It will take a lot for Tesla to turn around investor sentiment when it reports fourth-quarter results on Wednesday evening. The path to a higher share price is narrow – a higher profit margin would be an important first step.
The number of issues troubling Tesla investors is legion. The automaker is still cutting prices and sacrificing profit margins to transport vehicles. Interest rates are still high, driving up monthly car payments, and more electric vehicle models from various automakers are coming onto the market, even as demand growth for battery-powered cars is slowing.
Tesla reports fourth-quarter results on Wednesday after the market closes. Wall Street expects earnings per share of about 73 cents on revenue of $25.6 billion. A year ago, Tesla reported earnings per share of $1.19 on revenue of $24.3 billion.
Sales are rising and profits are falling because prices for the average Tesla sold are down about $10,000 year-over-year, with the big drops coming in early 2023. For the fourth quarter, automotive gross profit margins, excluding the impact of regulatory credit sales, are expected to rise to 16.7% from 24.3% in the fourth quarter of 2022.
For 2024, Wall Street forecasts Tesla's automotive gross profit margins (excluding regulatory credits) of about 17.8%, which is better than the automaker forecast in the fourth quarter. “That’s the risk,” says Gary Black, co-founder of the Future Fund Active ETF and a Tesla shareholder. “Wall Street clearly believes auto gross margins will bottom out.”
A margin of more than 16.7% in the fourth quarter would help Tesla's case with investors. There are reasons to hope for a “beat.” Tesla reported a third-quarter margin of 16.3%. Tesla sold more cars in the fourth quarter than in the third, and prices remained stable. Tesla delivered about 485,000 units, up from 435,000 in the third quarter. That should improve margins.
After investors digest the reported margins, they will wait to see what Tesla management, including Elon Musk, has to say on the company's conference call at 5:30 p.m. Eastern Time.
Management's outlook for sales in 2024 will be crucial. Wall Street expects 2.1 million to 2.2 million units shipped, up from 1.8 million in 2023. Anything in the 2.2 million range should be good for the stock.
Sales of 2.2 million vehicles are up only about 20% compared to 2023, well below Tesla's long-term goal of increasing volumes by an average of 50% per year, but that is already baked into the stock. Tesla shares entering trading Wednesday are down about 16% year-to-date, while the S&P 500 and Nasdaq Composite are up about 2% and 3%, respectively.
Regardless of which direction the stock moves after earnings, investors should prepare for volatility. The options markets expect stocks to move up or down about 7% depending on earnings. Over the last four quarterly reports, stocks have moved up or down about 10% on average. During this period, shares have fallen three times and risen once.
Aside from profit margins and volumes, Tesla could have other tidbits in store for investors. There could be an update for Optimus, the Tesla humanoid robot. The first prices or when the robot might be ready for sale could be announced in Tesla's conference call.
“It is time to ensure more transparency [Tesla’s] “Fully self-driving business,” says Ben Rose, an analyst at Battle Road Research. Tesla uses AI to develop and train its autonomous driving software.
Musk has predicted multiple times that Tesla's autonomous driving technology would be truly self-driving. This has proven to be more difficult than he imagined. Rose would like to see revenue and expenses related to fully self-driving vehicles (FSD) disclosed “in the same way that Meta Platforms has disclosed the extent of its investment in the Metaverse.” He adds: “This allows investors to monitor the performance of their core businesses while measuring the pace of their FSD progress.”
Rose recommends buying Tesla shares, but does not have a price target for the stock. For him, a “Buy” rating means he expects the stock to outperform the market. Overall, around 42% of analysts rate Tesla shares as a buy. The average Buy rating for stocks in the S&P 500 is about 55%. The average analyst price target for Tesla shares is about $238.
Musk could also be asked to address his tweets in which he threatened to move new AI and robotics projects outside of Tesla if the company does not increase its shareholding. Musk controls about 20% of Tesla shares through management stock and stock options. He wants 25%.
Anything that gives investors the impression that Musk is feuding with the Tesla board would be an unwelcome surprise.