competition and an identity crisis: Once a dominant force in the global EV market, the company last week resorted to cutting 10% of its staff—14,000 jobs—as it struggles to maintain market share.

Its share has dropped from 62% at the start of 2023 to 51%, as rivals Ford, Hyundai, Mercedes and BMW continue to infiltrate the market with their models.

Adding to this is the latest recall of 4,000 Cybertrucks. Tesla had to recall the vehicles due to a sticky accelerator pedal issue, which could cause the vehicle to accelerate unintentionally, increasing the risk of a crash.

Most importantly, Tesla seems to have lost the plot when it comes to its core mission and target audience. This is evident in its haphazard focus points.

First, the emphasis on its autonomous robotaxis. While these are supposed to be unveiled in about three months, critics believe this is yet another Musk promise that will not materialize. More importantly, the move has left investors wary and wondering about the rationale. To most, it may seem like Musk is diverting attention from Tesla’s core automotive business to speculative ventures.

Then there is Musk’s determination to expand the energy storage business—Tesla Energy— and focus on AI. During the earnings call, Musk reiterated Tesla’s investments in artificial intelligence infrastructure and said the company was discussing licensing its controversial partially automated driver assist—Full Self-Driving system—with “one major automaker”. The billionaire also said the Tesla humanoid robot, called Optimus, might be launched as soon as the end of 2025.

In all, it seems Tesla is juggling too many balls at once, spreading itself thin and neglecting core concerns with its automotive business. As for Musk, he juggles leadership roles at Tesla, X (formerly Twitter), SpaceX and Neuralink, simultaneously, the EV company struggles to define its identity—fluctuating between roles as an automaker, an AI firm and an energy company.