While not a current holding within any portfolios, as one of the “Magnificent 7”, Tesla is a widely followed stock. Shares have fallen in after-hours trading following the latest Q4 earnings report which has disappointed investors.
Tesla faced a challenging fourth quarter as it missed earnings expectations and warned of potentially slower growth in 2024. This news sent its shares down -5.24% in after-hours trading, reflecting investor concerns after the renowned electric vehicle (EV) manufacturer issued its vague guidance for 2024.
For the quarter ending December 31, Tesla reported earnings of $7.9 billion, or $2.27 per share, up from $3.7 billion, or $1.07 per share, in the same period last year. However, adjusted for one-time items, earnings were at $0.71 a share, falling short of the anticipated $0.73. Tesla’s sales increased modestly by 3% to $25.17 billion, although slightly below the anticipated $25.6 billion, impacted by a reduction in the average vehicle selling price and lower revenue from its “Full Self Driving” system. One notable point that may contributed to the fall in the share price is that Tesla did not provide a specific delivery target on Wednesday, having stated a 50% annual growth target for several years.
Notably, Tesla’s GAAP gross margins dropped to 17.6%, a decline from the 23.8% seen in the fourth quarter of 2022. This decline reflects the challenges faced by the company in a rapidly evolving market, where competition is increasing. During the fourth quarter, Tesla was displaced as the top electric vehicle sales company by China’s BYD Automotive, with BYD’s sales of 526,000 outperforming Tesla’s 485,000.
One of the key factors affecting Tesla’s outlook is its focus on developing its next-generation vehicles at the Gigafactory in Texas and Musk’s concerns over his influence. Musk took to X, what was formally known as Twitter, to say “I am uncomfortable growing Tesla to be a leader in AI & robotics without having 25% voting control,” Musk added “Enough to be influential, but not so much that I can’t be overturned. Unless that is the case, I would prefer to build products outside of Tesla.” This focus is expected to slow down the company’s vehicle volume growth rate in 2024. Tesla is in a transition phase between two major growth waves, as it gears up for the launch of this new vehicle, speculated to be the Model 2.
Tesla’s cautious approach to the Cybertruck’s production ramp-up and the much-anticipated Model 2, given its manufacturing complexity, also contribute to the uncertain growth outlook. This caution is seen as a strategic move to manage expectations amid an increasingly competitive EV market. The upcoming Cybertruck and the mysterious Model 2 present both challenges and opportunities for Tesla.
The latest quarterly report reflects both its current challenges and strategic pivots. The company’s focus on its next-generation vehicle and market dynamics indicates a transition from rapid expansion to more measured and sustainable growth, a trend we have seen in many companies during the higher interest rate environment.
