Tesla Stock: A Buy or Sell Amid Trump's Return and Q4 Earnings?

As Donald Trump returns to the White House, investors are wondering if Tesla (TSLA) stock is a buy or a sell. The electric vehicle (EV) giant recently reported its Q4 earnings, which could provide some insight into the stock's potential performance under a Trump administration. Let's dive into the key takeaways from Tesla's Q4 earnings report and explore how Trump's potential regulatory changes might impact the company's competitive landscape and stock price.



Tesla's Q4 Earnings: A Mixed Bag

Tesla's Q4 earnings report was a mixed bag, with some positive and negative aspects that could influence the stock's valuation. Here are the key takeaways:

1. Revenue Growth: Tesla's revenue grew by 3% year-over-year to $25.2 billion, slightly missing Wall Street's expectations of $25.6 billion. This growth was driven by increased vehicle deliveries and growth in other parts of the business, largely offset by a lower vehicle average selling price (ASP) due to price cuts and a change in the mix of vehicle models sold. Revenue headwinds also included foreign-currency exchange and lower "full-self-driving" (FSD) revenue.
2. Vehicle Production and Deliveries: Tesla produced 494,989 vehicles and delivered 484,507 vehicles in Q4, representing a 13% and 20% increase year-over-year, respectively. This growth was driven by strong demand for the Model 3 and Y, as well as the introduction of new models like the Cybertruck.
3. Automotive Segment Gross Margin: Tesla's automotive segment gross margin was 18.9% in Q4, down from 25.9% in the year-ago period. This decline was primarily due to price cuts on vehicles to stimulate sales. However, the gross margin has stabilized on a sequential basis, as it was 18.7% in the third quarter of 2023.
4. Operating Income and Margin: Tesla's operating income fell by 47% year-over-year to $2.06 billion, with the operating margin dropping to 8.2% from 16% in the prior year. This decline was driven by lower vehicle ASP and increased operating expenses, partly due to AI and other R&D projects.
5. Adjusted EPS: Tesla's adjusted EPS declined by 40% year-over-year to $0.71 per share, slightly missing Wall Street's expectations of $0.74. This decline was primarily due to lower revenue and operating income.
6. Operating Cash Flow: Tesla generated $4.37 billion in cash from operations in Q4, up 33% year-over-year. Free cash flow surged 45% to $2.06 billion. The company ended the quarter with $29.1 billion in cash, cash equivalents, and short-term investments, up 31% year-over-year.



Trump's Potential Regulatory Changes: A Boon for Tesla?

Trump's potential regulatory changes, such as dialing back the Inflation Reduction Act and easing regulations for autonomous vehicles, could significantly impact Tesla's competitive landscape and stock performance. Here's how:

1. Easing of EV subsidies and rebates: Trump's plans to scrap EV subsidies and rebates would disproportionately affect smaller competitors, as Tesla's scale and market share would give it a clear advantage. This could lead to a more favorable competitive landscape for Tesla. (Source: Wedbush analysts, Dec. 23, 2024)
2. Higher tariffs on Chinese imports: Trump's expected higher tariffs on Chinese imports would make it less likely that cheaper Chinese EVs will be sold in bulk in the U.S. This would further reduce competition for Tesla. (Source: Wedbush analysts, Dec. 23, 2024)
3. Potential for lighter-touch regulation on self-driving vehicles: The Trump administration's support for Musk's proposed national standard for self-driving vehicles could make it easier for Tesla to roll out its robotaxis planned for next year. This could boost Tesla's growth prospects and stock performance. (Source: Bank of America analysts, Dec. 22, 2024)

These regulatory changes could lead to a more favorable competitive landscape for Tesla, potentially driving its stock performance higher. However, it's essential to monitor how these changes unfold and their impact on the broader EV market.

Tesla's Autonomous Driving Progress: A Wild Card for Investors

Tesla's autonomous driving progress and timeline have a significant impact on investor sentiment and stock price. Here's how:

1. Investor Expectations: Investors have high expectations for Tesla's self-driving capabilities, as Elon Musk has repeatedly promised that full self-driving (FSD) would be achieved by mid-2025. These expectations drive investor sentiment and stock price.
2. FSD Version 13 Rollout: In late 2024, Tesla influencers praised the limited release of FSD v13 around Thanksgiving. However, a wider rollout suggested no major step toward self-driving, which could have dampened investor enthusiasm.
3. Musk's Timeline Promises: Musk has a history of making ambitious claims about FSD timelines, such as "this year" or "next year," which have not yet been met. This could lead to skepticism among investors, affecting stock price.
4. Analyst Cautiousness: Despite Musk's promises, analysts like Adam Jonas remain cautious about Tesla's autonomous driving prospects in the short term. This cautious stance could influence investor sentiment and stock price.
5. Market Reaction to Delays: If Tesla continues to miss its self-driving deadlines, investors may become disillusioned, leading to a potential decrease in stock price. Conversely, if Tesla meets or exceeds expectations, the stock price could rise.
6. Regulatory Easing: A Trump administration that eases regulations for autonomous vehicles could boost investor sentiment and stock price, as it would make it easier for Tesla to roll out its robotaxis.

In conclusion, Tesla's Q4 earnings report presented a mixed bag of results, with some positive and negative aspects that could influence the stock's valuation. Trump's potential regulatory changes, such as easing EV subsidies and rebates and higher tariffs on Chinese imports, could lead to a more favorable competitive landscape for Tesla. However, Tesla's autonomous driving progress and timeline remain a wild card for investors, as Musk's ambitious claims and potential delays could impact investor sentiment and stock price. As investors await Trump administration policy and Tesla's Q4 earnings, they must weigh the potential benefits and risks of buying or selling Tesla stock.