With Tesla Stock Down 25% In 2024, It’s Time To Take Your Profits


Tesla
TSLA
missed expectations and lowered guidance in its latest earnings report. The company’s stock fell 10% in early trading January 25, and analysts cut their price targets.

There are many reasons to dump Tesla stock — the most important of which are its weak customer value proposition and CEO Elon Musk’s urge to focus more time on artificial intelligence and robotics.

After the stock doubled in 2023, investors should consider taking their profits. Investors who hold on to Tesla shares will suffer.

Tesla’s Weak Performance And Prospects

On Wednesday, Tesla provided investors a disappointing fourth quarter report and delivered weak guidance for 2024.

Here are the key figures:

  • Q4 Revenue: $25.17 billion — up 3% from Q4 2023 and about $500 million short of LSEG expectations. A “reduced average selling price following steep price cuts around the world in the second half of the year” contributed to the meager revenue growth, according to CNBC.
  • Q4 Operating Margin: 8.2% — roughly half the Q4 2023 figure, CNBC reported.
  • Q4 Net Income: $7.9 billion — more than double the Q4 2023 amount with help from a $5.9 billion “one-time noncash tax benefit,” noted CNBC.
  • 2024 Vehicle Volume Forecast: Electric vehicle volume growth in 2024 “may be notably lower” than the rate observed last year — Tesla “shipped 1.8 million cars in 2023,” CNBC wrote. The absence of a specific 2024 production target departs from previous years. In 2023, deliveries rose 38% — well short of the 50% target. Analysts predict a 20% increase in 2024, noted Bloomberg.

Musk had much to say in Tesla’s earnings conference call. Here are what I think of as his lame excuses:

  • Weak growth. Musk said the company is “between two growth curves” — one that began with the global expansion of Model 3 and Y, and the next, “which will happen in the second half of 2025 following the launch of the next-generation vehicle platform,” noted Seeking Alpha.
  • Low margin. Musk blamed interest rates for Tesla’s low margins. He said high interest rates make “lots of people who want to buy our car” unable to afford to pay the price. “If the interest rates come down quickly, I think margins will be good. And if they don’t come down quickly, they won’t be that good,” he said, according to Seeking Alpha.
  • Cybertruck. CNBC reported Musk said Tesla can make 125,000 Cybertrucks per year — and would be able to make a quarter million per year at some undetermined point in the future. He said demand for the vehicle exceeds the company’s ability to produce them. He patted himself on the back for not “dramatically raising the price,” noted Seeking Alpha.
  • Competition from China. Musk attributed Tesla’s ability to survive competition from Chinese competition to “trade barriers,” reported Seeking Alpha.

In what sounds like a Hail Mary pass, Musk touted the company’s push into robotics. He told investors, “I think we’ve got a good chance of shipping some number of Optimus units next year, but like I said, this is a brand new product. When there’s a lot of uncertainty in your uncharted territory, it’s obviously impossible to make a precise prediction,” noted Seeking Alpha.

To be sure, Musk faces competition. Rivals include Boston Dynamics, Agility Robotics and Figure. “Other robotics companies such as Sanctuary, Apptronik, 1X, Fourier and Unitree are all working on dexterous manipulation hardware, mimicking human hands,” CNBC reported.

Tesla’s Weak Customer Value Proposition

With gasoline prices having fallen substantially, relatively high EV prices, long charging times, and range anxiety are among the significant negatives EV makers must overcome.

Tesla has not helped itself by betting on the over-priced Cybertruck rather than responding to the successful strategies of Chinese companies such as EV giant BYD that gained market share by making affordable EVs, according to the Wall Street Journal,

Tesla’s competitive disadvantage has grown. As I wrote last December, the Cybertruck — announced last November — featured 50% less range (250 miles) and was priced at $60,990, noted Wired, 53% above the amount promised in November 2019.

Nor is the Cybertruck’s design particularly appealing due to the following features:

  • Design: “Apocalypse-bunker-on-wheels.” Social media compared the Cybertruck’s design to “a roided-out Blade Runner jalopy and an industrial refrigerator,” noted Streetsblog.
  • Elevated body. Despite sporting an automatic pedestrian detection system, the Cybertruck’s hood is at chest level for the 6-foot-tall Musk and includes an “Adaptive Air Suspension” that lifts the vehicle another 10.4 inches, Streetsblog reported.
  • Battering ram on wheels. The Cybertruck’s blunt flat front end, thick “armor” windshield glass and stainless steel edges are so sharp that its approval for sale in Europe is unlikely, noted Streetsblog.
  • Blinding light, fast acceleration. The Cybertruck’s headlight is a single bar of light which could blind oncoming drivers as it accelerates from “zero to 60 miles per hour in 2.6 seconds, which, if true, would mean it has a faster acceleration than most NASCAR and Formula 1 vehicles, with none of the accompanying engine roar to warn anyone that it’s coming,” Streetsblog wrote.

To be fair, Tesla intends to build less expensive vehicles. Bloomberg reported that will not happen until the second half of 2025 in Austin and then Mexico. That would help Tesla attract buyers who cannot afford to pay $39,000 for the average U.S. EV.

“That will be a challenging production ramp,” Musk said of the next-generation vehicle. “Once it’s going, it will be head and shoulders above any other manufacturing technology that exists anywhere in the world. It’s next-level,” wrote Bloomberg.

Musk Wants To Do Something Else

Musk has distracted himself from Tesla with his acquisition of Twitter (now X) and his eagerness to build a Generative AI rival to OpenAI and others. He seems to be holding Tesla’s board hostage — demanding an increase in his stake from 13% to 25% of the company so he can turn Tesla into a leader in AI and robotics, according to Bloomberg.

This raises many questions: If Musk does not get what he wants, will he leave Tesla? Will he sell the company to a rival more interested in competing in the EV market? Why would Tesla’s board reward Musk for spending more time on AI and robotics and less time repairing what ails the EV maker?

Analysts Cut Tesla Stock Price Targets

Analysts are not optimistic about Tesla’s prospects, with some sounding particularly pessimistic. “Tesla is signaling that the days of 50% or even 30% to 40% growth year-over-year is not going to happen in 2024,” said Seth Goldstein, a Morningstar research analyst, in a Bloomberg interview.

Brokers reduced their price target for Tesla. Barclays cut its price target from $250 to $225. “Not as bad as feared, but a cloudy path ahead reinforces some downside risk for now,” Barclays analysts wrote in a note on Thursday. RBC analysts slashed their price target from $300 to $297 while Canaccord Genuity reduced its price target to $234 from $267, according to CNBC.

Don’t catch this falling cybertruck.



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