The electric vehicle (EV) powerhouse Tesla left investors reeling with its Q4 and full-year 2023 earnings report. What most thought would be a buoyant call quickly turned to a harrowing experience, as Tesla CEO Elon Musk delivered uninspiring news about the company’s artificial intelligence (AI) projects. With the core EV business showing signs of decelerating growth, deteriorating margins, and dwindling cash flow, shareholders were left to question the company’s future trajectory.
As Tesla stocks plummeted more than 10% in the aftermath of the earnings debacle, investors ponder whether now presents a prime opportunity to “buy the dip.” Let’s delve into the state of affairs at Tesla, examining the company’s financial and operating metrics rigorously. It’s paramount to discern if the long-term outlook remains intact following the grim display in Q4.
Sluggish Growth Signals Concern
Despite clocking $96.8 billion in total revenue for the full year 2023, a 19% increase over the previous year, Tesla’s EV revenue only managed a 15% bump year-over-year. The company’s solar energy revenue fared better, climbing by 54%. Yet, considering that in 2022, Tesla’s EV segment skyrocketed by 51% annually, this year’s growth seems tepid.
The table below encapsulates Tesla’s total revenue, gross margin, and free cash flow from recent years.
| 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
Tesla’s sudden EV business deceleration stems from the company resorting to aggressive price cuts to fend off mounting competition. Unfortunately, these price slashes, coupled with a decline in sales, have chipped away at the margins, driving down free cash flow to levels last witnessed in 2020.
Though the data might not inspire confidence, it’s essential to remember that numerous companies across industries have grappled with stagnant growth amid a murky macroeconomic backdrop. However, it’s the ambiguous comments from management during the call that arguably unsettled investors the most.
Image Source: Getty Images
AI Woes Add to the Gloom
While Tesla’s claim to fame rests on its electric cars, its endeavors in artificial intelligence (AI) have garnered considerable attention. Particularly, Tesla has been lauded for its groundbreaking strides in autonomous driving, powered by its revolutionary software, Dojo. However, Musk’s recent downbeat portrayal of Dojo as a “long shot” and his vague allusions to the timeline for the delivery of Optimus, the humanoid robot, have stifled investor optimism.
Tesla’s Dojo supercomputer processes data derived from EVs to analyze traffic patterns and road imagery, while Optimus is envisioned to undertake various tasks, from warehouse operations to mundane everyday chores. These ventures were previously expected to burgeon into billion-dollar enterprises, reshaping Tesla’s identity beyond just a carmaker. Musk himself had proclaimed that triumph in AI could elevate Tesla to the status of the world’s most valuable company. However, this rosy outlook took a major dent with the recent caveats issued by Musk.
Pondering Over Tesla’s Investment Prospects
Many Tesla investors are drawn to the company’s growth narrative that extends beyond EVs. Consequently, Tesla stock has been rife with turbulence, propelling the company’s valuation to stratospheric levels. Nonetheless, the greatest stumbling block for the Tesla narrative isn’t its valuation but rather the dearth of lucidity in earnings calls, largely bereft of concrete long-term roadmaps and mired in obscure generalities.
The most insightful takeaway from the earnings call might have come from Gene Munster, of Deepwater Asset Management, as he deciphered management’s comments:
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 must reckon with Tesla’s wavering outlook and the disquieting tenor of the recent earnings call before making a calculated decision on their investment in the company.
Tesla: Buckling down for the Long Haul
Wall Street has long held its breath where Tesla is concerned, and with good reason. The electric carmaker has consistently defied traditional automotive wisdom, causing both fervent fans and incredulous skeptics to hold their collective breath. However, fresh market prognostications have sent shockwaves through Tesla’s devoted shareholder base — waves that may have caused more than a few heart palpitations. As the company pivots towards bolstering investor confidence, eyes are fixed on the road ahead, with expectations set on smoother and steadier course corrections.
Gaining Perspective Amid Uncertain Forecast
While many investors may have low expectations for Tesla this year and perhaps even further ahead, an air of caution is permeating discussions. It’s crucial to assess the current landscape with a sagacious view, keeping a weather eye on the horizon. With analysts like Gene Munster advising a wariness towards Tesla’s informal earnings calls, prudence and patience guide the investment waters.
Guiding Principles for Investors
In times of market volatility, stockholders may now direct their focus and energies towards steady vigilance when considering further investment in Tesla. The ongoing casual nature of earnings calls may add a new layer of uncertainty for investors. It is thus in the company’s best interest to restore investor faith in the management’s stability and strategic vision, as this could very well chart the course for Tesla’s future stock performance.
Paving the Road to Recovery and Growth
Bearing this in mind, observant investors understand the value of monitoring Tesla’s quarterly earnings calls with unprecedented scrutiny. This may be the cornerstone to understanding the high-octane shifts necessary for Tesla to rev up its engines and accelerate towards a more mature and stable period of growth. The stockholders’ undeniable role comes in the form of measured optimism and astute judgment when considering additional investment. It’s rather like keeping a firm grip on the steering wheel, ready to make nimble adjustments to avoid any bumps in the road.
