Tesla (NASDAQ:TSLA) delivered a clunker of an earnings report on April 25. Yet unexpectedly, TSLA stock bounced over 10% higher after the news. Was this a case of investors believing that all the bad news being priced in? Perhaps, but I think this was due more to the nature of an earnings report itself.
When companies deliver an earnings report, it has a captive audience. That can work to the advantage of a company like Tesla which has a chief executive officer (CEO), Elon Musk, that can move markets with a single Tweet (or X, or whatever they’re called these days).
If that’s the case, Tesla bulls had to love what they heard about a lower-priced Model 2 which Musk now says may hit the market this year. They also had to be encouraged that the company isn’t abandoning its pursuit of autonomous driving cars.
EV Sales Are Weak And Getting Weaker
Talking about a rosy future doesn’t change a cloudier present. And that’s why investors should pay attention to what was in the earnings report. Revenue of $21.31 billion was down 8.5%, the steepest decline in over a decade. And the bottom line was even worse. Tesla’s gross profit fell by 18% on margin contraction of 200 basis points (bps).
But investors were expecting that. What they may not have been expecting is Musk’s own pronouncement that the company’s vehicle volume growth rate “may be notably lower than the growth rate achieved in 2023…”
The company says that’s because the company will be busy working on its next-gen vehicle and autonomous technology. The problem is that the company needs cash to do that, and it started to burn cash in this past quarter. That’s not likely to change in coming quarters.
Do You Believe In Elon Musk?
That’s the one question you must ask before you buy TSLA stock. I’m not talking about trading or short selling. Tesla’s been an uncomplicated trade for many years. I’m talking about taking a long position in the future of the company.
That’s a tough question, and it requires you to believe Musk’s assertions that Tesla should be valued as a technology company and not a car company. After all, Tesla has robotics, AI, and energy components among others.
That’s the view of Cathie Wood. And she’s not alone. But that doesn’t mean that Tesla isn’t an overvalued tech stock. It’s hard to see how the company is going to justify 86x forward earnings in the short term.
True believers tend to look at earnings season as a time to hear Musk outline his vision for Tesla. They have a point. Tesla is indeed more than “just a car company.”
But there’s another side of the story. If you’re a Tesla bear, you can point out that this earnings report is what Musk does well. Musk is a visionary to be sure, one of the greatest in many generations. But being a visionary gives him the latitude to make forecasts that he isn’t directly responsible to deliver on. Can Tesla deliver? It’s possible, and given Tesla’s past success, you can say even probable.
However, it has to deliver in a timely fashion. Because while EVs are only one part of Tesla’s story, they are the engine that funds it all. And right now that engine needs a jumpstart.