Unlike its Magnificent Seven tech peers, Tesla (TSLA) stock has driven in reverse since the start of the year, falling 40% year to date, compared with the 4% rise in the S&P 500 index. Its shares have also fallen 14% in thirty days to a new 52-week low, while the S&P 500 index has fallen just 4%.
The luxury electric vehicle company is set to report first quarter fiscal 2024 on Tuesday after the closing bell. Notably, the recent decline in the stock coincides with the company missing its Q1 vehicle delivery estimates. Investors want to know whether this recent lull is a buying opportunity. Earlier this week, Deutsche Bank analyst Emmanuel Rosner lowered his rating on Tesla from Buy to a Hold, citing the likelihood of the Model 2 launch being delayed in favor of prioritizing the Robotaxi business.
"Without any new vehicle, we feel that Tesla could face more headwinds to growth, as competition arises in China and from other OEMs, to which the company may not be able to respond due to limited free cash flow," added Rosner on the short-term outlook.
Wedbush Securities analysts Dan Ives also weighed in, noting that the Model 2 initiative was key for Tesla’s growth over the next few years. Implications of lower the pricing on the company's FSD package and an announcement by Elon Musk of a 10% global job cuts are other factors investors are weighing.
Meanwhile, increasing competition from China now accounts for close to 70% of all new EVs sold globally. Tesla’s price cuts, in many respects, were aimed at increasing its demand and fighting off competitive pressures. As such, the company’s profit margins, along with demand totals, will be closely-watched during earnings. And aside from a top and bottom line beat, the market will also be listening for any hints on how many Cybertrucks the company expects to deliver in Q1 and for all of 2024.
In the three months that ended March, Wall Street expects the Austin, Texas-based company to earn 51 cents per share on revenue of $22.34 billion. This compares to the year-ago quarter when earnings came to 85 cents per share on revenue of $23.33 billion. For the full year ending in December, earnings are expected to decline 14% year over year $2.67 per share, while full-year revenue of $102.68 billion would rise 6% year over year.
Over the past year, the company has enacted a series of price cuts aimed at boosting sales. While the price cuts are driving in new buyers, the cuts have also pressured both the average revenue Tesla recognizes per vehicle and also the company’s profit margin profile. But here’s the thing some critics often miss, even as the competition has pressured Tesla’s margins and its growth: Tesla is profitable with its EV production, thanks to its first-mover advantage. No competitor can make this claim.
What’s more, Tesla over the next five years is poised to show revenue growth in its higher-margin service businesses. The company's full-year revenue is projected to be $102.7 billion, up from just $1.7 billion ten years ago. This equates to a compound annual rate of more than 45%. Tesla management expects that growth rate to continue until 2030. As such, I believe the depressed stock price is a buying opportunity for investors who have waited for a better entry point.
The company is betting heavily on FSD, which will be the birth of the autonomous vehicle evolution and is designed to automate Tesla vehicles so they can operate without a driver behind the wheel. Once FSD can navigate autonomously, it will not only boost Tesla’s profit margins, it will be a profit center of recurring revenues for Tesla through the company’s ambition for Robotaxis. As such, with Tesla stock trading at near 52-week lows, betting on a rebound in the next 12 to 18 months looks very attractive.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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