Wall Street to Elon Musk: Get real

Investors crushed Tesla's stock after the company's earnings, and its earnings call was worse. Will the stock recover this week?

Jan 29, 2024 - 08:30

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It was not a good week for Tesla investors who held onto their shares after Wednesday's earnings call.

The shares fell 12.1% the next day, though they rebounded slightly on Friday. For the week, Tesla (TSLA) - Get Free Report was off 13.6%, and they're down 26% this month. (Tesla was up 101.7% in 2023.)

Tesla's problem was CEO Elon Musk, who conducted the analyst call in a ramble as much as anything else. He wouldn't talk much about the company's fourth-quarter results and what was really ahead.

And what lots and listeners wanted was simply that Elon Musk stop waxing on and on and get real about the business.

The numbers weren't awful but not exactly stellar. Revenue for 2024 was $96.8 billion, up 19%. Earnings of $3.12 a share, however, were down 23%.

Total fourth-quarter revenue was up 3% to about $25.2 billion from a year earlier. Earnings 71 cents, down 40% from a year ago. Net income fell about the same.

Gross profit margins were shrinking from quarter to quarter but ticked up a little in the fourth.

More on Tesla, tech and AI

But the bigger problem was that no one from Tesla would say much about that what's-ahead question except to repeat this vague acknowledgement in the earnings slide deck:

The company's volume growth rate in 2024 "may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas."

Most investors expected something like that statement but then more detail. But hard numbers were totally lacking, and stock analysts and investors want numbers they can to use to judge performance.

An additional problem: Musk insisted the "notably lower" volume growth was due to the investments Tesla is making for its next generation of vehicles as well as its Cybertruck.

Nothing else. Not competition. And almost no mention that the market for electric vehicles in the United States at least seems to have gone slack in part because they're not cheap and many can be expensive to repair.

And the national infrastructure for EVs, especially charging stations, is a work in progress. (Tesla is ahead on this question.)

Musk did concede electric cars are expensive to buy, especially in the United States, a challenge because Musk wants Tesla to be the world's largest automaker.

Which is why the next generation of vehicles are supposed to be like the Honda Accord and priced accordingly. Tesla has cut prices substantially in the last year.

He worries about one thing: Chinese competition, which he says is intense.

"Frankly, I think if there are not trade barriers established, they will pretty much demolish most other companies in the world," he said during the call.

It's also why Tesla has cut prices in the U.S. China and Europe in the last year or so.

What is Tesla anyway?

And yet there seemed to be confusion for many on the call about what Tesla's business is. That may explain why the shares as of Friday were nearly 39% below their 52-week high reached in July 2023, the day the company reported second-quarter earnings.

Most folks, including Wall Street analysts and money managers, see Tesla as an automaker.

Musk sees Tesla as a developer of artificial intelligence and robotics. Many Musk fans, especially Ark Investments' Kathie Wood, see Tesla as a key economic disrupter.

Wood heavily bought Tesla shares the week before the earnings for her exchange-traded funds. Tesla is 7.4% of the holdings in Wood's Ark Innovation ETF (ARKK) - Get Free Report. The ETF fell 1% the day after Tesla's earnings call -- and ticked up slightly on Friday.

A few have even offered the equivalent of "Let Elon be Elon and don't worry about hard numbers."

But many investors and analysts weren't buying Tesla as an AI/Robotics play, at least not now.

The post-analyst meeting hangover

The evidence on this point: Tesla shares have fallen hard the day after the past four analyst meetings and six of the last nine. The average decline over the last four: 10.1% and 9.8% for all six declines.

Often the shares come back. This, after all, is a stock that went public in 2010 at $17 and hit an all-time high of $414.50 in November 2021, a 2,344% gain.

(The numbers are net of a 5-for-1 split in 2020 and a 3-for-1 split in 2022. The stock was at $2,000 before the first split.)

Still, investors seem skeptical about whatever Musk and Tesla say is going on and waiting for hard numbers. A few want clarity, lots of clarity.

One was Wedbush Securities' Dan Ives, normally a Tesla admirer and believer in Tesla's long-run prospects. He wants numbers, goals, objectives. He wants Tesla to organize the analyst calls better.

Tesla leads the industry with charging stations.
Shutterstock

Ives wants a huge stock buyback to prop up the price. He wants Musk to bring in investors shore up his money-losing investment in the X social media site (formerly Twitter).

And he wants Tesla to lock Musk up contractually until at least 2030 because, he knows, Tesla is Musk is Tesla.

The great fear is Musk will make good on his recent idea/threat to leave Tesla so he can develop his artificial intelligence dreams -- unless he somehow ends up with 25% ownership in the company.

Making that happen will be complicated, as everyone knows.

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