Tesla earnings review: Between two mountain tops?

2024 is transition year for Tesla

In our earnings preview this Monday we highlighted that Tesla had come to a point where the growth narrative is key for maintain a positive sentiment on its shares. The reason is that the gross margin is under pressure. Equities are quite simple sometimes. If the margin is under pressure the revenue growth figures matter more for investors. So how did Tesla do in Q4? Here are the key highlights:

• Gross margin at 17.6% vs est. 18.1% on lower average selling prices as competition has increased from especially Chinese EV-makers.
  
  
• Revenue of $25.2bn vs est. $25.9bn translating into growth of just 3.5% y/y the lowest growth rate since Q2 2020 which was the maximum pain quarter for the world during the early days of the pandemic.
  
  
• Tesla says that “2024 volume growth may be notably lower than 2023” supporting our argument in our earnings preview that Musk’s previously stated growth target of 50% annualized volume growth over an entire decade is too optimistic.
  
  
• Musk said on the analyst call that Tesla is between “two growth waves” meaning that growth rates have come down a lot and that 2024 is a transition year before the next growth wave.
  
  
• The company said that it ramping up Cybertruck production and that it has capacity to produce up to 125,000 annually, but that production ramp-up will take time as the design is more complicated than other models.
  
  
• In addition, Tesla mentioned that it is working on its next-generation low-cost models which are scheduled for production in mid-2025. The rumours are that one of the new models will be a compact crossover.
  
  
• Finally, Elon Musk did everything he could to paint an optimistic future around self-driving cars and robotics saying that there is a “good chance” that Tesla can ship the first models of its Optimus robot next year. He also said that the expensive Dojo supercomputer project is a long shot by it is working.

Overall, Tesla ended 2023 with 19% revenue growth but adjusted net income declining by 29% as pricing pressures hit margin. Last year will still go down in history as the year that transformed the EV industry and Tesla is likely going to be among the winning group of EV-makers in the future. But one thing is the company’s performance, another thing is the stock price. Expectations have been so high and there is clearly a “Musk premium” baked into the share price that when there are growth hiccups it will hurt the share price. This year will undoubtedly be a transition year for Tesla and shareholders should prepare themselves for more volatility and potential disappointments.