Tesla, Inc. (NASDAQ: TSLA) recently reported its earnings for the fourth quarter of 2024, capturing significant attention from investors and analysts alike. The results, which were below expectations, revealed a fourth-quarter revenue of $25.7 billion—missing estimates by $1.4 billion—and earnings per share (EPS) of $0.73, falling short by $0.02. Despite these disappointing figures, the stock experienced an unexpected uptick post-reporting, prompting many to question the disconnect between the financial output and market reaction.
Following the earnings call, Tesla's shares rose by 8%, which left analysts puzzled, especially considering the company's various setbacks. Notably, Ryan Brinkman, an analyst at JPMorgan, highlighted the contradictory nature of this increase, stating, "The move higher in Tesla shares bore no relation whatsoever to the company's financial performance..." He emphasized the company's substantial misses, including a 38% shortfall on earnings before interest and taxes, which stood at $1.58 billion against Wall Street's expected $2.5 billion. These results marked the first annual sales decline for Tesla since the company began selling vehicles, raising eyebrows across the financial community.
Analysts have pointed to several possible reasons for the stock's resilience, including the bold projections made by CEO Elon Musk during the earnings call. Musk suggested achievable paths toward extraordinary revenue generation, noting, "Management's belief... has by itself the potential to generate 'north of $10 trillion in revenue.'" This optimism managed to resonate with some investors, even as the company faced decline periods due to burgeoning competition from firms like BYD.
Strikingly, Tesla's gross margin of 16.3% was also its lowest profit margin seen over the past few years. This data point raised concerns, especially when juxtaposed against the growing competitive pressures within the electric vehicle market. Tesla's previously projected guidance for vehicular delivery growth of 20% to 30% for 2025 had been moderated to "a return to growth," reflecting the broader trends impacting the company.
Critics of Tesla's recent stock performance argue it reflects behavior more akin to speculative trading than traditional valuation metrics. The financial forecasts for Tesla look increasingly conservative, with Bloomberg consensus estimates showing declining projections for revenue, margin, and cash flow. Yet, analyst price targets continue to climb. Brinkman noted, "This fits within a broader pattern for Tesla shares... the company's financial performance and... consensus keep coming down, but analyst price targets and the company's share price keep going up." This compounded anomaly has raised real questions about the sustainability of Tesla’s soaring stock values.
Despite its challenges, Tesla has expressed confidence about returning to growth, with plans for new models set to start production by mid-2025 as well as driving advancements in vehicle autonomy. A notable point from Tesla's quarterly investor letter read, "We expect the vehicle business to return to growth in 2025, with the rate of growth depending on various factors including the acceleration of autonomy efforts." The statement offered some reassurance, albeit vague, as challenges persist within the competitive EV market.
Investors and analysts alike are now weighing the realistic timelines and feasibility of Tesla's growth projections. Speculation abounds about timelines for full self-driving capabilities as the road to successful scaling seems fraught with hurdles. The company will need to navigate these complex waters to retain share price momentum against the backdrop of heightened competition and regulatory pressures.
Tesla's performance following its earnings call exemplifies the curious interrelationship between stock valuation and financial performance, particularly within the modern investment climate characterized by high volatility and speculative sentiment. While Elon Musk’s ambitions continue to propel the narrative surrounding Tesla, it remains to be seen if the company's projected growth and innovation can materialize amid rising competition and consumer expectations.