They say that prices don’t lie. If you believe that statement, then the market has seriously fallen out of love with Tesla, the EV maker with Elon Musk at the helm. The stock price is lower by more than 26% since the start of the year, and it has lost more than $200bn from its market capitalization. The stock price is at its lowest level since May 2022. Adding to the spate of bad news, the share price fell more than 13% in the days after its Q4 earnings release, and this is the stock’s longest losing streak since 2016.
Based on the reception of its latest earnings report, the market is still struggling to find a reason to buy the EV maker and there are still some big issues with the company, which is driving the share price lower. Firstly, the company reported earnings and revenue that missed expectations for Q4 2023. Secondly, its forward guidance included in this earnings report spooked the market. Tesla said that they would deliver fewer vehicles next year, as they concentrate on building their new platform. Shockingly, the earnings report stated that Tesla could see the growth rate in revenue and deployment in its energy storage business outpace the automotive business.
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While diversification is a good thing, autos are what Tesla are known for, and they are the bulk of their business. Being told that the auto business would have disappointing sales growth this year, without giving any guidance on just how disappointing may not help its share price to recover after its weak start to the year. It would appear that being in between two growth waves is not a profitable place to be, and investors typically do
not like these messages.
There were other pockets of weakness, Tesla is less bullish on its cyber truck, saying that its ‘ramp time’ will be longer than for their other models, given the manufacturing complexity. Added to this, Tesla earned less revenue from selling its regulatory credits to other auto makers to offset their greenhouse gas emissions. Revenue from selling these credits fell to $433mn, down from $554mn in Q3. This could be a sign that other auto makers are switching away from the combustion engine and moving towards electric engines, and so need fewer credits. Thus, this decline could be structural and may hurt revenue growth in the future.
Issues for the EV sector could hurt Tesla in the long term
Tesla has already cut prices for its vehicles at home and abroad, and there is a risk that demand for EVs is fading. Earlier this year, hire car company Hertz cancelled plans to expand its EV fleet.
Tesla certainly did not sound bullish in the medium term, so why should investors buy the stock? There was no roadmap given as to when Tesla’s next generation of EVs will be produced, and no guidance on how big the decline in vehicle production will be. This is extremely unusual, and leaves investors with little impetus to buy the stock. Some analysts are wondering if Musk decided to set the bar so low for future earnings reports that the only way from here is higher?
Tesla: the good news story
In amongst this gloom it is worth remembering that Tesla cars are still extremely popular, even though competition has exploded in the EV space in recent years. The model 3/Y was the biggest selling car in 2023, according to Tesla, added to this, Tesla’s Fremont factory was the most productive factory in all of North America in 2023, for the third year running, manufacturing nearly 560,000 vehicles.
We are still waiting to hear updates on Q1 production, a giga factory in Mexico and details about Tesla’s launch in India. All of this could have a positive impact on the stock price. The technical picture may start to look supportive for Tesla, and it could entice investors back. The stock is looking extremely oversold on a technical basis. As you can see in the chart below, the RSI index, which is a useful gauge of whether a stock looks oversold, is at its lowest level for a year. The RSI can be a contrarian indicator, and when stocks look over-extended to the downside, this can entice some traders back to the market.
At this stage of the year, the fundamental story for Tesla is still weak, but the technical picture may start to improve.
Chart: Tesla price chart and RSI indicator, Source: XTB XStation
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