Interactive Investor

ii view: Tesla shares fall – here’s why

A mix of electric vehicle, artificial intelligence (AI) and energy generation and storage solutions prospects. Buy, sell, or hold?

25th January 2024 11:45

Keith Bowman from interactive investor

Fourth-quarter results to 31 December

  • Revenue up 3% $25.17 billion
  • Adjusted earnings per share down 40% to $0.73
  • Cash and investments held up 31% to $29 billion

ii round-up:

Tesla's (NASDAQ:TSLA) sales and earnings missed Wall Street forecasts with the electric car maker offering little sales guidance for the year ahead. 

Tesla warned of a potentially lower sales growth rate during 2024 compared to 2023 with the launch of its new innovative production platform for its next generation of cars a key focus. Analysts had already expected growth in sales volumes to slow to around 20% during 2024 or approximately 2.2 million vehicles compared to 2023’s 38% growth and 1.8 million vehicles - largely due to economic challenges for its major market China.  

Shares for the Nasdaq 100 company fell around 6% in afterhours US trading having doubled in value during 2023. Shares for rivals Ford Motor Co (NYSE:F) and General Motors Co (NYSE:GM) rose around 5% during 2023, while shares for European mammoth Volkswagen AG (XETRA:VOW) fell by a fifth. The Nasdaq 100 itself climbed 54% during 2023.

Tesla’s fourth quarter 2023 revenues gained 3% year-over-year to $25.17 billion, missing forecasts nearer to $25.6 billion. Adjusted earnings fell 40% to $0.73 per share, shy of estimates closer to $0.76 per share and contributing to the automaker’s first annual profit fall since 2017. 

Accompanying management outlook comments flagged ongoing innovations to reduce the cost of manufacturing and operations, but with expectations for hardware-related profits, such as its cars, to be accompanied by an acceleration of AI, software and fleet-based profits going forward. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging an estimated fair value price of $345 per share, although down from a recent $380 per share. 

ii view:

Started in 2003, Tesla makes both electric vehicles and energy generation and storage systems. Other developments include its self-driving software and the expected use of Artificial Intelligence or AI, along with potentially radical new production techniques to reduce costs. Its stock market value of around $660 billion compares to rivals such as Mercedes-Benz Group AG (XETRA:MBG) at $64 billion and General Motors at $47 billion. 

For investors, rivals including many Chinese automakers are now focused on producing and selling electric vehicles. Elevated borrowing costs to finance a vehicle purchase should not be forgotten. Chief executive Elon Musk’s own concerns for AI and his own desire to own a quarter of the shares before fully pushing AI warrants consideration. As does Tesla’s estimated price to Net Asset Value (NAV) of around 14 times compared to estimates for rivals at under two times, suggesting the shares are not obviously cheap.

On the upside, development of its vehicle software and network of supercharging stations continues. Climate change concerns persist. The geographical spread of its factories including its relatively new German plant has reduced shipping costs. Production of its high tech Cybertruck is expected to ramp-up during 2024, while sales for its energy generation and storage business also bring added potential.  

For now, and while some caution looks sensible, existing long-term holders of this innovative EV-maker are likely to stay sitting tight.   

Positives: 

  • Climate change concerns remain
  • Expanding network of superfast charging stations

Negatives:

  • Rising competition from other manufacturers
  • Elevated costs

The average rating of stock market analysts:

Hold

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