Tesla (TSLA.US) took a hit earlier this week following release of Q1 2024 data on deliveries and production. A massive miss triggered an around-5% plunge in the company's share price. While Tesla blamed weak performance on Red Sea tensions and arson at German factory, company's fundamentals have been deteriorating for some time already and sky-high multiples are becoming harder to justify.
Q1 deliveries data disappoints
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Create account Try a demo Download mobile app Download mobile appTesla stock dropped around 5% on Tuesday after the company reported data on vehicle deliveries and production for the first quarter of 2024. Company reported a 20% quarter-over-quarter drop in deliveries, with Model 3/Y deliveries dropping 10% QoQ. A drop in Model 3/Y production was even bigger at 13.5% QoQ. Company explained that this was partially due to a Model 3 production ramp at its Fremont factory as well as an arson at factory in Germany. Tesla also said that Red Sea conflict played a role in lower production as well as ship were diverted to longer routes. A full Q1 2024 earnings report will be released on April 23, 2024 after close of Wall Street session.
While the aforementioned supply bottlenecks have negatively impacted Tesla's output, they do not explain weak deliveries. In fact, a surplus of produced vehicles over delivered vehicles was almost 50k in the Q1 2024 (green line on the chart below), and was the highest in the company's history. This not only implies a big inventory build, but also hints at weakness in demand.
Tesla in Q1 2024
- Deliveries: 386 810 vs 449 080 expected (-20.1% QoQ)
- Model 3/Y: 369 783 vs 426 940 expected (-10% QoQ)
- Production: 433 371 vs 452 976 expected (-12.5% QoQ)
- Model 3/Y: 412 376 vs 439 194 expected (-13.5% QoQ)
Source: Bloomberg Finance LP, XTB
Growth continues to slow
While Q1 2024 data and Tesla's explanation may suggest that the weak quarter was a one-off event, a look at rolling 4-quarter data shows that it was not the case. Growth in both production and deliveries has virtually stalled in recent quarters. 4-quarter rolling sum of deliveries and vehicles in Q1 2024 was slightly over 20% higher than in Q1 2023, marking the slowest pace of growth since Q3 2020.
Source: Bloomberg Finance LP, XTB
Competition from China
As one of the pioneers in the electric vehicle business, Tesla has been hyped by the public for years and its stock traded at a massive premium to fundamentals as investors tried to incorporate a promising future into their valuations. However, while Tesla may have been EV leader earlier, it no longer holds this position. Chinese BYD sold more electric vehicles than Tesla in 2022 and 2023, becoming the best-selling EV brand. Other Chinese EV manufacturers are also faring well - Xiaomi has recently unveiled its premier electric vehicle model, and it became sold out for 2024 in just 24 hours after order intake began!
Competition from China is a major headache for Tesla. Consumer spending in China has been weakening and as Chinese EVs tend to be cheaper than Tesla EVs, consumers there opt for Chinese cars. This results in Tesla losing market share in China, world's biggest automotive market.
End of growth story?
The big question is - is it the end of Tesla's growth story? Rally on Tesla shares in recent years have been driven by expectations, but as reality proved to be less rosy, stock began to erase gains. Unlike many other EV manufacturers, Tesla is no longer burning cash and is turning in profits. This is certainly a positive. However, it also means that Tesla's business has matured, and growth rates are in the future are unlikely to be as impressive as in the past.
As a profitable EV manufacturer, Tesla looks more promising than other players in the industry. However, how does the company compared to well-established automotive companies, that specialize in combustion engine cars? Gross and operating margins for Tesla and 5 other well-known car manufacturers are presented on the charts below. As one can see, Tesla had the highest margins in the group as recently as Q1 2022. However, margins deteriorated since and are now just slightly higher than the average for the 5 companies.
Gross margins of Tesla and well-known European and US automotive companies. Source: Bloomberg Finance LP, XTB
Operating margins of Tesla and well-known European and US automotive companies. Source: Bloomberg Finance LP, XTB
A look at margins comparison may suggest that Tesla is more or less on par with traditional major carmakers and the fact that it is pure-EV stock makes it a better investment than 5 other carmakers. However, while profitability is important, it is also important how much investors pay for this profitability.
Comparison of 6 different stock multiples of Tesla and the 5 traditional carmakers can be found in the table below. As one can see, Tesla's multiples are significantly higher than those of traditional carmakers. Calculating Tesla valuations, based on median multiples for the group, provides us with valuations ranging from $10.93 in case of P/S ratio to $16.59 in case of P/E ratio. Even the highest of those valuation ($16.59) is around 90% lower than current market price!
Summing up, with the growth outlook for Tesla's business deteriorating due to increased competition and maturing business, the stock looks significantly overvalued at current prices. Unless, company manages to convince investors that things are about to get better in the future, stock may continue to slide on the back of a relatively weak fundamentals and high valuations.
Source: Bloomberg Finance LP, XTB
A look at the stock
Tesla (TSLA.US) took a hit on Tuesday, dropping around 5% on the back of disappointing Q1 deliveries and production data. Taking a look at the chart at D1 interval, we can see that the stock made another test of the $165 support zone, but bulls have once again managed to defend the area. Nevertheless, downtrend on the chart is obvious and unless we see a break above the falling wedge pattern, technical outlook will continue to favor bears. A near-term resistance to watch in case stock continues to recover is the $180 area. However, key resistance can be found in the $200 area and is marked with previous price reactions as well as the upper limit of the wedge pattern.
Source: xStation5
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