Friday Jan 26 2024 08:23
5 min
Tesla faced a tough earnings day as the electric vehicle (EV) maker cautioned investors about a potential slowdown in growth for 2024 — and Wall Street couldn’t hide its disappointment.
In a shareholder letter accompanying the fourth-quarter results, Tesla revealed that its 2024 vehicle volume-growth rate might be significantly lower than the rate achieved in 2023. The company said the potential slowdown could stem from focus on the launch of its next-generation vehicle at Gigafactory Texas.
Tesla is in between “two major growth waves,” according to the letter.
The Elon Musk-led firm also reported earnings per share (EPS) of 71 cents — lower than the 73 cents expected by Wall Street analysts.
The Tesla share price tanked in response to the news, falling by over 12% on Thursday. Tesla stock, which trades on the Nasdaq under the ticker TSLA, has dropped by a total of 26.5% to start the year.
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On a call with analysts following the company’s results, CEO Elon Musk echoed that in-between time, adding that Tesla will make sure the next wave “is executed as well as possible”.
The company is “very far along” on the next-generation vehicle and currently planning to start its production in the second half of 2025, Musk mentioned the possibility of a future factory in Mexico serving as the vehicle's second production location after it starts being manufactured in Texas.
He added that the company plans to explore additional production locations outside North America by the end of the year.
In the fourth quarter, Tesla reported earnings of $7.9 billion, or $2.27 per share, compared to $3.7 billion, or $1.07 per share, in the same period the previous year. Adjusted for one-time items, the company earned 71 cents per share.
Despite a 3% increase in sales to $25.17 billion, the stock tanked in after-hours trading, as it fell short of analysts' expectations of 73 cents per share on sales of $25.6 billion.
Tesla's GAAP gross margins declined to 17.6% from 23.8% in the fourth quarter of 2022.
The company's stock has faced challenges, falling close to 27.8% over the past month, while the benchmark S&P 500 index recorded a 2% gain. Given the fall, Tesla's shares have risen close to 14% in the past 12 months, lagging behind the S&P 500's gains of around 21%.
Wedbush analyst Daniel Ives, often highly enthusiastic about the stock, didn’t mince words when summarizing Tesla’s Wednesday afternoon earnings call, which he dubbed a “track wreck.” In a note cited by MarketWatch, Ives wrote:
“We were dead wrong expecting Musk and team to step up like adults in the room on the call and give a strategic and financial overview of the ongoing price cuts, margin structure, and fluctuating demand … instead we got a high-level Tesla long-term view”.
Ives added that his “near-term confidence in the story is shaken” — though he still appears to like Tesla in the long term. He cut his price target for Tesla stock to $315 from $350 while keeping an Outperform rating.
The volume outlook for the year was “inconclusive,” said Barclays analyst Dan Levy.
“Overall, with significantly negative expectations into the print, the result is arguably not as bad as feared, albeit with a number of questions to be addressed,” he said in a note Wednesday.
Other analysts, such as Morgan Stanley’s Adam Jonas, also cut his Tesla price target ahead of the call, lowering it from $380 to $345 while maintaining a Buy rating. Jonas cited an oversupplied EV market as the reason for the move.
“Global EV momentum is stalling,” wrote Jonas. “We anticipate Tesla’s 2024 outlook to be cautious on volume and profitability.”
For Karl Brauer, an analyst at iSeeCars.com, the problems go beyond Wednesday’s print:
“We are watching a company, and an industry, transition from high growth and high aspirations to modest, predictable growth with increasing competition and reduced opportunity for each participant. Tesla’s latest numbers reflect both its shrinking market dominance and the challenges it faces in appealing to mainstream consumers”.
The Tesla stock price was over 12% down as of market close on Thursday, trading around the $181.99 mark. The Elon Musk-led firm has shed 26.5% of its value year-to-date in 2024.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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