Tesla after Q1 2024 results – should you consider investing
Iryna Trygub-Kainz, MBA, FRM?
Investment Management, Investment Blogging & Coaching
Tesla reported neutral financial results for Q1 2024. However, the outlook remains bright and correlates with our insights, provided earlier. Should you consider investing. We share our insights and outlook for Tesla.
The Key Highlights for Tesla Q1 2024 financial results:
Earnings Per Share (EPS): Tesla reported?$0.53 EPS, exceeding the consensus estimate of?$0.46?by?$0.07.
Revenue: The company’s total revenue declined by 9% yoy, also was below the Q4 2023. Gross margin weakened to 17.4% versus 17.6% in Q4 2023 and 19.3% in Q1 2023.
Income from operations: declined by 56% yoy to $1.17 billion. Operating income was negatively affected by increase in operating expenses driven by AI, cell advancements and other R&D projects; cost of Cybertruck production ramp up; decline in vehicle deliveries.
Vehicle Deliveries: Tesla produced over?433,000 vehicles?and delivered approximately?387,000 vehicles.?This represents a?20% decline?in deliveries compared to the previous quarter and a?9% drop?year-over-year.?The drop in production was caused by the early phase of the production ramp for the updated Model 3 at the Fremont factory and factory shutdowns due to shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin.
Energy storage products: Tesla continued to deploy energy storage products, reaching a?record quarterly deployment?of?4,053 MWh.?Energy Generation and Storage revenue and gross profit also achieved an all-time high in Q1. Revenues were up 7% YoY and gross profit was up 140% YoY, driven by increased Megapack deployments, partially offset by a decrease in solar deployments. Energy Generation and Storage remains Tesla’s highest margin business. Tesla commissioned the second general assembly line, and will continue to ramp up its 40 GWh Megafactory in Lathrop, CA toward full capacity.
Tesla’s financial highlights
Tesla’s operational Summary
The Outlook
Tesla targets optimization of its vehicle production capacity
Tesla will continue updating its future vehicle line-up in order to accelerate the launch of the new, more affordable models. These new vehicles should utilize aspects of the next generation platform as well as Tesla’s current platform. Tesla expects that the update of the new vehicles may not results in significant cost reduction (as Tesla (TSLA) previously planned).
However, Tesla would be able to optimize capex by growing vehicle production volume. This should help Tesla to achieve maximum production capacity to three million vehicles, which represents +50% growth over 2023 production. In our view, utilization of the full production capacity may result in reduced capital expenditures. At the same time increase of production of the more affordable autos should stimulate growth of vehicle sales.
Tesla Model 3 competitive advantages – focus on production of more affordable cars
Tesla’s Model 3 / Model Y has the highest production capacity (U.S., China, Germany) and should be driving the company’s revenues in the coming months.
Tesla’s Model 3 holds several competitive advantages over its rivals, which contribute to its strong position in the electric vehicle (EV) market.
One of the main advantages is Tesla’s battery supply chain. Tesla has developed a strong battery supply chain that ensures it has a reliable source of high-quality batteries. This enables the company to produce vehicles with longer ranges and at a lower cost compared to competitors.
Another significant advantage is the Supercharger network. Tesla has an extensive network of Superchargers that allows Tesla owners to quickly charge their vehicles over long distances, offering a convenience that many other EV manufacturers do not match.
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Tesla also frequently provides software updates that improve the features and performance of its vehicles over time, which is not a common practice among traditional automakers.
The company’s focus on innovative technology and autonomous driving capabilities further sets it apart from competitors, as Tesla vehicles are often at the forefront of these technologies.
Moreover, Tesla’s vehicles, including the Model 3, are known for their simplicity and efficiency compared to internal combustion engine vehicles. They have fewer moving parts and are, by some estimates, significantly simpler, which can reduce long-term maintenance costs (Harvard Business Review).
In terms of market positioning, Tesla uses a broad differentiation strategy to target premium as well as more cost-effective segments, offering a range of vehicles that appeal to a wide audience.
Lastly, Tesla stands out for being more cost-effective in usage since its vehicles, including the Model 3, do not run on gasoline. This can translate into significant savings for consumers over time, especially with fluctuating fuel prices.
In our opinion, these competitive advantages will help Tesla to maintain its strong position in the EV market and make the Model 3 an attractive option for consumers looking for a high-performance, cost-effective, and technologically advanced electric vehicle.
Tesla’s focus on FSD (Full Self Driving) will bring potential revenue up to $ 55 billion by 2030
Tesla’s Full Self-Driving (FSD)?software, although still in beta testing, is already estimated to be worth?$1 billion to $3 billion?in terms of?annual revenue.?Tesla charges an upfront fee of?$12,000?for its FSD software, or?$199 a month?on a subscription basis.
Looking ahead, the market opportunity for software like FSD could potentially reach?$10 billion to $55 billion per year?by?2030, driven by Tesla’s growing fleet of vehicles.?This projection is remarkable, considering that Tesla’s total revenue for?2023?was?$96.8 billion.
In an optimistic scenario, FSD could account for tens of billions of dollars in revenue annually, especially if we consider licensing Dojo (Tesla’s supercomputer) or selling FSD to other original equipment manufacturers (OEMs).?However, it’s essential to note that achieving these metrics would require substantial revenue in a “steady state” by?2040, with a mid-high teens EBIT margin.
In addition, as we wrote in our previous article: we believe that introduction of Robotaxi will be a game changer for Tesla.
Mass-production of Robotaxis comes in the second half of 2024
Tesla?aims to?mass-produce robotaxis by the second half 2024, according to?CEO Elon Musk. These dedicated robotaxis will be?highly optimized for autonomy, meaning they won’t have a steering wheel or pedals. Musk expressed confidence in this endeavor, despite the challenges posed by varying regulatory rules across different states.?He believes the robotaxi will be a?massive driver of Tesla’s growth.
Tesla will own and operate a segment of the?robotaxi?fleet, while also offering individuals the opportunity to integrate their?personal?vehicles into the network for rental purposes.?A robotaxi will be called “Cybercab”
Summary: we believe that Tesla will remain the pioneer of innovation technologies in the automotive sector. Moreover, overtime, Tesla’s models will be aimed at broad consumer segment, which should stimulate revenue growth. However, there is some skepticism related to timely launch and mass-production of Robotaxis. We foresee that Tesla may encounter continuing challenges in China. So the company should increase its focus on the U.S. and Europe.
Production of 250,000 Cybertrucks will be achieved only in 2025
The annual delivery target of 250,000 Cybertrucks will be achieved in 2025, according to company CEO?Elon Musk.
Departure of three Top Executives – brings some concerns
Martin Viecha, who served as Tesla’s vice president of investor relations for seven years, announced his departure from the electric car company during the call on released Q1 2024 financial results. His exit comes amid a series of high-profile departures from Tesla, including senior vice president Drew Baglino, responsible for engineering and technology development for batteries, and Rohan Patel, the vice president of public policy and business development. In our view, this may rise some red flags among investors.
During the past three months Tesla’s (TSLA) shares dropped by 30.4%, significantly underperforming the broad S&P500 Index. In our view, the price was adjusted to the expected weakness in Tesla’s operating margin and vehicle sales. According to our updated estimates, Tesla’s fair price per share comes at $181 and offers attractive 25% upside potential. Still, we would retain our HOLD recommendation as we would like to know who will join Tesla’s executives instead of Martin Viecha, Drew Baglino and Rohan Patel. In our view, executive team plays important role in the company’s management and strategy implementation.
For more detailed insights, please contact us.