Tesla (TSLA) – Get Free Report shares fell sharply Thursday, pulling the stock into a six-month tailspin that has lopped more than $330 billion from its market value, after CEO Elon Musk failed to placate investor concerns following a disappointing fourth-quarter earnings report.
Musk, who is undeniably the driving force behind both Tesla’s astonishing success but also its zeitgeist-capturing message on the future of cars and driving, struck a cautious tone in last night’s call with investors, warning that profit margin improvement was linked to central bank interest rates while failing to provide firm 2024 revenue guidance.
He needed to do more.
Tesla, which is doubling down on a risky near-term strategy that prioritizes market share over profit, posted weaker-than-expected fourth-quarter earnings of 71 cents a share on $25.17 billion of revenue. Both figures missed Wall Street forecasts despite record deliveries of 484,507 vehicles over the final three months of the year.
Net income doubled from fourth-quarter 2022 to $7.9 billion, but a good chunk of that was tied to a deferred tax gain of $5.9 billion. And costs linked to artificial-intelligence projects and the delayed Cybertruck pickup launch ate deep into its bottom line.
Elon Musk was unable to convince investors that his long-term ambitions for Tesla should overside a disappointing fourth quarter.
Tesla investors sought reassurance
With Tesla taking in less revenue with each car it sells — thanks to a series of aggressive price cuts in key markets such as China, Europe and the U.S. — and squeezing little profit from each unit at the same time, investors were looking to Musk to reassure them that the gamble was paying off.
What they got instead was what Wedbush analyst Dan Ives, a longtime Tesla bull, called “another train-wreck conference call” with Musk at the helm.
“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,” Ives said.
“The long term story is intact for Tesla and we truly believe EV adoption to a much broader mass market is around the corner with [artificial intelligence and Full-Self-Driving] the future,” he added.
“However, the near-term Category 4 hurricane around price cuts and lack of granularity, guidance, and communication from Musk and Tesla is a bitter pill to swallow for the bulls.”
Tesla’s profit margins, probably the most closely tracked metric by analysts on Wall Street, narrowed to 17.6% over the three months ended in December. That compares with a 23.8% margin over the same period in 2022 and analysts’ estimates of around 18.3%.
The group also said that 2024 growth rates, in terms of vehicle deliveries, would be “notably lower” than 2023 levels. That warning effectively tore up Musk’s ambitions of a 50% annual growth rate tied to new gigafactories in Texas, Germany and Mexico.
Wall Street forecasts indicate 2024 revenue growth would likely come in at 10%, indicating a full-year total of around $107 billion.
Analyst Munster: Tesla outlook ‘sobering’
Gene Munster, another highly respected Tesla watcher and managing director at Deepwater Asset Management, called it the “most sobering outlook that I have seen from Tesla.” But he added that investments tied to the future of EVs and the group’s next-generation vehicle platforms put it in “a better position long term.”
Margins, however, will be a challenge to improve over the near term, and that is going to be a key component of the stock’s reaction today.
“We don’t have a crystal ball, so it’s difficult for us to predict this with precision,” Musk told investors late Wednesday. “If interest rates come down quickly, I think margins will be good. And if they don’t come down quickly, they won’t be that good.”
Deepwater analyst Gene Munster called Tesla’s outlook ‘sobering.’
Musk seemed far more animated when speaking about his ambitions for Tesla’s development of Full-Self-Driving and AI technologies, describing the company as sitting in the midst of “two major growth waves”: the later of which will be “driven by next-gen vehicle, energy storage, Full Self-Driving, and other projects.”
Collectively, Musk said, “If we execute on all these things … I do see a path where Tesla could one day be the most valuable company in the world.”
Until then, however, investors are going to value Tesla in much the same way they do for other car companies, according to Elazar Advisors analyst Chaim Siegel.
“Slowing revenues and slowing margins is not the sign of a growth company but rather a mature cyclical company,” Siegel said in a Thursday client note. “Most cyclical companies adjust production growth capacity with changing cyclical dynamics. Tesla has not. It’s a building risk.”
Tesla shares were marked 8.8% lower in premarket trading to indicate an opening bell price of $189.15 each. That would peg the stock at levels last seen in May 2023 and would value the group at just under $600 billion.