Tesla (NASDAQ: TSLA) has undoubtedly been a standout performer on the stock market over the last decade, epitomizing the potential for electric vehicles (EVs) to be a viable and highly profitable business. However, the company’s recent performance has raised concerns, with its stock plummeting by approximately half from its 2021 peak, and its fourth-quarter earnings report revealing a less spectacular picture.
This decline is attributed to Tesla’s dwindling revenue growth and falling profits, both of which persisted into the fourth quarter. Automotive revenue experienced a mere 1% year-over-year increase to $21.6 billion, while the overall revenue saw a modest 3% rise to $25.2 billion. These figures reflect the impact of reduced prices, as Tesla strives to maintain competitiveness, capture market share, and confront headwinds from higher interest rates.
Resultantly, operating income witnessed a sharp 47% year-over-year dip to $2.06 billion, and adjusted earnings per share went down by 40% to $0.71. Missing estimates on the top and bottom lines, the company also forecasted slower production growth in 2024, leading to apprehensions about the stock’s potential to create millionaires as it once did.
Image source: Tesla.
Nvidia’s Momentum with AI
Tesla and virtually every other artificial intelligence (AI) company heavily rely on a single entity – Nvidia (NASDAQ: NVDA) – to source their technology. Nvidia’s stock has soared in the past year owing to the incredible demand for its chips from industry giants such as OpenAI, Oracle, Meta Platforms, and Tesla, among others. With its market-leading position in graphics processing units (GPUs), Nvidia is at a significant advantage over its competitors as AI and autonomous vehicle systems continue to lean on its chips and accelerators.
This robust demand is anticipated to propel Nvidia’s stock even higher in the coming year, following a third quarter where revenue tripled year over year, and its generally accepted accounting principles (GAAP) profit surged by 12 times. Despite the soaring profits, the company’s valuation has moderated, setting the stage for another strong year in 2024 as the AI infrastructure of cloud companies and others continues to expand, presenting a clear advantage for Nvidia.
General Motors’ Competitive Edge
As the interest in electric vehicles (EVs) begins to wane, a development that could potentially spell trouble for Tesla and its counterparts, it, however, offers a window of opportunity for established automakers like General Motors (NYSE: GM). These legacy automakers have historically been overlooked as investors flocked towards EV stocks, causing a significant dip in their stock prices.
Further analysis indicates that GM’s stock now trades at a mere price-to-earnings ratio of 5. While GM may not present the same explosive growth potential as Tesla, the company has seen a rise in its EV and autonomous vehicle (AV) business, particularly with Cruise, despite a temporary halt in operations following San Francisco regulators’ suspension.
With a 14% increase in vehicles sold to 2.6 million, GM continues to demonstrate solid growth, outperforming the growth rate of a mature business, and all this from a stock priced for no growth. Moreover, the company’s low valuation positions it favorably to return cash to its shareholders, as evidenced by a $10 billion accelerated share repurchase program announced in November, along with a 33% dividend increase to $0.12 a share.
Considering the promising trajectory of its legacy car business and its investments in electric vehicles and autonomy, GM seems poised to rival EVs and AVs when the time comes, potentially leading to a surge in its stock value upon another robust earnings report.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
