Tesla
(NASDAQ: TSLA) has dominated the market over the past decade, establishing electric vehicles (EVs) as a profitable enterprise. But the company’s stock has recently been on shakier ground, dropping by nearly fifty percent from its 2021 peak. Its fourth-quarter earnings report illustrates the reasons why this bright star in the investment galaxy has dimmed.
In Q4, Tesla’s revenue growth tapered, and profits plummeted. Automotive revenue inched up just 1% year over year to $21.6 billion, while overall revenue rose by a mere 3% to $25.2 billion, a consequence of reduced prices aimed at maintaining competitiveness and conquering challenges posed by higher interest rates.
Consequently, operating income sank by 47% year over year to $2.06 billion, and adjusted earnings per share plummeted by 40% to $0.71. Missing expectations on both the top and bottom lines, Tesla also predicted slower production growth in 2024. Clearly, Tesla is not currently the stock it was only two years ago, leaving investors in search of a more fruitful financial frontier. And they may not need to look too far.
Image source: Tesla.
Nvidia: A Galactic Force Driving Upwards
Every artificial intelligence (AI) stock, including Tesla, relies on the expertise of a single company – Nvidia
(NASDAQ: NVDA). Over the past year, Nvidia’s stock has soared due to its indispensable chips, which are in astonishingly high demand from companies like OpenAI, Oracle, Meta Platforms, and yes, even Tesla. Nvidia, the inventor of the graphics processing unit (GPU), enjoys a significant lead over its competitors. Vital AI systems such as OpenAI’s ChatGPT and autonomous vehicle systems like Tesla’s full self-driving are heavily reliant on the chips and accelerators that Nvidia produces.
This sustained demand should propel Nvidia’s stock to greater heights. After a third quarter in which its revenue tripled year over year and its generally accepted accounting principles
(GAAP) profit surged twelvefold, the company’s valuation has dipped, setting the stage for another fertile year in 2024, particularly with the ongoing expansion of AI infrastructure within cloud companies and other sectors, aligning with Nvidia’s strengths.
General Motors Racing Ahead of Tesla
Although Tesla has been the poster child for electric vehicles, signs of flagging EV demand present a potentially ominous cloud for Tesla and its peers, but a silver lining for traditional automakers like General Motors
(NYSE: GM), whose stocks took a beating as investors flocked to EV stocks and abandoned legacy automakers.
Currently, GM’s stock is at a price-to-earnings ratio of just five, representing an unassuming valuation. While GM may not promise the same growth potential as Tesla, its thriving EV and autonomous vehicle (AV) business, particularly within Cruise, show resilience following a regulatory suspension of its San Francisco operations – a sign that GM retains its forward momentum despite recent adversity.
GM not only outshines Tesla in terms of profitability but also reports robust growth with a 14% increase in vehicles sold to 2.6 million – an impressive feat for a mature company, especially one that is perceived as having flat growth potential. This growth rate vastly surpasses Tesla’s Q4 revenue. Furthermore, GM’s modest valuation opens doors for substantial shareholder returns. The company, in a strategic move, initiated a $10 billion accelerated share repurchase program in November and bolstered its dividend by 33% to $0.12 a share.
Holding its ground in both the legacy auto business and its investments in electric vehicles and autonomy, GM is well positioned to close the gap with its EV and AV counterparts when the time is ripe. Should GM deliver another robust earnings report, its stock could soar to new heights.
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Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.