The 3-minute take on TSLA
Markets: A concise, balanced analysis of their recent earnings report
A lot of ink gets spilled writing about Tesla, from both the lovers and the haters of the company, their CEO, their business performance and their future prospects.
Today, let’s ignore the one-sided opinions on either side and conduct a more rational analysis of their Q1 earnings report and what we learned.
And btw, let’s do this in about 3 minutes because we are all busy people.
Beachman score: Dropped to 12 points (Lost 2 points. Max 31 points possible)
Positives: Only tangible positives were that institutional ownership and cash on the balance sheet were higher yoy. The company has net $22B cash that it can deploy as and where needed. Recent 10% labor force layoff is estimated to save about $1B annually.
Concerns: Revenue fell -9% yoy to $21B. Missed Q1 estimates by -4%. Forward growth is est. to be negative for at last 1-2 more quarters and +7% (optimistically) for the full year 2024. Margins are shrinking to some of the lowest in 3 years. Cashflow margins are shrinking. Debt on the balance sheet has doubled yoy. Product prices are still being cut to stimulate demand...which is flagging in the face of high interest rates and strong competition from Chinese EVs as well as hybrid vehicles.
Possible future tailwinds: Low-cost EV (sub $25k price) could start selling in late 2025. Company promised mid-2025, but we have to add the standard 6-month delay factor based on TSLA's track record. They plan to use existing production lines for the low-cost EV, so expect some cannibalization in production and sales of existing models.
Full self driving has an estimated 10% adoption rate among current TSLA owners and could 5x over the next 2 years bringing in an est. $5-10B incremental revenue. They could see new license revenue from other EV mfgrs about 2+ years from now. Btw, TSLA is downplaying the necessary regulatory approvals without considering that every city, state and country has their regulatory approval process and local considerations. Just ask Uber.
Energy revenues est. to grow 75% yoy - most of these are large, energy storage projects that are already contracted.
TSLA could start share repurchases once they get back to positive free cash flow in late 2024.
Hope-could-be-a-strategy tailwinds: Robotaxi, Dojo AI (incl. about 90k NVDA GPUs) and Optimus robotics. These are not happening in 2024-2025 and could still be in the R&D lab by 2026. Fascinating ideas that could turn out to be major winners for the company, however we need to see concrete, working prototypes and not slideware. We need to understand product-market fit and supply-demand-pricing dynamics. TSLA's current stock price includes a hopium premium for these emerging product ideas that may not see revenues until 2027+
Valuation: Morningstar raised its FMV by $5 to $200. I believe that the stock is about 30% overpriced given forward revenue estimates through 2025.
Bottomline: I commend the company on identifying what they want to work on and pivoting their focus on these new strategies, while shutting down previous projects that are not aligned with the new direction. We have seen grand visions and promises from TSLA before and to their credit, they work hard, night and day, to make these a reality.
That said, TSLA needs to continue selling current EV models to make any of these dreams a reality. Therein, lies the challenge for both TSLA and their investors.
After making money on the stock in 2023 and 2024, the price needs to come in a bit more before I would be interested in buying it.