Tesla rallies despite mixed results; Can expectations continue to outperform fundamentals?

Tesla (TSLA) reported its Q4 2024 earnings, delivering a mixed performance that saw the stock initially drop before rebounding in after-hours trading. The company posted adjusted earnings per share (EPS) of $0.73, slightly missing analyst expectations of $0.75. On a GAAP basis, EPS came in at $0.66, down significantly from $2.27 in the same quarter last year. Revenue totaled $25.71 billion, falling short of the estimated $27.21 billion, but still up 2.1% year-over-year. Notably, Tesla's bottom-line numbers were buoyed by a $600 million one-time gain from its cryptocurrency holdings, specifically Bitcoin. Excluding this impact, EPS would have been closer to $0.55, significantly below consensus estimates.

Margins were a focal point of concern. Tesla’s gross margin dropped to 16.3%, down from 17.6% a year ago and below the estimated 18.9%. The company’s automotive gross margin, excluding regulatory credits, came in at just 13.6%, reflecting continued pricing pressures and rising costs. Operating income fell 23% year-over-year to $1.58 billion, missing the expected $2.68 billion. Despite these setbacks, Tesla managed to generate $2.03 billion in free cash flow, exceeding analyst expectations of $1.75 billion. However, capital expenditures rose 21% year-over-year to $2.78 billion as Tesla continues to invest heavily in AI, energy storage, and vehicle production.

Looking ahead, Tesla provided key guidance that suggests a return to growth in 2025. The company expects vehicle deliveries to increase more than 60% over 2024 levels, with production ramping up for new, more affordable models set to launch in the first half of the year. Additionally, Tesla reiterated that its Cybercab (Robotaxi) remains on track for volume production in 2026. Energy storage deployments are forecasted to grow at least 50% year-over-year, underscoring Tesla’s push into non-automotive revenue streams. Tesla also confirmed that the Model Y is expected to once again be the best-selling vehicle globally in 2024.

On the earnings call, CEO Elon Musk made several notable comments regarding Tesla’s Full Self-Driving (FSD) technology. He reiterated his confidence that unsupervised FSD will be released in "many regions in the U.S." by the end of the year. Musk also confirmed ongoing discussions with several automakers about licensing Tesla’s FSD technology, which he claims is seeing "significant interest." However, Musk admitted that Tesla will need to upgrade HW3 vehicles for customers who have purchased the FSD package, calling it a "painful and difficult" process. In a rare moment of candor, Musk even joked, "Now I’m kinda glad that not that many people bought the FSD package haha."

Tesla also provided key updates on its AI and robotics initiatives. Musk emphasized that Optimus, Tesla’s humanoid robot, will be a major value driver in the long run. He stated that production of Optimus V2 is likely to begin early next year, targeting 10,000 units per month. By 2026, Tesla aims to scale production to 100,000 units per month, with the price per unit potentially dropping below $22,000. Musk’s bullish stance on Optimus was evident as he claimed that "the overwhelming value of Tesla in the long run will be Optimus." Tesla also announced plans for a third Megapack factory, further strengthening its energy storage ambitions.

Musk’s broader vision for Tesla was also on display. He stated, "I see a path to Tesla being the most valuable company in the world; there is a path to Tesla being worth more than the next top 5 companies combined." He also projected that Tesla’s training compute needs for AI models, particularly for Optimus, will be ten times greater than what is required for self-driving vehicles. This underscores Tesla’s commitment to AI as a foundational pillar of its future growth.

Despite the choppy financial performance in Q4, Tesla shares initially fell but quickly reversed course, rising nearly 4% in after-hours trading. Investors appear to be focusing on the company’s long-term AI, FSD, and robotics ambitions rather than near-term financials. The company’s reaffirmation of its 2025 vehicle growth outlook, upcoming new models, and progress in AI-driven automation provide reasons for optimism. However, concerns over shrinking margins, high capital expenditures, and the uncertainty surrounding FSD deployment continue to loom over Tesla’s financial trajectory.

In conclusion, Tesla’s Q4 2024 earnings showcased a company in transition. While the financials were underwhelming, the long-term narrative around AI, self-driving, and Optimus provided enough enthusiasm to keep investors engaged. Tesla continues to invest heavily in its next phase of growth, but whether these ambitious projects translate into sustained profitability remains to be seen.