Investors' blow to Tesla. The multimillion-dollar stock market valuation of the electric car manufacturer rests on the premise of strong growth. However, the company's revenue increased only 3% in the last quarter of 2023 (and 1% for the automobile business), partly due to price reductions. Not only that, the company warned that volume sales growth in 2024 will be “notably lower” than that experienced last year. Given all this, Tesla shares have plummeted this Thursday on the stock market. The drop exceeded 13% and at the close of the session it was 12.13%, down to $182.63 per title. That represents a loss of value on the stock market of about 80 billion dollars (about 74 billion euros) in a single day.
“In 2024, our vehicle volume growth rate may be significantly lower than the growth rate achieved in 2023, as our teams work on the launch of the next generation vehicle at the Texas gigafactory.” That was the phrase in the quarterly earnings report that set off alarm bells. Added to this is that in the fourth quarter the sales of the American company increased only 3%, to 25,167 million dollars (about 23,000 million euros, at the current exchange rate). Curiously, profits skyrocketed, but for an extraordinary amount of $5.9 billion for deferred tax assets.
Josh Gilbert, market analyst at eToro, stressed in a note that the company “has failed in most key indicators” since “profits, revenues and gross margins were insufficient in the fourth quarter.” However, in his opinion, the accounts had a positive note, which was the automotive gross margins. Despite this data, “long-term investors still have many catalysts to be optimistic with falling battery costs, the outlook for long-term electric vehicle demand trends, Tesla's artificial intelligence investments and the evolution of its solar business,” according to Gilbert.
It remains to be seen to what extent this “notably lower” growth in volume translates into the evolution of monetary income. It will depend on the evolution of prices. “We continue to believe that Tesla will have to lower prices and experience lower margins to drive incremental volume above last year's 1.8 million level,” analysts at investment firm Bernstein say. “Although 2024 will be a difficult year, it is increasingly evident that 2025 is unlikely to be better, with continued pressure on growth and margins,” they add.
In the conference with analysts, Elon Musk confirmed that Tesla is preparing to launch a new model towards the end of 2025. “Once launched, it will be far above any other manufacturing technology that exists in the world. It’s the next level,” he said. Tesla has historically been optimistic about estimated timelines, which are often delayed. Furthermore, in this case there is more risk because the manufacturing process will be “revolutionary,” according to the company. “We believe that high-volume availability of the Model 2 could only begin well into 2026, assuming the production chain is not as difficult as what Tesla has experienced with its other new models (Cybertruck, Model 3), which is not insured,” says Bernstein.
Musk's comments about his desire to have greater control of Tesla are also not popular with investors. The businessman has received unprecedented multimillion-dollar stock awards. Then he has been selling shares to invest in other businesses (such as the purchase of Twitter) and now he complains that his participation is not high enough and says that he aspires to have 25% and that if he does not achieve it, he will consider developing capabilities of artificial intelligence and robotics outside of Tesla.
A 25% stake would prevent him from being expelled by “activists” or by the influence of shareholder advisory companies, he argued. “I'm not looking for additional profit. “I just want to be an effective administrator of a very powerful technology,” he said. “That's what I'm aiming for, strong influence, but not control. If there is a way to achieve that, it would be great,” he argued. “I see the path to creating an artificial intelligence and robotics giant with truly immense capacity and power,” he said. He said that the ideal would be a structure of two classes of shares, but it is not an idea that will convince the market.
Much of Tesla's valuation is tied to the development of these technologies and none of the options that Elon Musk seems to have left on the table are good for the company: take those businesses, which would decrease Tesla's value, or receive a large package of shares, which would dilute the participation of the rest of the shareholders.
In the accumulated year, Tesla shares fall 26% amid simultaneous concerns about lower demand for electric cars and growing competition in the sector. Tesla closed 2023 as the market leader, but it has been losing share and its margins have been eroding with the price reductions it has had to undertake. The Chinese BYD has taken away the world leadership in sales of electric cars in the fourth quarter. In the conference with analysts this Wednesday, Musk said that without protectionist trade policies, Chinese cars will sweep away the rest.
Automakers, suppliers and even car rental companies have warned that interest in electric vehicles is waning. General Motors and Ford are reducing their expansion plans in the segment, while Hertz is selling a part of its electric fleet to replace those vehicles with gasoline cars.
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