The EV Price War Hits Tesla Earnings Dear Reader, The electric vehicle (EV) makers are at a critical moment. Right now, they're facing challenges on multiple fronts. And, for some, how they respond may very well determine their success or failure – not to mention whether or not investors will profit.
And just yesterday, one of the dominant players opened their books and gave investors a look at how they are performing amidst these challenges.
I’m talking about Tesla, Inc. (TSLA).
Wednesday evening, Tesla released its fourth-quarter earnings results… and they weren’t very good. So, we’ll review Tesla’s quarterly results. But first, I’ll dive into what is going on with EVs right now. And after we look at Tesla’s numbers, I’ll share how to pick the best stocks, regardless of what sector they are in. The EV Industry’s Challenges First off, the EV industry is facing a serious inventory glut.
Chinese EV makers like BYD Co and NIO (NIO) have been producing more vehicles and slashing prices in order to gain market share. This has caused auto companies like Tesla, Ford Motor Company (F) and others to cut prices in order to remain competitive.
The result is an all-out price war that has been raging for months.
Many EV manufacturers are starting to bend under the pressure. For example, Ford recently announced that it will cut production of the F-150 Lightening for the second time due to weak demand. I should also note that Ford is increasing its Bronco and Ranger pickup truck production, so the demand for internal combustion vehicles remains strong.
In fact, according to CNBC, Tesla CEO Elon Musk said today that if the U.S. and Europe do not establish trade barriers soon, the Chinese EV makers “will pretty much demolish” most of the other EV companies.
The second challenge right now is that EVs (and their batteries) have been getting a lot of bad press. Interestingly, when it comes to the truck world, Ford and Toyota Motor Corp. (TM) are finding that their hybrids are outselling their EVs, so it appears that EV range anxiety persists.
Not to mention that much of North America and Europe have been a popsicle lately. And EVs do not like cold weather. The cold affects the range of an EV, and also the charging time.
So, the recent Arctic Blasts cut the range of most EVs and messed up some charging stations.
This is mainly because, when it gets really cold, lithium-ion batteries do not work as effectively. There has also been some bad press about some of the charging stations not working because of the bitter cold.
Now, I do want you to know when the industry shifts to LFP batteries (lithium ferrophosphate), they will have almost the same range as lithium-ion, and the cold problem goes away. You can charge without any problem, and you don't have to worry about the cold.
So, EVs of the future will have LFP batteries, which are also cheaper than lithium-ion. I don't think EVs are going away tomorrow, but the reality is that there is a serious glut of EVs on the market that poses a serious problem for EV makers. What’s Going on With Tesla Clearly, there is a lot going on in the EV world right now.
That’s why I’ve been eager to see results from Tesla this earnings season. Not only is it the second-largest EV maker in the world (behind BYD), but it is a flagship for the stock market.
To be frank with you, I was a little worried because of Tesla’s margins. They’ve been under compression because of these price wars, which started in China and have now spread to Europe. So, not only would Tesla need to post strong earnings and sales, but it would have to give very upbeat guidance, because it's had a tough start to the year.
The company recently announced that its Berlin plant would close for two weeks because of supplier disruptions due to the situation in the Red Sea and shipping problems.
Because of all these issues, last Wednesday, Tesla announced price cuts ranging between 4.2% and 9.1% for its Model Y.
But if investors were looking for some upbeat news, they certainly didn’t get that in Tesla’s quarterly report.
For the fourth quarter, Tesla announced earnings of $0.71 per share, compared to estimates of $0.74 per share. That’s also down from $1.19 per share in the same quarter a year ago.
Revenue rose nearly 3.5% to $25.17 billion, compared to analyst estimates of $25.7 billion, and up from $24.32 billion a year ago.
For the full year, Tesla’s earnings fell 23% to $3.12 a share, while revenue increased 19% to $96.77 billion for 2023.
As I suspected, margins were compressed further, too. Tesla’s fourth-quarter gross margins were 17.6%, missing estimates of 18.1%, and a big drop compared to a year ago when margins were 24.3%.
The company also was downbeat in its full-year production outlook, indicating that it may not reach analyst estimates for 2.19 million vehicles made in 2024.
Following this announcement, Tesla’s stock dropped 12% today. Now, I do want to note that Elon Musk has been trying to make a pivot with Tesla. They’re going to still make cars, of course, but Musk has been trying to tout Tesla as an artificial intelligence and robotics company. On the fourth-quarter earnings call, Musk referenced the company’s “revolutionary” manufacturing system for its next-generation of vehicles slated to hit production in the second half of 2025.
And on January 3, Musk tweeted the following:  Musk has been pushing this idea for some time now. The company is working on things like an AI model, called Dojo, which is incorporated into all the company’s self-driving efforts. It’s designed to train AI systems using video clips and data from its customers’ vehicles to complete complex tasks, like assisting Autopilot, Tesla’s driver-assistance system.
Dojo isn’t a brand-new product for Tesla – it’s been in the works for about five years. In fact, this past July, Musk said that the company “will be spending well over $1 billion on Dojo” over the course of 2024, which is when the supercomputer is expected to be fully ready.
Back in September, a Morgan Stanley analyst said that Dojo could eventually add $500 billion in value to the company in the long term. Picking the Best Plays Given TSLA’s 12% drop today… Elon Musk’s AI pivot isn’t changing investors’ views on Tesla right now.
The reality is earnings are what matters, folks.
So, as earnings season continues to turn up the heat, it is critical to invest in fundamentally superior stocks in a wide range of sectors. And if you aren’t sure where to find these stocks, my Growth Investor service is a great place to start.
In fact, my Growth Investor stocks are poised to continue to surge higher in the wake of wave-after-wave of outstanding quarterly announcements. Currently, my Growth Investor stocks are characterized by 14.3% annual sales growth, 166.5% annual earnings growth, an 8.5% earnings surprise and a median fiscal 2024 price-to-earnings ratio of 16.7.
To further prepare for the fourth-quarter earnings season, I will be adding three new fundamentally superior stocks to my Buy Lists, as well as releasing my latest Top Stocks list, in the Growth Investor Monthly Issue for February. Once you sign up, you will also have access to all my past Monthly Issues, Weekly Updates, Special Market Podcasts and Special Reports.
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(Already a Growth Investor subscriber? Go here to log in to the members-only website.) Sincerely, |
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