Electric vehicle (EV) manufacturer and member of the Magnificent Seven tesla (TSLA 0.84%) announced its fourth quarter and full-year 2023 earnings last week. Unfortunately for shareholders, the talks did not go very well.
Tesla CEO Elon Musk shocked investors with uninspiring comments about the company's artificial intelligence (AI) projects. Additionally, growth in its core EV business has slowed, hurting Tesla's margins and cash flow.
With the stock price down more than 10% since the earnings release, some investors may be wondering if now is a good time to buy on the spurt. Check out the full situation for Tesla and take a closer look at the company's financial and operating metrics. More importantly, after digesting the fourth-quarter earnings debacle, it will be important to assess whether the long-term outlook is still intact.
Tesla's growth is slowing…
For the full year 2023, Tesla generated total sales of $96.8 billion, an increase of 19% year over year. EV revenue increased by 15% for the year, and the company's solar energy revenue increased by 54%. While 15% growth is respectable, keep in mind that Tesla's EV segment grew an impressive 51% year over year in 2022.
The table below shows Tesla's total revenue, gross profit, and free cash flow profile over the past few years.
| Category | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| total income | $24.6 billion | $31.5 billion | $53.8 billion | $81.5 billion | $96.8 billion |
| Gross profit margin % | 16.6% | twenty one% | 25.3% | 25.6% | 18.2% |
| free cash flow | $1.1 billion | $2.8 billion | 5 billion dollars | 7.6 billion dollars | $4.4 billion |
Data source: Tesla Investor Information
One of the biggest reasons why Tesla's EV business has slowed so dramatically is that the company has aggressively cut prices to combat increasing competition. In addition to a sharp slowdown in sales, this tactic had another detrimental effect: deteriorating profit margins. As a result, Tesla's free cash flow is at its lowest since 2020.
The above financial trends may not accurately convey confidence from investors and analysts. However, it's important to keep in mind that companies across a variety of industries experienced a slowdown in growth last year as the macroeconomic picture was largely cloudy. My suspicion is that some comments made by management during the conference call were ultimately what scared investors the most.
Image source: Getty Images
…but that's not the only problem
Tesla is best known for its electric cars, but it's also garnered a lot of attention for its pursuit of artificial intelligence (AI). Specifically, Tesla is hailed as a leader in autonomous driving thanks to its groundbreaking software development. The company's self-driving technology is operated under the name “Dojo.” This is Tesla's in-house supercomputer that processes data such as traffic patterns and road images directly from the EV.
Additionally, Tesla is also spending significant time and capital developing a humanoid robot called Optimus. These robots are intended to serve a variety of purposes, such as working in warehouses or helping with daily routine tasks. The changes that these robotics could bring to the labor industry are unprecedented.
Both Dojo and Optimus are seen by many as potentially billion-dollar businesses that could propel Tesla beyond just a car company. In fact, Musk declared in October that success with AI could make Tesla the world's most valuable company.
But just last week, Musk called Dojo “unexpected” during an earnings call. Asked later about the timing of Optimus, Musk suggested the first units could ship by next year.
Given Musk's history of failing to meet product deadlines, it's entirely possible that the promise to deliver Optimus Bot next year was not very credible. Additionally, the pessimistic outlook regarding Dojo's chances of success no doubt turned some investors off.
Should you invest in Tesla stock?
At the end of the day, many Tesla investors clearly buy into the growth story beyond EVs. As such, stock prices have experienced large fluctuations throughout its history, and company valuations have soared. In fact, Tesla's market capitalization is higher than the market capitalization of many other major automakers combined.
To me, Tesla's biggest problem isn't its valuation. That is the lack of clarity in financial results briefings. Most earnings calls lack details about long-term roadmaps, leaving investors to decipher vague generalities.
Perhaps the most valuable content of the call concerned the company's future growth prospects. Deepwater Asset Management's Gene Munster did his best to decipher management's comments with the following post:
Correction: TSLA stock fell because the outlook was surprisingly lenient.
“Vehicle sales growth in 2024 is likely to be significantly lower than the growth rate achieved in 2023 as our teams work to launch next-generation vehicles at our Gigafactory in Texas,” Tesla said in a statement. “There is,” he suggests.
— Gene Munster (@munster_gene) January 24, 2024
I personally agree with Mr. Munster's assessment. As a shareholder, I won't be holding my breath to see what Tesla does this year. My expectations are low and frankly I'm thinking about him beyond 2024. My biggest caveat is that if Tesla continues to treat earnings releases as more of an unofficial update, more investors could lose confidence in management and the stock price could fall even more significantly. .
The smartest thing to do right now may be to keep an eye on the stock and use sound judgment when acquiring additional shares. Additionally, as Tesla moves into its next phase of growth and maturity, it could be more important than ever to keep an eye on the company's financial results.
