How did Tesla miss in Q4?
Tesla is down in the after-market after reporting Q’4 earnings. The past several quarters have consisted of shrinking profit margins for Tesla, stemming from a reduction in prices to meet shrinking demand for Tesla EVs.
The stock is down due to the lack of guidance given for ‘24. Musk stated in the earnings call that the demand growth for EVs will be “notably” slower in 2024. Furthermore, the Chinese company BYD outperformed Tesla in the recent quarter and has positioned itself as a competent competitor.
Opportunity
My thesis on Tesla is as follows: consumers do not want an EV, they want a Tesla. When someone says EV, the brain naturally goes to Tesla.
The Model 3 is the best-selling car in the world, and I suspect this trend will continue. Staple car companies have attempted to compete with Tesla in EV production but remain unsuccessful as GM and Ford have scaled back their EV production. These companies have to deal with the same softening EV demand as Tesla, in addition to competing with the EV company that sells the most cars in the world, Tesla.
Musk continuously outlined the importance of vehicle manufacturing, where he stated that “revolutionary” technology will be implemented in the next-gen vehicle production. This is scheduled to take place in the second half of 2025. Next-gen technology will increase margins, as production costs will go lower. While well into the future, Wall Street is obsessed with Tesla’s margins. I only see margins on Tesla getting better in the future. Production cost reduction complimented by the Fed easing monetary policy is the light at the end of the tunnel for Tesla margins.
I am in the camp that interest rates will not be cut in the first half of 2024, but eventually, rates will become modest. When monetary policy is easing, monthly auto payments will decrease, prompting consumers to purchase new EVs. This also allows Tesla to raise prices in the future, increasing their margins, which investors have at the forefront of their minds.
In my opinion, the price action in Tesla serves as a buying opportunity. As an owner of the stock, I have to live with the volatility the stock brings. A long time horizon counters this. Demand for EVs is slowing, but I do not see this trend lasting as a shift towards green energy and EVs will continue. As a forward-thinking investor, I want to be where the market is going, which is green. Tesla has a competitive advantage located in their manufacturing. Viable competitors in the space are not companies like Lucid or Rivian who have little cash, but more so the staple names in the automobile industry, and the sales/data has yet to prove that these companies have competed with Tesla via their respective EV ventures.
