Electric vehicle (EV) manufacturer and “Magnificent Seven” member Tesla (NASDAQ: TSLA) reported Q4 and full-year 2023 earnings last week, sending shockwaves through the market. Unfortunately, the news wasn’t all positive for shareholders. CEO Elon Musk’s uninspiring commentary on the company’s artificial intelligence (AI) projects and the decelerating growth in the core EV business has left investors reeling, resulting in the stock tumbling more than 10% since the earnings report.
For investors eyeing the dip, let’s scrutinize the financial and operational metrics of Tesla to determine if now is the time to make a move in this tumultuous market environment.
Tesla’s Growth in the Balance
Tesla’s 2023 financial performance indicates a 19% annual revenue growth to $96.8 billion. However, EV revenue only grew by 15% in contrast to the previous impressive year-over-year growth of 51% in 2022. Tesla’s aggressive price cuts to combat competition led to a substantial slowdown in sales, causing a knock-on effect of deteriorating margins and ultimately resulting in the lowest free cash flow since 2020.
While concerns arise from these figures, it’s worth noting that the overall economic landscape has been uncertain, expressing a broader picture of sluggish industrial growth. Nonetheless, disheartening comments during the earnings call are likely the main culprit for investor reactions.
| Category | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| Total Revenue | $24.6 billion | $31.5 billion | $53.8 billion | $81.5 billion | $96.8 billion |
| Gross Margin % | 16.6% | 21% | 25.3% | 25.6% | 18.2% |
| Free Cash Flow | $1.1 billion | $2.8 billion | $5.0 billion | $7.6 billion | $4.4 billion |
Data Source: Tesla Investor Relations
Image Source: Getty Images
AI Ambitions Hit the Brakes
Beyond automobiles, Tesla’s foray into artificial intelligence (AI), particularly in autonomous driving, has been a focal point. However, Musk’s recent “long shot” comment on Dojo, Tesla’s AI supercomputer, and the indefinite timeline for the delivery of Optimus humanoid robots have given rise to considerable apprehension among investors. This uncertainty, coupled with Musk’s history of missed product deadlines, has further dented investor confidence in Tesla’s AI prospects.
Investing in Tesla: The Verdict
Although Tesla’s valuation far surpasses many leading auto manufacturers combined, the crux of the issue lies in the lack of clarity conveyed during earnings calls. Ambiguity surrounding the long-term roadmap has left investors deciphering vague generalities.
An elucidating takeaway from the earnings call came from Gene Munster of Deepwater Asset Management, decoding management’s comments on Tesla’s future growth prospects. The management’s soft outlook on the vehicle volume growth rate for 2024 and its emphasis on launching the next-generation vehicle at Gigafactory Texas have contributed to the disappointing sentiment.
Correction: TSLA shares are down because the outlook was surprisingly soft.
Tesla suggests “In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas.”…
— Gene Munster (@munster_gene) January 24, 2024
Investors Cautioned as Tesla Faces Uncertain Future
The Tesla Dilemma
Market analysts and industry insiders have been sharing cautionary tales on Tesla. The futuristic car company has charmed many, but some investors are not holding their breath. There is a sense of disillusionment with Tesla’s stock, and the discourse leans towards an uncertain future. Long-term shareholders are voicing their skepticism, looking beyond the horizon of 2024.
Expert Opinion
Gene Munster, a venerable analyst, has captured the sentiments of many stakeholders. His assessment amplifies the ambient murmur of skepticism surrounding Tesla. The company’s earnings calls are becoming increasingly informal, distancing themselves from industry norms. Munster’s prognosis warns of a potential erosion of investor confidence, forecasting a further plummet in stock prices if Tesla continues on this trajectory. It is a grim forecast, and one that leaves many stakeholders on edge.
Prudent Measures
In response to Tesla’s unfolding narrative, the most prudent course of action for investors may be to exercise caution when considering the purchase of additional shares. Monitoring stock performance closely and navigating the company’s earnings calls with cautious optimism are emerging as essential practices in these daunting times. The company is at a pivotal juncture, striving for growth and maturity, making it all the more critical for stakeholders to stay alert and informed.
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Adam Spatacco has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.