As Tesla (TSLA) prepares to release its first quarter earnings results, Wedbush Securities has lowered its price target on the stock, citing a demand slowdown and headwinds impacting the company's margins. Wedbush Securities Managing Director Dan Ives joins Yahoo Finance Live to explain why he believes the quarter will be "brutal."

Ives anticipates Tesla's first quarter performance to be "a nightmare on Elm Street," with demand slowing both domestically and internationally. Despite the disappointing expectations, "the growth story is still there," he says.

Ives highlights the ongoing price war in China's electric vehicle market and emphasizes that while Wall Street acknowledges this challenge, Tesla needs to "draw a line in the sand." He believes the company must reevaluate its China strategy to improve margins amid the rapidly evolving technology landscape in the country, stating, "It's a defining chapter in the Tesla story."

According to Ives, for Tesla to regain momentum, the company needs to implement a clear communication strategy regarding margins, outline "strategic targets" for its AI initiatives, and for Elon Musk must stop threatening to leave the company: "Tesla is Musk, and Musk is Tesla." He notes that although Tesla still holds growth potential, they must provide clarity to investors, asserting, "this is a quarter that's really gonna shake some confidence."

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Editor's note: This article was written by Angel Smith

Video Transcript

[AUDIO LOGO]

JOSH LIPTON: Tesla taking a hit as Wall Street bulls turn cautious on the EV maker. Sluggish expectations for Tesla's first quarter deliveries and, of course, increasing pricing competition weighing on that stock. Dan Ives, Wedbush Securities managing director joining us now to discuss. Dan, great to see you my friend.

DAN IVES: Great to be here.

JOSH LIPTON: Great to have you on set. Let's just dig right into Tesla. Q1 deliveries on deck, what does Dan Ives expect?

DAN IVES: I mean "Nightmare on Elm Street," "Friday the 13th." It's going to be a bad one. And that's why--

JOSH LIPTON: That sounds terrible.

DAN IVES: Look, it was a brutal quarter. Because if you look, China demand softened significantly. We really had to cut numbers not just in China, but even in the US and Europe.

And our whole point is on the other side of this, the growth story is still there. But look, this is a fork in the road period for Musk to navigate. I mean, and this is going to be ripped a Band-Aid off when they report Tuesday morning.

AKIKO FUJITA: You said the other side. I think I heard you say 2 and 1/2 to 3 million deliveries what you're looking at on the other side, right? I mean, what's going to be the catalyst though? Because it doesn't feel like the price cuts the pressure there is easing at any time. At the same time, when we talk about this next wave of EV adoption, it is about more affordable vehicles, which Tesla doesn't necessarily have.

DAN IVES: Yeah, it's a "Game of Thrones" price war right now in China. And look, as that plays out, Street understands that. But they have not communicated that well. So in other words, like, where's the line in the sand in terms of margins? Walk through how they're going to reverse the strategy in China because the opportunity is still there.

In other words, like, we're still in the early innings of where this is all playing out full, self-driving AI. But no doubt, I mean, these are some dark days ahead that Musk needs to navigate. And I think it's a defining chapter in the Tesla story. And that's why investors' patience is wearing thin. And this is just one where it's going to be a very, very difficult quarter.

JOSH LIPTON: So let me ask you or I could put you in front of Elon Musk right now, what would you tell Musk? What would be the Dan Ives game plan to turn this around?

DAN IVES: Have an adult in the room on the conference call. Give a communication strategy around guidance, margins. Hold an AI day, give some strategic targets, and also add the noise with Musk leaving his AI initiatives.

JOSH LIPTON: Basically saying, listen, I could take my AI and my robotics plays. I could take them elsewhere.

DAN IVES: That's 70% of the value of Tesla is Musk. OK, so Musk is Tesla, Tesla is Musk. Investors have a lot of patience. And we've been here before, 2018, 2019. This is nowhere near those, but this is a white knuckle period that they need to navigate.

You compare that to what Cook will do on the calls, Nadella, some of the other hall of famers. I'm not saying Musk is going to do that, but this is a quarter that's really going to shake some confidence. And I think that's the thing. We see it on the other side in terms of being bullish, but no doubt that's why we had to lower the price target.