Just last week, electric vehicle (EV) manufacturing giant and “Magnificent Seven” member Tesla (NASDAQ: TSLA) reported its Q4 and full-year 2023 earnings. The results, however, left much to be desired, prompting a sell-off that has seen the stock plummet by over 10%. CEO Elon Musk’s lackluster outlook on the company’s AI projects, coupled with decelerating core EV business growth and deteriorating margins and cash flow, has cast a dark cloud over Tesla’s prospects.
Slowing Growth and Waning Margins
Despite generating $96.8 billion in total revenue for 2023, reflecting a 19% increase year over year, Tesla’s EV revenue only grew by 15%, down from a stellar 51% in 2022. The aggressive price cuts aimed at addressing heightened competition led to a substantial sales slowdown and, more critically, diminishing margins. Consequently, Tesla’s free cash flow has hit its lowest point since 2020, painting a worrying financial picture for the company.
This slowdown in growth aligns with a broader trend of stunted growth experienced by companies across various industries amid an opaque macroeconomic backdrop. However, it was Musk’s remarks during the earnings call that dealt the hardest blow to investor confidence, exacerbating the stock’s decline.
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AI Ambitions Hit The Skids
Beyond its EVs, Tesla’s foray into artificial intelligence (AI) and autonomous driving has been a major point of interest. The company’s innovative software development, particularly its Dojo supercomputer and humanoid robot Optimus, was poised to diversify Tesla beyond just being an automobile manufacturer. Musk’s optimistic proclamation regarding AI’s potential to make Tesla the world’s most valuable company further fueled this narrative. However, a stark contrast emerged during the earnings call when Musk labeled Dojo as a “long shot” and expressed uncertainty regarding the timing of Optimus’ rollout. This profound skepticism around Tesla’s AI ventures undoubtedly added fuel to the fire, exacerbating investors’ concerns.
Assessing the Investment Landscape
Many Tesla investors have been captivated by the company’s growth narrative beyond EVs, resulting in a highly volatile stock with a towering valuation. Yet, the primary issue lies not in Tesla’s lofty valuation, but in the dearth of clarity during earnings calls, leaving investors grappling with vague, ambiguous statements. The perceived lack of specificity surrounding Tesla’s long-term roadmap has left a lot to be desired.
The most illuminating insight amid the disarray came from Gene Munster of Deepwater Asset Management, who highlighted Tesla’s surprisingly tepid outlook. Munster’s tweet underscored that Tesla acknowledged the potential substantial deceleration in vehicle volume growth in 2024, compounding the prevailing apprehension among investors.
In essence, the question of whether to invest in Tesla stock post-earnings debacle hinges on the evaluation of the company’s enduring potential, transcending momentary fiscal hurdles and management missteps.
Tesla Faces Investor Caution and Low Expectations
As an investor in Tesla, looking at the current landscape, there is a sense of foreboding tethered to cautious optimism. Gene Munster’s recent assessment encapsulates the prevailing sentiment – expectations are low, and the outlook for this year doesn’t inspire confidence. In fact, my gaze wanders beyond 2024.
The real crux of the matter lies in the management’s approach to earnings calls. By treating them as informal updates, Tesla runs the risk of eroding investor confidence. If this trend persists, the stock may face a perilous plunge.
Prudent Observations and Judicious Moves
In such times, the most prudent course of action may be to vigilantly monitor Tesla’s stock and exercise sound judgment before acquiring more shares. Additionally, paying close attention to the company’s earnings calls becomes pivotal. These calls now hold a greater significance as Tesla strives to navigate towards the next phase of growth and maturity.
Aligning With Sound Advice
Amidst the tempestuous climate surrounding Tesla, it’s paramount to heed the counsel of seasoned analysts. As the saying goes, “When our analyst team has a stock tip, it can pay to listen.” For over two decades, the Motley Fool Stock Advisor newsletter has consistently outperformed the market, a testament to its credibility.* It comes as no surprise that Tesla has secured a place in their list of the ten best stocks, a reassuring nod for avid investors.
*Stock Advisor returns as of January 29, 2024
