Tesla Earnings Unlikely to Ease Concerns Over Waning Growth ...
(Bloomberg) -- As both the worst-performing and most expensive stock among the Magnificent Seven tech megacaps, Tesla Inc. faces mounting pressure as it reports fourth-quarter earnings Wednesday.
For investors, the issue is the breakneck growth they’ve come to expect of Tesla. Concerns about fading demand for electric vehicles have sent its shares down 16% this month through Tuesday’s close. That paints a troubling picture of market sentiment, with Tesla tumbling while other tech counterparts soar to record highs. Price cuts and rising costs have added to the gloom.
“Tesla investors are looking for a bullish catalyst, but there isn’t one in sight,” Adam Sarhan, founder and CEO of 50 Park Investments, said in an interview. “Investors are going to pay these multiples for earnings for only so long, and if the fundamental story changes and earnings get compressed, then valuation gets compressed.”
The big question is how many cars Tesla can deliver in 2024, and whether the company offers more information on plans for its lower-cost model, which it expects to make in Texas and a forthcoming plant in Mexico.
“I’d expect guidance of 2 million cars a year at the low end,” Seth Goldstein, an analyst at Morningstar Research, said in a phone interview. “It would be great if management would give us a timeline on the Model 2 vehicle and platform, because that will be the next major driver of deliveries.”
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Analysts expect the company to sell about 2.2 million vehicles this year, which would represent about 22% growth from the 1.8 million delivered in 2023, according to estimates compiled by Bloomberg. Tesla shares traded mildly higher, about 0.1%, at 1:46 p.m. in New York on Wednesday, ahead of the post-market results.
Challenges are mounting with automakers, suppliers and even car-rental firms warning that interest in EVs is waning. General Motors Co. and Ford Motor Co. are scaling back their EV expansion plans, while Hertz Global Holdings Inc. is selling off a chunk of its electric fleet and reinvesting in gas cars. While Tesla has responded by lowering prices further, that has eroded its once-hefty profit margin.
“Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock,” Morgan Stanley analyst Adam Jonas wrote in a note on Monday, while pointing out that Tesla is both an auto stock, as well as an energy, AI and robotics company. Jonas expects the company to provide a “clearly cautious outlook” for 2024.
Tesla’s stock trades at 54 times forward earnings, nearly double the Bloomberg Magnificent 7 Price Return Index average of 28 times. That’s after the stock ended 2023 up more than 100%, rebounding from the year before. Tesla’s association with the other tech megacaps also helped the shares amid an investor frenzy for AI plays.
Last year’s rally coincided with a steep drop in Wall Street estimates for Tesla’s 2023 earnings. Analysts currently expect it to report a profit of $3.09 a share for the year — 42% lower than expectations at the end of 2022.
“Its valuation appears indifferent to margin pressure from pricing and rising capital needs,” Redburn Atlantic’s Adrian Yanoshik wrote in a note Wednesday, rating Tesla as a sell.
Close attention also will be paid to any update on Chief Executive Officer Elon Musk’s recent comments suggesting he’d prefer to build AI and robotics products elsewhere unless the Tesla board arranges another massive stock award for him.
“A lot of Tesla’s valuation has been predicated on the fact that AI and self-driving are part of the company. But if Elon is going to take that away, then that changes the narrative,” 50 Park’s Sarhan said.
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