TSLA shares slip 3% following earnings; Misses key margin expectations, warns of volume slowdown in 2024
Electric vehicle (EV) pioneer Tesla (TSLA) released its Q4 results, highlighting its financial performance and growth prospects. The company reported a slight miss in earnings per share (EPS) and revenue estimates. It disclosed important information regarding its Cybertruck production and future vehicle volume growth.
Financial Performance and Production Efficiency:
In Q4, Tesla reported adjusted EPS of $0.71, slightly below the estimated $0.73, and revenue of $25.17 billion, falling short of the estimated $25.87 billion. The company generated free cash flow of $2.06 billion, surpassing the expected $1.45 billion, indicating its strong cash position. Despite a lower gross margin of 17.6% compared to the estimated 18.1%, Tesla's cost of goods sold per vehicle declined sequentially, highlighting its focus on cost efficiencies. The weaker margins highlights the pricing issues facing the EV space as competition intensifies.
Cybertruck Production Ramp and Growth Outlook:
Tesla stated that the production and deliveries of its highly anticipated Cybertruck would ramp up throughout the year. The company did not the ramp for the cybertruck would be longer than other models.
One issue hurting the stock in after hours is comments around vehicle volumes in 2024. TSLA noted the growth rate of vehicle volume in 2024 might be notably lower than that achieved in 2023. This observation is attributed to the company's focus on launching the next-generation vehicle at its Gigafactory in Texas. Therefore, while near-term growth might be moderate, Tesla expects accelerated growth after 2024, especially in its Energy Storage business.
Shanghai's production resumed normal rates in Q4, recovering from scheduled downtime in Q3, as the updated Model 3 ramped to full speed within less than two months.
Positive Factors and Opportunities:
Tesla's operating margin of 8.2% in Q4, compared to 7.6% in Q3 was good but its Gross Margin of 17.6% fell short of the expected 18.1%. The company did not breaklout the closely followed Auto, ex EV credit margin in its release. It should be a hot topic on its conference call. (Tonight 5 p.m.). The company's operating income was supported by lower cost per vehicle, gross profit growth in Energy Generation and Storage, and increased vehicle deliveries. Moreover, Tesla recorded a one-time non-cash tax benefit of $5.9 billion in Q4, enhancing its financial position and freeing up resources for further investments.
In Q4, Tesla's operating income decreased YoY to $2.1 billion, resulting in an 8.2% operating margin. Factors contributing to this decrease include reduced vehicle ASP due to pricing and mix, an increase in operating expenses, lower FSD revenue recognition due to the FSD Beta wide release, the cost of Cybertruck production ramp, and the one-time non-cash tax benefit. On the positive side, lower cost per vehicle, including lower raw material costs, logistics costs, and IRA credit benefit, growth in vehicle deliveries, and gross profit growth in Energy Generation and Storage partially offset these negative factors.
Challenges and Risks:
Tesla faces challenges associated with pricing and mix, operating expenses driven by AI and R&D projects, and lower Full Self-Driving (FSD) revenue recognition due to the wide release of FSD Beta in North America. Additionally, the cost of the Cybertruck production ramp contributes to expenses. However, the company's commitment to cost reduction across production stages, including raw materials and logistics, should help mitigate these challenges and improve profitability.
Debate Between Bulls and Bears:
Bulls might be optimistic about Tesla's expanding global presence, with the Model 3/Y platform leading the current growth wave. They anticipate future growth driven by the next-generation vehicle platform, expected to be launched at Gigafactory Texas. Additionally, the Energy Storage business's potential outpacing the Automotive business in terms of deployments and revenue growth provides another reason for bullish sentiment.
On the other hand, bears might express concern about the potential slowdown in vehicle volume growth in 2024. They might argue that Tesla's ambitious growth targets may not be attainable, especially considering the challenges and risks mentioned. Furthermore, competitors and regulatory pressures in the EV market could affect Tesla's market share and profitability.
Conclusion:
Tesla's Q4 results provide insights into its financial performance, production efficiency, and growth prospects. Despite a slight miss in earnings and revenue estimates, the company's strong cash flow, cost reduction efforts, and expanding global footprint support its investment potential. While the Cybertruck's production ramp might take longer than previous models, Tesla expects accelerated growth in its next-generation vehicle platform and Energy Storage business beyond 2024. This evolving landscape creates an exciting opportunity for long-term investors who believe in the company's vision and pioneering position in the EV industry.