Tesla stock tanks, poor performance, weak outlook

Stocks of America’s largest electric vehicle manufacturers tesla (NASDAQ:TSLA) fell on Thursday after the company reported disappointing fourth-quarter results and a less than optimistic outlook.

In announcing its fourth-quarter earnings after the market closed on Wednesday, Tesla missed revenue and revenue estimates and called for a “noticeable lower” in its 2024 growth rate. Shares of the automaker fell about 10% on Thursday, trading at about $187 per share. share.

Increased costs, lower selling prices resulting in lower margins

During the quarter, Tesla’s revenue increased 3% year-over-year to $25.2 billion, while automotive sales increased 1% to $21.6 billion. The company’s total revenue was below the consensus estimate of $25.9 billion.

All in all, Tesla’s adjusted net income was $2.5 billion, or 71 cents per share, down 39% from the previous year. That missed consensus estimates calling for adjusted earnings of 73 cents per share. Total GAAP net income was $7.9 billion, up 115% year-over-year, but buoyed by a one-time tax benefit of $5.9 billion.

Tesla’s profits fell due to a 27% increase in operating expenses, which amounted to $2.4 billion. The increase in spending is related to increased spending on research and development initiatives and the release of new Fully Self-Driving (FSD) Beta V12 software, which uses artificial intelligence to control the vehicle (affecting steering wheel, pedals, indicators, etc.). .) Instead of hard-coding every driving behavior.” Tesla executives said 2023 marked the highest capital expenditures and R&D expenses in the company’s history.

Lower selling prices have also impacted profitability as Tesla lowers prices to increase sales. Total production for the quarter increased 13%, and total deliveries increased 20% year-over-year to 484,507 units. The combination of these factors resulted in significantly lower margins for Tesla, with operating margins down 784 basis points in the quarter to 8.2%.

For the year, EV manufacturers’ sales increased 19% year-over-year to $96.8 billion, while auto sales increased 15% to $82.4 billion. GAAP revenue increased 15% to $15 billion, while adjusted revenue decreased 23% to $10.9 billion. Tesla’s operating profit margin fell 758 basis points this year to 9.2%. In 2023, production increased 35% to 1.846 billion units, and deliveries increased 38% to 1.89 billion units.

Tesla reported 2023 capital expenditures of $8.9 billion, up 24% from the previous year, while free cash flow fell 42% to $4.4 billion. However, cash, cash equivalents and investments increased 31% to $29 billion.

A turning point is expected for Tesla.

Investors and analysts were more interested in Tesla’s prospects in 2024 than its 2023 performance. In its outlook, management said vehicle production growth in 2024 “could be significantly lower than the growth rate achieved in 2023.” That’s important, in part, because the company plans to develop its next-generation vehicles at its manufacturing facility in Texas.

“Our company is currently between two major growth streams. The first growth began with the global expansion of our Model 3/Y platform, and we believe the next growth will begin with the global expansion of our next-generation vehicle platform,” Tesla said. management said in the company’s earnings call.

They added that the deployment and revenue growth rate of the energy storage business will outpace that of the automotive business by 2024.

Management also said the company has sufficient liquidity to fund its expansion plans and will continue to reduce manufacturing and operating costs through the acceleration of AI and other innovations.

Several analysts downgraded Tesla after its earnings report, based primarily on the automaker’s outlook. Among the more bearish companies is Wells Fargo, which lowered its target from $223 to $200. Meanwhile, TD Cowen lowered its price target from $200 to $180, and Redburn Atlantic initiated coverage with a $170 target and a Sell rating.

However, most analysts were somewhat optimistic despite lowering their targets. Because the consensus price target among analysts is still around $224.

Nonetheless, Tesla stock is a solid hold for now. Since the price-to-earnings ratio based on this outlook is 67, it does not appear to be a buy at the moment.