TSLA Stock Analysis: Tesla’s Long-Term Future Is Still Bright, but Today’s Timing Is Not Right

Stock Market

Tesla (NASDAQ:TSLA) stock has had a rough start to the year after reporting its Q4 and full year 2023 financial results. My initial Tesla stock analysis suggests Wall Street was particularly disappointed with Tesla’s lack of clarity regarding the company’s plan for the future.

Tesla is currently navigating through a challenging macroeconomic environment. Rising interest rates have damaged the automotive market, especially in Asia Pacific. The company also projects vehicle deliveries to slow in 2024, with price cuts to impact vehicle gross margins. While Wall Street is wary about Tesla’s outlook for 2024, the long term story remains intact.

Tesla Stock Analysis: Not Just a Car Company

Tesla has been one of the most important car companies of the last decade. They’ve been a pioneer in the global adoption of EVs, and are the second largest manufacturer in the world. 

They’ve pioneered a vehicle segment that was traditionally ignored by large automotive manufacturers. The company hit a major inflection point, becoming profitable on a TTM basis back in 2020. This was after they nearly faced bankruptcy a few years prior. 

Many investors continue to see Tesla as only a car company, but that is merely not the case. Tesla currently generates a majority of its operating profit from EVs. This will likely be the case for the next few years. 

However, when you look out further, you can see the potential for Tesla’s revenue and operating profit to increase in areas like artificial intelligence and energy storage.

In FY23, Tesla’s energy storage deployments increased 125% YOY to 14.7 GWh. This is impressive when you consider the impact that supply chain constraints and higher interest rates had on the energy storage and solar market. 

Precedence Market Research estimates the energy storage market to reach $435 billion by 2030, growing at an 8.4% CAGR. I think Wall Street is significantly undervaluing the business and its long term potential beyond the end of this decade.

Management also expects growth in energy storage deployments to outpace the automotive business in FY24. 

Tesla is currently rolling out V12 of FSD using neural networks and deep learning models to influence vehicle controls. Our current Tesla stock analysis says the advent of AI will be a huge growth driver for Tesla, and an autonomous taxi network could add hundreds of billions in market cap to the company.

Price Cuts to Impact Gross Margins in 2024

In the 2023 fiscal year, Tesla grew its top line revenue by nearly 20% despite macroeconomic uncertainties. A series of price cuts served as a mechanism to boost both delivery and revenue growth. 

The only problem is that it has significantly affected Tesla’s vehicle gross margins. Tesla’s gross margins in FY23 came in at 18.2%, compared to 25.6% in FY22. Higher interest rates severed the automotive market, and price cuts was a strategic move to strengthen their position in the marketplace. 

This move slightly paid off as price cuts on the Model 3/Y boosted delivery growth in 2023. Tesla’s Model Y also became the world’s best selling vehicle in 2023, selling 1.23 million units. 

Tesla is clearly playing the long game, as the company aims to increase economies of scale through 2030. Vehicle gross margins are also expected to be below 20% through 2024.

While this is a small bump along the road, Tesla’s ability to increase operating leverage could accelerate profitability in the next few years.

Tesla Stock Will Be a Long-Term Winner

Tesla has been one of the best growth stories on Wall Street in the last few years. The stock was a pandemic darling, as the company flipped to profitability and surged 740% in 2020. 

They have continued to see strong double digit growth, but their growth rate is starting to slow down. They have made strategic moves in 2023, which will make a lot more sense in hindsight.

Tesla P/E has been cut in half from the end of 2023. There are certainly a number of reasons to be skeptical in 2024, which include vehicle deliveries, gross margins, and profitability. Investors might want to consider waiting to see how 2024 progresses before snapping up shares for the long term. 

On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Terel Miles is a contributing writer at InvestorPlace.com, with more than seven years of experience investing in the financial markets.

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