Looking Ahead to Tesla’s Earnings: What Can We Expect?
The stock is the worst performing in the S&P 500 so far in 2024 with a 40% drawdown and it’s only April! The selling has been unprecedented and Tesla has one of the worst-looking stock charts you’ll ever see.
So how do we feel heading into earnings? Not great, to be honest. Is there anything to be bullish about right now on a business level? I get the fundamental level and what Tesla has the potential to be. But right now, you can’t tell me that the company is executing in a way that it deserves to be priced any higher than it currently is. Robotics, Optimus, robotaxi, and new vehicles are all great long-term plans. But Tesla has to execute these plans and right now, the market is pricing the stock like it needs to see it to believe it.
We are likely at an impasse on Tesla's growth and technology until the next big leap. Tesla recently announced plans to terminate about 14,000 employees as the company tries to trim down the fat and improve its margins. Can you blame them? When things are this bleak, it’s time to reset.
Is the Bad News Already Baked Into the Price?
With that being said, after a 40% drawdown in four months, one has to wonder if everything has already been priced in. Incredibly, since the quarter ending December 31, 2023, the price-to-sales ratio for Tesla has been nearly cut in half. It’s trading at a modest 5.4x sales which is a number that the market would have jumped at a few years ago.
People often like to include things like Optimus and robotaxis in Tesla’s valuation, and that’s fair. We should always be projecting the future potential of a company we’re looking to invest in. But for now, we should be focusing on what the company is doing not what it could be doing three years down the road.
Vehicle deliveries are down, particularly in the most important EV market: China. Weakness in China is already a difficult hurdle for Tesla to overcome. Not only were the first quarter deliveries weak but the company has reportedly stopped delivering Cybertrucks to customers.
Let’s face it, Tesla has its back up against a wall heading into earnings. The industry continues to be hit by high-interest rates and persistent inflation which will ultimately be the key for Tesla moving forward.
So what are we expecting from Tesla’s earnings report next week? I think the stock can go lower. I think the results are going to be in line with the disappointing quarter that we are all imagining. I also think we might be nearing an excellent opportunity to add or start a position in Tesla for the future.
We broke the $150 support level this week so now we’re heading down lower. We’re fast approaching another level around $135, but could potentially hit the January 2023 low price of $102 if things don’t turn around for Tesla. I’d consider the $135 level as a great entry, but I can wait and be greedy for an even lower entry than that.
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