Down 9% Year-To Date, Will A Q4 Earnings Beat Drive Tesla Stock Higher?

Tesla (NASDAQ:TSLA) is expected to publish its Q4 2023 results on January 24. reporting on a quarter that saw the company’s deliveries trend higher, driven by stronger sales of its entry-level vehicles following price cuts. We expect Tesla’s revenues to come in at $25.5 billion, slightly ahead of consensus estimates and about 4.5% ahead of last year. Earnings are likely to come in at about $0.75 per share, slightly ahead of the consensus. So, what are some of the trends that are likely to drive Tesla’s results?

Tesla has reported 485,000 deliveries for Q4 2023, marking an increase of about 20% versus the last year. Now growth in the EV market has been cooling off, amid high interest rates, which are making it more expensive to finance EVs, and also due to weaker consumer sentiment amid an uncertain economy. However, Tesla has benefited from a couple of trends. For example, the company sold a refreshed version of its Model 3 in select markets, while also commencing deliveries of its newest Cybertruck pickup truck in the U.S.  Tesla cut pricing on some of its vehicles over the last year and began a limited amount of advertising in the second half of 2023 – something that the company has largely avoided since its incorporation. However, these moves are hurting Tesla’s profitability. Over Q3 2023, Tesla’s operating margins declined to just 7.6%, down from about 17% in the year-ago quarter. We could see similar trends over Q4 as well.

Amid the current backdrop, TSLA stock has seen little change, moving slightly from levels of $235 in early January 2021 to around $225 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of TSLA stock with respect to the index has been quite volatile. Returns for the stock were 50% in 2021, -65% in 2022, and 84% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TSLA underperformed the S&P in 2022.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Discretionary sector including AMZN, HD, and TM, and even for the megacap stars GOOG, MSFT, and AAPL.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TSLA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

We currently remain relatively neutral on Tesla stock, with a $237 price estimate, which is slightly ahead of the $227 market price. We continue to believe that Tesla will remain a big beneficiary of the long-term transition to cleaner transportation and energy generation, given its well-oiled supply chain, superior battery and drive train tech, and its lead with software and self-driving technology. That said, Tesla stock presently trades at about 72x 2024 consensus earnings, which could limit near-term upside. Competition is also mounting and Tesla’s lineup is aging with its Model 3, Y, X, and S remaining the same visually since launch. This is in contrast with mainstream automakers, who typically overhaul vehicle models every seven to eight years. While Tesla did recently launch the Cybertruck, we believe that the vehicle will remain a niche proposition, given its high price and unconventional looks.  See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?

[1] Returns as of 1/12/2024
[2] Cumulative total returns since the end of 2016

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