Unlike some of its large-cap tech peers, Tesla (TSLA) stock has driven in reverse since the start of the year. After doubling last year, Tesla shares have fallen almost 20% in the past thirty days, compared to 1.22% rise in the S&P 500 index.
The stock is down almost 30% in six months and is down 16% year to date, compared with 1% rise in the S&P 500 index. But this could be a nice buying opportunity for investors who have waited for a better entry point. The luxury electric vehicle company is set to deliver its financial results for the third quarter fiscal 2023 on Wednesday after the closing bell. Notably, the recent decline in the stock coincides with the company beating its Q4 delivery estimates and maintaining its guidance.
Ahead of the quarter, Tesla reported Q4 deliveries that not only beat Wall Street predictions, it helped Tesla to achieve a record in terms of the number of vehicles sold during 2023. The company delivered 484,507 vehicles during the fourth quarter and 1.81 million in 2023, exceeding its 1.8 million target. Wall Street consensus had Tesla vehicle deliveries in 2023 totaling 1.797 million. In light of this achievement, the reaction to stock was somewhat surprising as analysts maintained their price targets and ratings on TSLA.
Instead, the attention has shifted towards what Tesla will reveal in Q4 earnings and potentially deliver a forecast for all of 2024. The company’s profit margins will be closely-watched. The market will also be listening for any hints on how many Cybertrucks the company expects to sell in Q1 and for all of 2024. That said, the company will need a top and bottom line beat, along with confident guidance, to reverse the stock’s decline.
In the three months that ended December, Wall Street expects the Austin, Texas-based company to earn 74 cents per share on revenue of $25.57 billion. This compares to the year-ago quarter when earnings came to $1.19 per share on revenue of $24.32 billion. For the full year, earnings are expected to decline 22% year over year $3.15 per share, while full-year revenue of $97.41 billion would rise 19.6% year over year.
The disparity between projected full-year revenue growth of almost 20% and profit decline is something Tesla critics often point to as reasons to avoid the stock. Over the past year, the company has enacted a series of price cuts aimed at boosting sales. The price cuts are driving in new buyers, along with record vehicle registrations. At the same time, however, the cuts are have also pressured both the average revenue it recognized per vehicle, and also the company’s profit margin profile.
All of this, however, is part of Tesla’s growth plan. The company is not in a situation it isn’t prepared for. The company's full-year revenue is projected to be $97 billion, up from just $1.7 billion ten years ago. This equates to a compound annual rate of more than 50%, and Tesla's management expects that growth rate to continue until 2030. Unlike its competitors, Tesla, over the next five years, is poised to show revenue growth in higher-margin service businesses.
Despite the near-term headwinds, Tesla's management remains focused on high-margin services such as its Full Self-Driving (FSD) software, which is poised to reenergize the company’s profit margins once it is fully operational. Despite very aggressive reinvestment in the business, Tesla still has a massive cash hoard with relatively no debt on the balance sheet, mainly because Tesla is the only EV maker that consistently makes money.
Tesla, armed with robust free cash flow and brand loyalty, is still well-positioned to lead the EV space in the years ahead. Unless those fundamentals change, Tesla stock should be owned, not traded.
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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