Musk, facing criticism and falling Tesla sales, to cut back DOGE work

By Akash Sriram, Abhirup Roy and Chris Kirkham

(Reuters) -Tesla CEO Elon Musk said on Tuesday he would cut back significantly the time he devotes to the Trump administration from next month and spend more time running his many companies.

The move comes as Musk's involvement in the so-called Department of Government Efficiency - where he has led efforts to cut federal jobs - has become a political lightning rod, fueling unrelenting protests and vandalism at Tesla showrooms. Investors have raised concerns about Musk spending too little time managing Tesla, where sales have nosedived.

"The large slog of work necessary to get the DOGE team in place and working with the government to get the financial house in order is mostly done," Musk told analysts on a conference call. But he said he still intended to spend some 40% of his time on DOGE.

Tesla shares, which had risen 4% in after-hours trading right before an earnings conference call began, spiked to trade up 5.5% on Musk's comments. The stock has nearly halved from its December peak.

After market close on Tuesday, Tesla reported profitability for its core auto business that topped rock-bottom expectations and said it was on track to produce an affordable car.

But the EV maker said it would have to reassess its growth forecast in three months because it was "difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains" and that "changing political sentiment, could have a meaningful impact on demand for our products in the near-term," it said.

Tariff tensions add further uncertainty. Tesla has paused some China-sourced component imports after U.S. tariffs on the Asian country rose to 145%, Reuters reported. China has responded with tariffs of its own, leading Tesla to suspend new Model S and Model X orders in the country.

Musk, who said on Tuesday he continued to support lower tariffs, added that Tesla was not immune to "macro demand for cars," adding that economic uncertainty causes people to want to "pause on doing a major capital purchase like a car."

"Absent the macro issues, we don't see any reduction in demand," he said. But tariffs will have an outsized impact on Tesla's energy business, he said.

While the stronger-than-expected margin in the first quarter - driven by lower costs - offered some relief, Tesla's auto revenue still slumped by a fifth in the period, and net profit plunged 71%. These metrics both missed Wall Street estimates.

Musk acknowledged the blowback on the company, but brushed off concerns about brand damage hurting Tesla's first-quarter sales.

ROBOTAXI ON TRACK

Musk's recent posts on his social media site X have suggested he is slowly re-engaging with his businesses, after spending months talking only about how he was cutting government waste. But his time away from DOGE will be split between money-maker Tesla and his other companies which include SpaceX, xAI and Neuralink.

"I think more attention by Musk on Tesla is a net positive for the stock, but to see a meaningful move in the stock we would need to see a headline more like 'Musk to leave DOGE to refocus on Tesla,'" said Shawn Campbell, adviser and investor at Camelthorn Investments, who personally holds Tesla shares.

Tesla has said it plans to release a cheaper car - seen as a key catalyst for future growth - in the first half of 2025, using existing platforms and assembly lines, after scrapping plans for a brand-new, low-cost model.

Tesla in its release said the launch of affordable cars was on track for the first half of the year. "The ramp might be slower than we had hoped initially," Lars Moravy, the vice president for engineering, said on the call, but that there was nothing blocking Tesla from starting production within the publicized timeline.

"The models that come out in the next months will be built on our lines and will resemble in form and shape the cars we currently make. The key is they'll be affordable and you'll be able to buy one," Moravy added.

Tesla also said the launch of a robotaxi fleet in Austin, Texas, in June remained on track. The company has been seeking regulatory approvals to that end, but there are serious concerns about safety and related litigation risks that could come with deploying unproven driverless technology on public streets.

Asked about when robotaxi production would ramp up, Musk said he expected millions of Teslas operating fully autonomously by the second half of next year.

Automotive gross margin for the first quarter, excluding regulatory credits, fell to 12.5% from 13.6% in the fourth quarter, according to Reuters calculations, compared with expectations of 11.8%, according to 21 analysts polled by Visible Alpha. 

The electric vehicle maker reported revenue of $19.34 billion for the January-March quarter, compared with estimates of $21.11 billion, according to data compiled by LSEG.

Tesla reported earlier this month that deliveries in the January-March period slid 13%. Analysts expect a second straight annual decline in Tesla deliveries in 2025, despite efforts to boost sales through incentives like free charging and Full Self-Driving features.

(Reporting by Akash Sriram in Bengaluru, Abhirup Roy in San Francisco and Chris Kirkham in Los Angeles; Additional reporting by Hyunjoo Jin in Seoul; Writing by Sayantani Ghosh; Editing by Peter Henderson, Devika Syamnath and Matthew Lewis)