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Tesla Q4 2023 Earnings: Tesla Is No Longer Attractive As An Electric Vehicle Manufacturer

Calvin Lo

Tesla (TSLA) just reported Q4 revenue and earnings below expectations, and guided for notably lower growth rate in deliveries for 2024. Investors were understandably disappointed, sending the stock plunging by 12% and fell even further in after hours to end ~$182. TSLA stock is now down -26% YTD and down -55% from its peak. Is it time to give up on the Tesla story or could this be a buying opportunity?

For Q4 2023, revenues only grew 3% YoY. Non-GAAP EPS plunged -40% YoY. GAAP gross margins came in at 17.6%, down -612 bps YoY, and Operating margin came in at 8.2%, down -784 bps YoY. In addition, total deliveries for the quarter came in at 484k, up 20% YoY which continues to slow from prior quarters.

So in a nutshell, slower deliveries, slower revenue growth, declining earnings and margins. Tesla appears to be adversely affected by higher interest rates, as expected. Higher interest rates means higher repayments on car loans. So to attract buyers, Tesla have been cutting prices aggressively.

Tesla is no longer attractive as an EV play

Their best-selling models, Model 3 and Y have more or less ramped up production, but yet have to be sold as much lower prices. Their mass-market, cheaper $25k Next Gen Vehicle or Model 2 or “Redwood” is still ~2 years away.

Meanwhile, Cybertruck is still ramping up but will be slow due to manufacturing complexities. Anyway, Cybertruck demand might not be as high as expected, due to the surprisingly much higher than promised price point. If NGV adopts CT features, would it be priced much higher than the promised $25k too?

In addition, many other EVs are coming online from legacy auto markers and Chinese EV makers. In Q4, Chinese auto maker BYD has just surpassed Tesla as the world’s biggest EV maker. Even CEO Elon Musk envisions Chinese EVs to flood the global market. Can Tesla regain its dominance as the biggest EV maker in the world? At the rate BYD and co are pushing out EVs, that’s a tall order.

The question Tesla investors need to ask now more than ever: “Am I investing in Tesla purely as an EV play or for its potential other growth drivers in autonomous driving, robo-taxis, AI, robotics?”. If not, maybe it’s time to move on.

Risks

  • Competition from China EV makers, i.e. BYD and EVs from legacy auto, i.e. Ford, GM, VW, Polestar
  • Slowing deliveries growth rate – in between growth waves of 3/Y and NGV
  • Cybertruck/Semi ramp – high capex, slow vehicle growth
  • Sticky inflation – more price cuts and further margin compression?
  • Hertz giving up and selling Tesla cars – will other car rental companies follow suit or not even consider buying EVs? second-hand Tesla car prices will also fall further

Potential opportunities

  • Next gen vehicle aka “Redwood” – needed to compete with China EVs, widen appeal, but has to come soon
  • FSD v12 end-to-end neural net – monitor how much better it is and if it improves FSD take rate
  • Optimus humanoid robot – monitor progress which has been pretty fast so far, need to see it performing more real world tasks on its own
  • Energy storage – solar energy generation is declining, but megapacks seem to be doing well, yet to see major breakthroughs

My thoughts

IMO, Wall Street are just going back to valuing Tesla as just a car company. In the past few quarters and especially when TSLA stock was doing well, analysts had to build in more and more of Tesla’s other growth drivers to justify its valuation.

However as prices fall, I think most analysts just throw the baby out with the bathwater, returning to valuation models that assume Tesla as just a car company, and one with slowing growth and shrinking margins at that. If indeed true, the stock falling as hard and as fast as it has makes sense.

Prior to this earnings, I was pretty optimistic with a $316 target for 2024 but after making big adjustments to my crude valuation model, I’ve cut that down to just $258 (yes, I’m brutal and not any good at this price target thing).

According to Tipranks, average 12-month price target is $223, implying 22% upside. That said, at ~$180 where the stock is trading post-earnings is still offers attractive potential upside.

TSLA stock will probably continue to fall at least for few more days post-earnings. After that, who knows. It would be nice if we got a rebound, but even if it continues falling, I’m ready to throw in some cash to buy at lower prices. I’ve just sold all my Disney (DIS) shares at a small profit and transferring some under-utilised cash from my dormant eToro account, and intend to layer in as the stock falls.

I’m in the stock for long-term, and so far I’ve not seen any obvious red flags that Tesla is veering off its trajectory just yet. Hopefully this growth slowdown and margin compression turns out to be just a kink in Tesla’s growth story. I’m still very much excited about Tesla’s product roadmap and advancements in technology and capabilities. Tesla still seems to be innovating and pioneering in many areas. Sure they may be at the end of riding one S-curve, but there are potentially multiple S-curves to come.

You can find my Tesla investment thesis here

What do you think about Tesla? Are you a buyer or seller of Tesla stock right now?

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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