Why Tesla shares fell after its Q1 results  

The electric vehicle maker has a large investor fan base, but reaction to latest numbers isn’t great.

Tesla (NASDAQ:TSLA) shares showed more signs of losing momentum today, despite the world's most valuable carmaker insisting there's “a lot to be excited about” following a robust first quarter of 2021.

The company's revenues jumped 74% to $10.4 billion after record vehicle production and deliveries in the period, leading to a much better-than-expected profit of $438 million.

A “strong reception” in China for the Model Y vehicle being made at its Shanghai gigafactory has boosted optimism, as has Tesla's pledge to increase deliveries by about 50% annually over the next few years. This compares with last year's base level of around 500,000.

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However, shares fell back 2.5% in after-hours trading on Wall Street as analysts delved deeper into the first-quarter figures, noting that the sale of regulatory environmental credits to other car makers added $518 million. Offloading some of its bitcoin also contributed $101 million.

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Investors would clearly rather see profitability driven by more car sales than cryptocurrency trading, particularly at a time when Tesla is facing increasing competition from traditional motor manufacturers as they ramp up their own electric vehicle plans.

Lee Wild, Head of Equity Strategy, interactive investor said: "Production plans are positive, but investors will want to see growth driven more by car sales rather than cryptocurrency trading. Tesla will also face increasing competition as the more traditional motor manufacturers ramp up their own electric vehicle plans. More of us will be driving EVs in future, but they could just as easily be a VW, Ford or BMW than a Tesla. When shares are priced for perfection, any slip-up will be punished. This trading update was not perfect."

Tesla also highlighted “multiple challenges” at the start of the year, although it pointed out it navigated global chip supply issues by pivoting extremely quickly to new microcontrollers.

The shares rocketed by as much as 750% in 2020 to value Tesla as high as $850 billion (£622.5 billion), although there's been a fall back since reaching nearly $900 in late January. That decline was taken by many interactive investor clients as an opportunity to buy after the car maker ranked fifth on our list of most-bought investments in March.

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Analysts at Morgan Stanley believe that shares are capable of returning to the $900 level after their “must-own” view of Tesla shares was left unchanged by last night's update.

The Wall Street bank added: “For investors constructing an electric vehicle portfolio, we see the risk of not owning the shares as exposing investors to greater risk of underperformance than by actually owning the shares.”

However, it admitted the company's market valuation embedded a host of strong expectations for long-term growth, ranging from auto and battery manufacturing to software and energy.

As well as making CEO Elon Musk the world's richest man, Tesla's meteoric rise in value in the past year has boosted the finances of many retail investors. This includes supporters of Baillie Gifford's FTSE 100-listed Scottish Mortgage Investment Trust (LSE:SMT), which has a big chunk of its portfolio invested in the car maker.