Tesla stock tanks on earnings miss, Weaker outlook

Shares of the largest U.S. electric-vehicle maker, Tesla (NASDAQ: TSLA), were dropping on Thursday after the company reported disappointing fourth-quarter earnings and a less-than-rosy outlook.

With its fourth-quarter earnings release on Wednesday after the market close, Tesla missed revenue and earnings estimates and called for a “notably lower” growth rate in 2024. The automaker’s stock price was down some 10% on Thursday, trading at around $187 per share.

Margins shrink on higher expenses, lower selling prices

For the quarter, Tesla’s revenue was up 3% year over year to $25.2 billion, with its automotive revenue up 1% to $21.6 billion. The company’s total revenue was below the consensus estimate of $25.9 billion.

On the bottom line, Tesla’s adjusted net income was $2.5 billion or 71 cents per share, down 39% year over year. This missed the consensus estimate calling for adjusted earnings of 73 cents per share. Total GAAP net income was $7.9 billion, up 115% year over year, but that was buoyed by a one-time $5.9 billion tax benefit.

Tesla’s earnings were dragged down by 27% higher operating expenses, which amounted to $2.4 billion. The spending increases were related to higher costs for research and development initiatives and the roll-out of its new full self-driving (FSD) Beta V12 software, which uses artificial intelligence “to influence vehicle controls (steering wheel, pedals, indicators, etc.) instead of hard coding every driving behavior.” Tesla management said 2023 saw the highest capital expenditures and R&D expenses in the firm’s history.

Profitability was also affected by lower selling prices, as Tesla lowered its prices to increase sales. Total production was up 13% in the quarter while total deliveries increased 20% year over year to 484,507. This combination of factors significantly lowered Tesla’s margins, as its operating margin dropped 784 basis points to 8.2% in the quarter.

For the full year, the EV maker’s revenue was up 19% from the previous year to $96.8 billion while its automotive revenue climbed 15% to $82.4 billion. GAAP earnings were up 15% to $15 billion while adjusted earnings were off 23% at $10.9 billion. Tesla’s operating margin was down 758 basis points for the year to 9.2%. Production hit 1.846 billion vehicles in 2023, up 35%, while deliveries were at 1.809 billion, up 38%.

Tesla had $8.9 billion in capital expenditures in 2023, up 24% from the previous year, while its free cash flow dropped 42% to $4.4 billion. However, cash, cash equivalents and investments were up 31% at $29 billion.

A transition year expected for Tesla

Investors and analysts were more concerned about Tesla’s outlook for 2024 than its 2023 results. In its outlook, management said the vehicle volume growth rate in 2024 may be “notably lower than the growth rate achieved in 2023.” In part, a key reason is that the company will be working on its next-generation vehicle at its manufacturing facility in Texas.

“Our company is currently between two major growth waves: the first one began with the global expansion of the Model 3/Y platform, and the next one we believe will be initiated by the global expansion of the next-generation vehicle platform,” Tesla management said in the company’s earnings release.

They added that the growth rate of deployments and revenue in the energy storage business should outpace the automotive business in 2024.

In addition, management said the company has sufficient liquidity to fund its expansion plans and will continue to reduce the cost of manufacturing and operations through the acceleration of AI and other innovations.

Several analysts downgraded Tesla after the earnings report came out, mainly on the automaker’s outlook. Among the more bearish firms was Wells Fargo, which dropped its target from $223 to $200. Meanwhile, TD Cowen lowered its target from $200 to $180, and Redburn Atlantic initiated coverage with a $170 price target and a sell rating.

However, most analysts were somewhat bullish despite dropping their targets, as the consensus price target among analysts is still around $224.

Nonetheless, Tesla stock is definitely a hold for now, as at a price-to-earnings ratio of 67 with this outlook, it doesn’t look like a buy right now.