Tesla’s ability to navigate challenges while emphasizing future initiatives showcases its resilience and could spark sustained market optimism.
- Tesla’s Q1 earnings report fell short of expectations but saw a 12% stock increase post-earnings, highlighting market optimism.
- Despite revenue and margin declines, Tesla’s focus on future initiatives like FSD and RoboTaxi underscores long-term potential.
- Tesla’s ability to pivot amidst challenges showcases its ability to maintain a premium valuation on the stock despite recent setbacks.
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Tesla’s TSLA 279,10 +7,06 +2,60% Q1 earnings report was eagerly anticipated. This is especially true given the recent struggles amid a complex and deteriorating landscape in which the market grew increasingly skeptical of the company’s strong growth and profitability prospects.
Despite the company’s results falling short of estimates, Tesla stock saw a 12% jump after hours following the results. This surge occurred after management provided clarity on initiatives that have the potential to boost the company’s future results, including Optimus and RoboTaxi.
Tesla Missed Estimates
In Q1 2024, Tesla achieved a revenue of $21.3 billion, a 9% year-over-year decline, primarily driven by reduced automotive revenue. Its margins also saw significant declines due to price cuts and other challenges like the attack at Gigafactory Berlin and the gradual ramp-up of the updated Model 3. For instance, the gross margin decreased by 2 percentage points, and the adjusted EBITDA margin decreased by 2.4 percentage points.
While the market had already anticipated weaker numbers for this quarter, the company missed revenue estimates by just over 4% and missed GAAP EPS by $0.08 (reporting $0.34).
Another negative highlight in the financials was net cash from operations, which declined by 90%, dropping from $2.5 billion in Q1 2023 to $242 million in this quarter. This led to a Free Cash Flow of -$2.5 billion after capex of $2.8 billion. This last piece was also highlighted by Jim Cramer on X.
The outlook for the company is concerning, as it faces intense competition likely leading to price cuts and lower margins. Despite high risk, a rich P/E ratio suggests that the market still has high hopes for the company.
Tesla Successfully Changes Perspectives
Much of the Tesla bull thesis (and the pillars of the rich valuation multiple) leans on future “optionalities” such as Optimus, FSD, and RoboTaxi (or ‘Cyber Cab’).
Regarding FSD, which enables initiatives like the Cyber Cab, the company has shown significant progress. It was announced that, in addition to cumulative miles driven, they are no longer constrained on GPUs due to recent acquisitions, with around 85,000 H100 units expected by the end of the year.
Additionally, management emphasized advancements on the regulatory front, as the company carries ongoing licensing discussions with major automakers.
This drives expectations for RoboTaxi. Although still in its infancy and based primarily on estimates, this new service seems to fit well within Tesla’s ecosystem and could boost revenues and margins, with more to be announced about it at the event on 08/08. A preview of the app was also presented:
Finally, Optimus has also made strides in autonomy and is already able to complete factory tasks, with expectations of being market-ready by late 2025.
With these developments, even amid weak numbers and below-estimate performance, Tesla capitalized by reinforcing the strength of its future initiatives, painting a clearer path forward to analysts and investors. The following image illustrates the ecosystem that Tesla is building or aims to build:
The Verdict on TSLA Stock
Despite being shaken by intense competition and other bearish news, Tesla managed to change its perspectives to sustain a stock price with a still “premium” valuation, which can be best justified by still-nascent initiatives, in my view.
Tesla is still trading at high multiples – NTM P/E of 53x. Despite rich valuation, the company can still generate significant value for its shareholders that is not properly reflected in the earnings ratio.
Keep in mind, however, that a successful investment in Tesla stock probably depends on initiatives (e.g., Cyber Cabs) that are still in the very early stages. In addition, the imminent recovery in the electric auto market (think sales rebounding at fuller prices) remains a question mark.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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