Sparks: Tesla’s delivery drama & Microsoft’s conscious uncoupling ⚡️

Welcome to Sparks, your weekly breakdown of some of the most interesting stock market news.

Here’s what sparked our interest this week:

• Tesla’s growth takes a hit
• Microsoft attempts to avoid fines
• Leaps made in the world of quantum computing

Rough road ahead 🚧

Hazard lights are flashing this week for Tesla after the company reported its first year-over-year drop in quarterly deliveries since the start of the pandemic in 2020.

The electric vehicle (EV) maker led by Elon Musk said it delivered 387,000 cars worldwide in the first quarter of 2024, down 8.5% from 423,000 in the same period last year. Tesla’s shares slid by almost 5% in Tuesday’s trading, following the announcement. The company is now down more than 30% in 2024, making it one of the worst performers in the S&P 500 this year so far.

This slowdown did not come without warning: earlier this year, Tesla warned its rate of growth would be ‘notably lower’ this year, blaming interest rate hikes that have kept cars unaffordable for many consumers. The company also faced setbacks at its gigafactory in Berlin following an arson attack by leftwing extremists, as well as disruption caused by attacks on ships in the Red Sea. However, despite the myriad of red flags, Tesla’s deliveries still managed to surprise Wall Street analysts, who were nonetheless anticipating a moderate increase in sales.

Some critics — including Ross Gerber, an outspoken Tesla investor — have laid the blame squarely on Musk’s head. Musk hasn't commented much on Tesla's numbers, except to call Gerber "an idiot" and acknowledge that it was a “tough quarter” for all EV makers.

There is concern that EV demand may cool even further. We’ve spoken before about anxieties drivers have over cost, charging infrastructure, and range that are pushing consumers toward hybrids — vehicles that use both a gas and electric motor. Furthermore, EV sales were flat in the fourth quarter of 2023, despite being up 40% year-over-year, suggesting a “sharp deterioration in growth” according to an auto analyst from RBC Capital Markets.

Automakers, both large and small, are facing what Barclays analyst Dan Levy recently described as a shift from “EV euphoria to EV winter.”

Tesla is expected to report first quarter earnings on 23 April 2024.

The numbers

• Roughly 300,000 — The number of EVs sold in the first quarter by Chinese automaker BYD, Tesla’s biggest rival. This is a 13% increase from the same period last year, but a quarter-on-quarter dip
• 74% — The increase in US sales of electrified vehicles in the first quarter of 2024 seen by Toyota, the world’s largest automaker. The electrified vehicles category is made up largely of hybrids
• Approximately $6.4 million — The amount Tesla spent on US digital advertising in 2023, up from the $175,000 the company approximately spent in 2022. A striking change of heart for CEO Musk, who tweeted back in 2019: “I hate advertising”

Changing Teams 🌐

Conscious uncoupling isn’t just reserved for the likes of Gwyneth Paltrow and Chris Martin.

This week, Microsoft announced that it was separating Teams from its Office suite globally, expanding on a move that was initiated in the European Union last year. The move — reminiscent of Microsoft’s unbundling of Windows in the early 2000s — appears to be an effort to sidestep growing regulatory scrutiny of Big Tech.

Rivals have long criticised Microsoft for bundling Teams — its video and document collab software — with its Office suite, with companies like Slack and Zoom making complaints to regulators. However, despite addressing ‘feedback from the European Commission’, it remains unclear whether the move will help it avoid an EU fine.

The uncoupling comes amidst increased antitrust scrutiny of tech giants worldwide, including lawsuits against Apple and ongoing investigations into companies like Google. Microsoft itself has faced further scrutiny for its investments in AI startups like OpenAI and Mistral.

The tech industry’s apprehension over ongoing antitrust issues was highlighted this week on The Daily Show with Jon Stewart. Stewart interviewed Lina Khan — the FTC head since 2021 who's made a name for herself with her strong stance against antitrust issues, especially in tech — and revealed that Apple at one stage refused to let him have her on his podcast.

“What is that sensitivity? Why are they so afraid to even have these conversations out in the public sphere?” Stewart asked. “I think it just shows the danger of what happens when you concentrate so much power and so much decision-making in a small number of companies,” Khan replied.

In other news 🤓

Some other sparks that have been flying this week:

• Quantum leap — Microsoft and Quantinuum made a significant jump forward in quantum computing this week, achieving unprecedented reliability by running over 14,000 error-free experiments, and bringing us one step closer to the future of computing. This breakthrough is the latest development in the race among tech giants and nation states to harness quantum mechanics for computing speeds far beyond the means of traditional computers. Microsoft plans to offer this technology to its cloud computing customers in the near future — potentially signalling a transformative leap in computational capabilities.
• Hakuna Matata — Disney CEO Bob Iger successfully defended the company’s corporate leadership against a challenge by activist investors, preserving his position as one of Hollywood’s most prominent executives. The challenge, led by billionaire activist investor Nelson Peltz, aimed to push Disney to come up with a concrete succession plan while criticising the company’s efforts to produce diverse and inclusive content. Peltz took aim at recent Marvel movies, which he said were too focused on gender and racial diversity. The victory comes at a key moment for the company, but does not leave Iger with no worries: the company currently finds itself at the centre of American culture wars, all while navigating the rise in streaming and huge upheaval in the media landscape.
• Anti-social — Former President Donald Trump has taken legal action against the co-founders of Truth Social, alleging mismanagement during the platform's early days. The case argues that executives Wes Moss and Andy Litinsky's mistakes led to significant delays in Truth Social's public listing. The company is urging the court to revoke their shares in the company. Moss and Litinsky, both former contestants on Trump's NBC show The Apprentice, pitched the idea of Truth Social to Trump after his ban from Twitter following the 6 January 2021 Capitol attack. The legal action follows Trump Media & Technology Group Corp's recent stock debut, which saw an initial surge followed by a decline in value caused by the company's announcement of a net loss of $58.2 million on revenue of $4.1 million in 2023.

Next week 🗓️

Earnings reports are expected from JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup Inc.

That’s all for this week!