Tesla's Earnings: A Green Light for Investors?

As Tesla (TSLA) prepares to release its fourth-quarter 2024 earnings on Jan. 29, investors are left wondering: should you buy Tesla stock before the earnings report? Let's dive into the key factors that could influence your decision.



Tesla's stock has been on a rollercoaster ride in recent months, with shares up 100% in the past 12 months. Despite the volatility, the company's market cap has soared to $1.3 trillion, reflecting investors' confidence in its long-term prospects. However, with slowing revenue growth and declining profit margins, it's essential to consider the following factors before making a decision.



1. Slowing Revenue Growth: Tesla's trailing-12-month deliveries have stalled out for a few quarters, with deliveries in 2024 being lower than in 2023. This slowdown is likely due to slowing market-share gains for the EV category, especially in the United States. Additionally, Tesla has implemented large price cuts to move products, which impacts margins but keeps market share steady. While these actions may help maintain sales volume, they could lead to lower profitability in the short term.
2. Declining Profit Margins: Tesla's gross margin was 18%, and operating margin was only 8.5% over the last 12 months ending in Q3 of 2024. These figures are significantly lower than the levels the company hit a few years ago, indicating a troubling development for the company. The company's price cuts and slowing deliveries have put pressure on margins, which could continue to decline if these trends persist.
3. Ambitious Growth Plans: Despite the recent challenges, Tesla remains an innovative company with ambitious growth plans. The company is working on solar technology, commercial battery cells, self-driving technology, and what it calls the Cybercab, as well as AI and humanoid robot research. While these innovations sound exciting, there is little evidence to suggest that they will significantly contribute to the company's financial performance in the coming years. The product roadmap should leave investors skeptical that these will be material to Tesla's financial performance in the near future.
4. Elon Musk's Focus on AI: Elon Musk has founded a separate company called xAI, which has raised $6 billion in funding. If Musk's focus on AI is primarily in this new enterprise, it could potentially detract from Tesla's business. This lack of investment in AI at Tesla might be concerning, given the growing importance of AI in the tech industry.



In conclusion, while Tesla's stock has performed well in recent months, the company's slowing revenue growth and declining profit margins raise concerns about its future prospects. Additionally, the company's ambitious growth plans and Elon Musk's focus on AI through xAI could have a significant impact on Tesla's business and valuation. Before making a decision, consider these factors and weigh the risks and rewards of investing in Tesla stock before the earnings report.