Tesla missed earnings estimates yet again in Q4. It’s adjusted EPS came in at $0.71, vs. $0.73 expected. A weaker quarter for earnings growth was expected by analysts, however, the revenue miss was a shock. Tesla reported revenues of $25.17bn, vs, expectations of $25.87bn. Cost cutting hurt profits, with the Q4 cost of vehicles sold lower than it was in Q3, and gross auto margins also missed expectations at 17.6%, vs. 18.1% expected. Shares initially dropped dramatically immediately after the release and were lower by nearly 5% at one stage, before clawing back some losses. Tesla’s share price has dropped by more than 16% since the start of the year, and these results will be a test of market sentiment. These results prove that Tesla is the ultimate growth stock. Rather than focus on the bad news, Tesla positioned these results as a growth story, and it may just pay off.
Tesla’s share price is notoriously volatile around earnings reports. Currently Tesla’s share price is lower by a mere 0.63%, if these declines remain stable, then it would be the smallest post earnings decline since 2021. The average decline in the share price in the past three quarters has been 9%, according to Bloomberg.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile app2024 car sales to slip behind battery storage business
The key paragraph in the earnings report was in the outlook. The company claims that it is between two growth waves, the first one was the expansion of the model 3/Y platform, which they claim was the world’s bestselling car in 2023. The next wave is the expansion of the next generation vehicle platform that will be produced in Texas. There was no mention of timings for these next generation vehicles, instead Tesla said that they would deliver fewer vehicles next year, as they concentrate on building their new platform. Shockingly, the earnings report stated that Tesla could see the growth rate in revenue and deployment in its energy storage business outpace the automotive business.
Tesla: between two growth phases
While diversification is a good thing, autos are what Tesla are known for, and is the bulk of their business. Being told that the auto business would have disappointing sales growth this year, without giving any guidance on just how disappointing may not help its share price to recover after its weak start to the year. It would appear that being in between two growth waves is not a profitable place to be, and investors typically do not like these messages.
There were other pockets of weakness, Tesla is less bullish on its cyber truck, saying that its ‘ramp time’ will be longer than for their other models, given the manufacturing complexity. Added to this, Tesla earned less revenue from selling its regulatory credits to other auto makers to offset their greenhouse gas emissions. Revenue from selling these credits fell to $433mn, down from $554mn in Q3. This could be a sign that other auto makers are switching away from the combustion engine and moving towards electric engines, and so need fewer credits. Thus, this decline could be structural and may hurt revenue growth in the future.
Tesla’s green tech businesses
It’s worth remembering that Tesla is a multi-faceted business that is involved in EVs and other areas of green tech including solar and battery storage. As mentioned above, it is expecting its energy storage business to grow next year and overtake autos. At this stage that looks like a temporary development while Tesla generates its next generation auto platform. However, its solar business is also struggling, and deployments slipped last quarter, after stabilising the year before.
Now for the good news…
There were some pockets of good news in these results. Firstly, Tesla said that they had reached the ‘natural limit of cost down of our existing electric vehicle line up’. This means that steep discounts on the model Y and other legacy models are unlikely in the year ahead. This may help to protect revenue as Tesla moves into its new growth phase. It also noted that the biggest driver of profit generation in 2023 was part sales, used vehicle sales, merchandise and pay per use supercharging. This suggests that Tesla is moving towards becoming a full-service business, which may stabilise earnings growth in the future.
Tesla and AI
Another interesting note in the Tesla results was the development of its autonomous driving technology. It announced that it had trained data from a fleet of over a million vehicles. Rather than hard coding every driver behaviour, the new technology uses AI to influence vehicle controls, which Tesla says marks a ‘new era in the path to full autonomy.’
Musk stays at the helm, for now
Added to this, there was no mention about the future of Elon Musk in this earnings data, and it is expected that he will remain CEO for the foreseeable future, even after his recent spat with the board to increase his stake in the company. This may placate some share holders who were worried about Musk leaving, since he represents so much of Tesla. Added to this, if Musk stays on as CEO it makes it more likely that Tesla will continue to make gains in the AI space, which is important for the future.
Tesla: the ultimate growth stock
Overall, the market has been downbeat on Tesla in recent weeks. However, with these results Tesla has positioned itself as the ultimate growth stock with this earnings report – placing vision for the future above near-term profit growth. It’s share price performance in the coming days could be a test of market sentiment. If the market warms to Tesla that it could suggest that growth stocks can make a comeback, which would be bullish for overall risk sentiment.
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
