(Bloomberg) — As both the worst-performing and most expensive stock among the Magnificent Seven tech megacaps, Tesla Inc. faces mounting pressure as it reports fourth-quarter earnings Wednesday.
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For investors, the issue is the breakneck growth they’ve come to expect of Tesla is shrinking. Concerns about fading demand for electric vehicles have sent its shares down 16% this month through Tuesday’s close. That paints a troubling picture of market sentiment, with Tesla tumbling while other tech counterparts soar to record highs. Price cuts and rising costs have added to the gloom.
“Tesla investors are looking for a bullish catalyst, but there isn’t one in sight,” Adam Sarhan, founder and CEO of 50 Park Investments, said in an interview. “Investors are going to pay these multiples for earnings for only so long, and if the fundamental story changes and earnings get compressed, then valuation gets compressed.”
The big question is how many cars Tesla can deliver in 2024, and whether the company offers more information on plans for its lower cost sedan, which it expects to make in Texas and a forthcoming plant in Mexico.
“I’d expect guidance of 2 million cars a year at the low end,” said Seth Goldstein, an analyst at Morningstar Research, in a phone interview. “It would be great if management would give us a timeline on the Model 2 vehicle and platform, because that will be the next major driver of deliveries.”
Analysts expect the company to sell about 2.2 million vehicles this year, which would represent about 22% growth from the 1.8 million delivered in 2023, according to data compiled by Bloomberg. Tesla shares rose as much as 1.7% by 9:42 a.m. in New York on Wednesday, ahead of the post-market results.
But the challenges are mounting, with automakers, suppliers and even car-rental firms warning that interest in EVs is waning. General Motors Co. and Ford Motor Co. are scaling back their EV expansion plans, while Hertz Global Holdings Inc. is selling off a chunk of its electric fleet and reinvesting in gas cars. While Tesla has tried to tackle the slower demand by further lowering prices, that has eroded its once-hefty profit margin.
“Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock,” Morgan Stanley analyst Adam Jonas wrote in a note on Monday, while pointing out that Tesla is both an auto stock, as well as an energy, AI, and robotics company. Jonas expects it to provide a “clearly cautious outlook” for 2024.
Tesla’s stock trades at 54 times forward earnings, nearly double the Bloomberg Magnificent 7 Price Return Index’s average of 28 times. That’s after the stock ended 2023 up more than 100%, rebounding from a torrid run the year before, lifted by a strategy of furiously cutting vehicle prices that temporarily boosted demand. Tesla’s association with the other tech megacaps also helped the shares amid an investor frenzy for AI plays.
But last year’s rally accompanied a steep drop in Wall Street estimates for its 2023 earnings. Analysts currently expect it to report a profit of $3.09 a share for the year — 42% lower than expectations at the end of 2022.
“Its valuation appears indifferent to margin pressure from pricing and rising capital needs,” Redburn Atlantic’s Adrian Yanoshik wrote in a note Wednesday, rating Tesla as a sell.
Close attention will also be paid to any update on Chief Executive Officer Elon Musk’s recent comments that suggested he’d prefer to build AI and robotics products elsewhere unless the Tesla board arranges another massive stock award for him.
“A lot of Tesla’s valuation has been predicated on the fact that AI and self-driving are part of the company. But if Elon is going to take that away, then that changes the narrative,” 50 Park’s Sarhan said.
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ASML Holding NV orders more than tripled last quarter from the previous three months, in a sign that the semiconductor industry is resurgent.
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Apple Inc., reaching a make-or-break point in its decade-old effort to build a car, has pivoted to a less ambitious design with the intent of finally bringing an electric vehicle to market.
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SAP SE shares jumped the most in more than three years after the German software company said it’s planning a restructuring that will affect about 8,000 jobs and increase its focus on artificial intelligence.
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Alibaba Group Holding Ltd. gained its most in six months after billionaire co-founder Jack Ma bought stock, a much-needed boost for a company weathering internal turmoil and a stock market rout.
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Texas Instruments Inc. shares slid after the chipmaker delivered a disappointing quarterly forecast, indicating that a slump in demand for industrial and automotive electronic components is dragging on.
Earnings Due Wednesday
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–With assistance from Subrat Patnaik.
(Adds latest stock move in sixth paragraph, updates moves in 14th and second chart.)
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