Tesla’s (TSLA) stock has had a bumpy ride so far in 2024, with shares sliding as the broader market hits new highs. Investors will be hoping the EV stalwart’s fourth quarter earnings, due after the bell on Wednesday, could spell some relief.
Headlines like rental car firm Hertz shedding thousands of EVs, Tesla cutting prices in China, a two-week production halt in Berlin, and CEO Elon Musk’s ill-timed demand for more stock have weighed on Tesla. Tesla shares are down over 15% since the start of year, with the S&P 500 up nearly 2%.
Looking back on Q4, Tesla is expected to report top line revenue of $25.87 billion (per Bloomberg estimates), a 6.4% rise from a year ago. From a profitability standpoint, the street is expecting adjusted EPS of $0.73, translating to adjusted net income of $2.61 billion, which would be a 36.4% drop compared to a year ago.
The drop in profitability is due to downward pressure on margins since Tesla began its cost-cutting efforts late in 2022. Last quarter, Tesla reported gross margin of 17.9%, with operating margin dipping to 7.6%, both slipping sequentially and compared to a year ago. Investors will be looking for that long awaited margin “trough” —or bottom — in Q4, with an expectation that margins could slightly improve.
Earlier this month Tesla reported 484,507 deliveries in Q4, beating Street estimates of 483,173 per Bloomberg. That figure represents an all-time record quarter for Tesla, nearly 20,000 units higher than its past record quarter of 466,000 units delivered in Q2 of last year.
For the year Tesla said vehicle deliveries grew 38% year over year to 1.81 million while production grew 35% YoY to 1.85 million. While its 38% delivery growth rate was below its 50% compound annual growth rate (CAGR) target, Tesla previously said it would not attain that goal due to factory shutdowns and improvements that occurred in Q3.
Of major interest for shareholders will be Tesla’s new 2024 vehicle delivery goal. A 50% jump in deliveries this year would equate to 2.715 million units, though the Street isn’t expecting such a lofty goal. According to research firm Visible Alpha, analysts expect Tesla’s new delivery target will be 2.19 million, up 21% from 2023.
Also of note are Cybertruck deliveries. Tesla did not break this total out in its Q4 delivery update; analysts will likely inquire about delivery totals and production ramp up on the earnings call.
Analysts will be keen to see where Tesla intends to grow sales in an environment in which EV demand may be slowing globally, even in China. New price cuts in China, the addition of point-of-sale EV tax credits in the US, and an updated Model 3 now globally on sale may help boost Tesla sales.
On the flipside are a number of negatives like the use of margin-compressing price cuts, as well as a loss of EV tax credits for some Tesla vehicles in the US.
“Tesla has already announced price cuts in China and Europe that matched or exceeded our prior expectations of price reductions for the full year 2024,” Morgan Stanley analyst Adam Jonas wrote in a note on Monday. “The German Tesla price cuts came merely days after Tesla announced production cuts at Giga Berlin related to Red Sea shipping issues.”
“Fewer vehicles are eligible for IRA incentives given foreign content/local sourcing rules,” Jonas noted, with Tesla’s Model 3 sedan one of those vehicles. “Our teams anticipate further weakening/dilution of consumer EV incentives globally as governments re-assess budgets.”
Jonas also notes headwinds like excess capacity in China, fleet operators like Hertz cutting EVs, and falling residual values for EVs. Jonas cut his price target to $345 from $380, but maintained his Overweight rating.
A big X-factor in the earnings call with CEO Elon Musk could be his recent comments on Tesla ownership. Musk warned last week that he will need to secure greater control of Tesla if the company’s wide-reaching AI ambitions are going to be met.
“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned,” Musk said from his X account last week. “Unless that is the case, I would prefer to build products outside of Tesla.” This would likely require a new stock-based compensation plan for Musk, who is already embroiled in a lawsuit over his prior pay package with Tesla investors.
Analysts will be seeking clarification on Musk’s comments, given the long-term importance Tesla’s AI initiatives, and the appearance that CEO Elon Musk doesn’t have Tesla’s best interests in mind.
“The Street views Tesla correctly (in our view) as a disruptive tech leader, and if Musk ultimately went down the path to create his own company (separate from Tesla) for his next generation AI projects this would clearly be a big negative for the Tesla story,” Wedbush analyst Dan Ives wrote in a note to clients last week.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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