Tesla's Results: Profits Down, but Investors Believe in Musk

Tesla's report for the fourth quarter of 2024 shows that the company operates in a segment with increasing competitiveness, not only in the US itself, but also in China. Demand is also weaker, considering the undermining of the transition from combustion cars to electric cars. At the same time, however, investors and customers still value the company, which results in only a temporary drop in prices after the results. Shares even gained 3% in post-session trading, although the situation is changing very dynamically before Musk's press conference.

Key Financial Data

• Revenue: $25.7 billion, below analysts' estimates of $27.3 billion. Slight growth of 2% compared to $25.2 billion in the fourth quarter of 2023.
• Net income: $2.3 billion, which is a huge drop of 70% compared to $7.9 billion (including a one-time tax gain of $5.9 billion) recorded in the fourth quarter of 2023.
• Operating profit, excluding the tax benefit, fell by 23%.
• Net income for the full year: $7.1 billion, down from $15 billion in 2023.
• Full-year revenue: $97.7 billion, a slight increase from $96.8 billion in 2023.
• EPS: Adjusted earnings per share were 73 cents, compared to 71 cents a year earlier and market expectations of 75 cents.
• CAPEX: $2.78 billion, which is a 21% y/y increase, expected $2.72 billion.
• Vehicle deliveries: 1.8 million units in 2024, slightly below 2023 levels, which is the first year-on-year decline since at least 2016. Fourth-quarter deliveries were approximately 496,000 units, which also fell short of expectations.  

The company disappoints with results

Tesla's fourth-quarter results highlight the challenges the company faces. Lower-than-expected revenue and a dramatic drop in profits are clear indicators of intensifying competition, particularly from Chinese electric vehicle manufacturers such as BYD, and potential weakening demand for Tesla vehicles. The decline in deliveries, a key indicator for Tesla, further exacerbates these concerns. An aging product range, especially compared to rivals offering a wider selection of models, also contributes to this state of affairs.  

Will Elon Musk present a ray of hope?

Despite the disappointing data, Tesla's shares initially fell only slightly, and are now showing signs of recovery. This suggests that investors remain optimistic about the company's future prospects. Musk himself also mentioned that he considers the removal of subsidies for electric cars as an opportunity in the US. Several factors contribute to the company's resilience:  

• The promise of future growth: Tesla has indicated that it expects a return to sales growth in 2025, although this depends on factors such as progress in autonomous driving and macroeconomic conditions.
• Artificial intelligence and autonomous driving: The narrative around Tesla's potential in autonomous driving and artificial intelligence continues to fuel investor enthusiasm. Elon Musk's statements about "full vehicle autonomy" and the potential of "robotaxis" fuel speculation about a future in which Tesla dominates not only in electric vehicles, but in the entire transportation landscape.
• "Elon's Factor": Despite concerns about his divided attention, Elon Musk's leadership is still seen as a major asset by many investors. His vision and past achievements in disrupting industries give him a certain "star power" that goes beyond short-term financial results. Some even believe that his close ties to the current administration could benefit Tesla.
• Price cuts and affordability: Tesla has implemented price cuts and offers incentives to boost sales, which affects profitability, but potentially positions the company for future volume growth. The promise of more affordable models in the future also keeps interest from potential buyers and investors.  

Tesla's fourth-quarter results highlight the challenges associated not so much with maintaining growth, but with maintaining sales at the current level. In principle, since the fourth quarter of 2022, we have observed almost constant revenues and rather falling margins, although these have been slightly improved in recent quarters. However, they are smaller than in 2022. Nevertheless, lowering prices and smaller margins may be related to a certain strategy to increase their market share and outperform the competition in newer technologies and services.

Although the financial results are undoubtedly disappointing, the market reaction suggests that investors are willing to turn a blind eye to these short-term failures. The company's future success depends on its ability to deliver on its promises in autonomous driving, expand its product range, and navigate the changing landscape of the electric vehicle market. Elon Musk has repeatedly shown that he thinks completely differently than the heads of large car corporations, which ultimately led Tesla to become the largest automotive company in the world, selling a fraction of what the competition sells. Therefore, hope still continues, but it is possible that at some point the market will say check.

Tesla shares lost ground during Wednesday's session, but are currently gaining nearly 4% in post-session trading in anticipation of new promises from Elon Musk. Source: xStation5