Elon Musk just set Wall Street up for one of his classic head fakes

There's only one person to blame for the company's shambolic state and only one person whose exit could save Tesla: Elon Musk. For the past few years, Tesla has looked unstoppable, but during those high times, Musk failed to implement any strategy that would insulate the company from what has become a violent global electric-vehicle price war. The company is incinerating cash, losing market share, and holding more aging inventory than ever before.

Tesla reported its first-quarter earnings on Tuesday and missed expectations across the board, even though Wall Street was already expecting the worst. Earnings per share came in at $0.45, lower than analysts' expectations of $0.52. Free cash flow fell a stunning 674% as Tesla focused on AI research and making capital improvements. Gross profit fell 18% from the same time a year ago, and gross margins fell from 19.3% to 17.4% over the same period. If Tesla the company were a car, this is when you start to hear it make a rattling sound.

The company's problem isn't a matter of getting through "production hell" or "delivery hell" on a new model, which Tesla has been able to survive. Hell is, at the very least, a location. Tesla's problem is that it has no clear direction. It doesn't matter how much cash a company has on hand if it's blowing it on products that aren't ready to scale — like a robotaxi. Or cars that no one wants — like its dated models.

Musk seems to understand at least that much: For years, Tesla has teased the development of the Model 2 — a $25,000 Tesla for the everyman. This is the car the market wants, and a Reuters report from earlier this month that the Model 2 was being scrapped (which Musk denied) sent the stock into a tailspin. Given this clear signal from investors, the company pivoted and announced in its earnings release that it planned to speed up production of "new and more affordable products" to early 2025. Wall Street ate this up: in spite of the miserable results, Tesla's stock has gained nearly 20% since the earnings announcement and analysts were falling over themselves to praise the news. It's like people have never seen this play from Musk before, but anyone who's been following Tesla knows we have.

Musk is notorious for delivering so late that any sort of timelines are to be taken with a grain of salt. Even Musk's most loyal shareholders — like Ross Gerber of investment firm Gerber Kawasaki — were dubious. In an interview with Bloomberg on Tuesday after Tesla's report, Gerber said that he "can't rely" on what the company says about timelines anymore. In the company's post-earnings conference call, Musk only mentioned vague plans for speeding up the production process and spent more time talking about his far-off vision for an Uber-like robotaxi fleet.

"I'd say at least eight to nine years before they get a robotaxi working," Tu Le, the founder of the electric-vehicle consultancy Sino Auto Insights, told me in a recent interview. "I think they'd argue that they already made it. But I'm thinking about the best-case scenario. And I'm being very optimistic.

Being late wasn't a problem when Tesla was the only company making good EVs, but that's not the case anymore. Musk does not have eight or nine years to save Tesla, and making vague promises to deliver a new car that the market actually wants — while appealing to Wall Street — does not relieve the pressures the company is facing now. On one side of the world, competitors in China can make cars at a much lower cost. On the other side, legacy automakers are leaning on their combustion-engine and hybrid car sales to make it through the slowdown in demand for electric cars. If the Chinese market is a rock, then Western markets are a hard place. Tesla is caught in between. The company needs a serious leader with practical ideas — no self-driving gimmicks, no blowtorches, no broken Cybertrucks, no shitposting, no video-game marathons, and no casual ketamine use. Basically, no Elon. It needs a singularly focused, ruthlessly productive leader who can deliver the Model 2 — without copious delays.

On Tuesday, Musk addressed the recent round of layoffs by saying that Tesla needed to restructure itself for a "new phase of growth." He's right about that, the carmaker does need a major shake-up — starting with him.

What did Musk do with those glory days? He sold a bunch of his Tesla stock to buy Twitter, tried to get out of the deal, and then was forced to go through with it. He blew up some rockets (to be fair, some also made it to space). He implanted a brain chip into a bunch of monkeys. He brought a kitchen sink to work and added a few more CEO jobs to his plate. He publicly bungled Gov. Ron DeSantis' attempt to launch a presidential campaign. At Tesla, Musk delivered about 4,000 Cybertrucks — every one of which has been recalled for faulty acceleration — while frittering away any goodwill the company has with its core customers.

What I'm saying is that as much as Tesla accomplished in the past few years, it's clear Musk should've spent more time with it. Tesla failed to craft a strategy for chaotic times in what is still clearly a nascent EV industry. Sure, the company has been on a multiyear campaign to get lean and cut costs, but that strategy isn't enough to balance out price cuts, weak demand, and the need for major capital expenditures to get through this period of fleet stagnation.

A true visionary CEO — which Musk has long claimed to be — would have pressed the advantage that Tesla developed in the EV market. They would've done research to try to understand what EV demand would look like after early adopters bought cars. They'd know what kinds of buyers would enter the market at that stage and which kinds of cars those buyers would want. A true visionary CEO would meet those customers where they are. Back in November, I spoke with Navdeep Sodhi, a pricing analyst at Sodhi Pricing Associates, who told me that Tesla should advertise to educate the public about the cost benefits of its cars, like savings on gas. Advertising could have also helped assuage concerns about issues like range anxiety. This month, Tesla laid off its entire marketing team.

For years analysts warned Musk that competition was coming, not just from legacy automakers but from the very Chinese market that fostered Tesla's success. Beijing has a pattern of supporting Western companies in China's markets in order to foster competition, then, once China-based rivals are able to catch up, tipping the scales in favor of homegrown companies. Add in the fact that Beijing has cornered nearly every aspect of the battery supply chain — from mining and refining metals to manufacturing the batteries themselves — which has helped China's EV makers to churn out models at price points as low as four figures. The new options have put Tesla on the back foot in one of its most important markets: Tesla's share of China's car market shrank to 6.7% in the fourth quarter of 2023 from 10.3% at the beginning of the year.

To maintain its lead, Tesla should have been singularly focused on building the Model 2 — moving down the pricing scale to where there were more customers. But it stopped innovating, the Model 2 hasn't materialized, and Musk's realization that the company needs to actually deliver on a Tesla-for-the-people may be coming too late. Instead of boosting sales with an impressive or accessible new option, Tesla has tried to goose demand by erratically lowering the prices of its existing models to increase volume. This has not worked as planned: automotive revenue fell 13% from the same time last year, according to Tuesday's earnings release, and gross margins in the automotive division fell to 14.8% from 18% a year before.

During the conference call, Musk had a million excuses for why this quarter was so poor — Houthi agitation in the Red Sea, an arson in Berlin, updates at the Fremont Factory. He asserted that Tesla was not a car company but rather an AI robotics company. He spoke ad nauseam about turning Tesla into a self-driving Uber service but refused to answer any questions about the Model 2. Look over here. Look over there. Pay no attention to exactly how we're going to deliver his cheaper car. Wall Street has fallen for this before, and it's becoming embarrassing that it has fallen for it again — especially at a time when Tesla and the EV market are in such a different position.

The gestures toward actually producing the Model 2 drove a post-earnings stock pop, but given Musk's years of distraction and myriad projects, shareholders should be more concerned that he may fritter away Tesla's resources on something else — whether that's an AI that can copy his voice, turning X into a dating app for libertarians, or building another vanity clown car. If the Model 2 doesn't come ASAP, it's tantamount to Tesla waving the white flag in the global EV wars for the foreseeable future. Forget growth — now the company that should have been America's EV juggernaut needs to figure out survival.

When Musk entered the EV Thunderdome, Tesla was the only game in town, interest rates were at 0%, and most of the country was convinced he was Iron Man. Since then, China has become an EV power player, legacy automakers have been trying to get a cut of the action, debt has become more expensive, and half the country has started to think Musk is Lex Luthor. Things have changed, and Tesla's leadership needs to change along with them or get left behind.

Linette Lopez is a senior correspondent at Business Insider.