Tesla Stock Has Slumped Early In 2024. With Q4 Earnings Upcoming Is TSLA A Buy Or A Sell?

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Tesla (TSLA) stock has slumped early in 2024, after doubling last year, ahead of fourth-quarter earnings and revenue as analysts have revised lower profit estimates in the final months of 2023.

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On Jan. 2, Tesla reported that deliveries in the fourth quarter exceeded Wall Street predictions, with the global EV giant selling a record-setting number of vehicles and hitting full-year expectations. However, reaction among analysts was muted as Wall Street appears be squarely focused on end-of-year earnings and potential profit struggles in 2024.

Elon Musk’s Tesla reported that it delivered 484,507 vehicles during the fourth quarter and 1.81 million in 2023, exceeding its 1.8 million target. In the aftermath, firms maintained price targets and ratings on TSLA.

So far in January, Tesla stock has retreated more than 11%, falling below key levels of support, as analysts await news on auto gross profit margins, excluding regulatory credits, and whether vehicle pricing has stabilized.

With Q4 earnings upcoming the top question for investors is always, when is it a good time to buy or sell Tesla stock.

Tesla Reports Record Q4

The company delivered 461,538 Model 3/Y vehicles in Q4 and 22,969 “other models.” Tesla currently produces the Model 3, Model Y, Model S, Model X and Cybertruck.

Tesla’s previous quarterly delivery record was in Q2 with 466,140. In Q3, TSLA delivered 435,059 units.

Tesla had been aiming to deliver 1.8 million vehicles in 2023. Ahead of Tesla’s data release, Wall Street consensus had Tesla vehicle deliveries in 2023 totaling 1.797 million, just below that 1.8 million target, according to FactSet.

The EV giant reports full-year and fourth-quarter earnings and revenue on Jan. 24. Wall Street forecasts EPS falling 39% to 73 cents with revenue increasing 5% to $25.61 billion in Q4. For 2023, analysts predict earnings dipping 25% to $3.07 per share and sales of $97.46 billion, up 20% compared to 2022.

Looking to 2024, Wall Street expects earnings to remain below 2022 levels.

Cybertruck Event

On Nov. 30, Tesla delivered 12 Cybertrucks during an event at its Austin, Texas, factory with pomp and circumstance.

“We have a car here that experts said was impossible, that experts said would never be made,” Chief Executive Elon Musk told the crowd.

The EV giant offers three trims of the Cybertruck, with the rear-wheel drive version starting at $60,990 with a 250 mile range. The base model will be available in 2025, according to Tesla’s website.

The all-wheel drive version has a starting price of $79,990 with 340 miles of range. Tesla is also offering a top end trim, called the Cyberbeast, starting at $99,990 with a 320 mile range. Both the all-wheel drive version and the Cyberbeast have 2024 deliveries.

Four years ago, Tesla announced the price would start at $39,900.

Stock Falls After Earnings Amid Growth Concerns

TSLA shares sank after the company announced worse-than-expected Q3 earnings and revenue on Oct. 18. Tesla reported third-quarter earnings down 37% to 66 cents per share, the lowest in two years for Chief Executive Elon Musk. Meanwhile, quarterly revenue increased 9% to $23.35 billion. Tesla’s auto gross profit margins, excluding regulatory credits, fell to 16.3%.

Auto gross margins came in at 18.1% in Q2, down from 19% in Q1. That is below the 20% gross margin “floor” Tesla previously targeted.

Elon Musk on the earnings call also preached caution, offering investors warnings about the Cybertruck and the broader economy. The following day, Tesla stock fell 9.3%.

Musk said it will take 12-18 months before the Cybertruck is a “significant positive cash flow contributor.” He added there will be “enormous challenges” in reaching volume production.

Musk has said Tesla will end up producing around 250,000 Cybertruck units per year, reaching that output sometime in 2025.

Tesla Stock And Musk

There is never a dull moment for Tesla and Musk, with the two inextricably linked. After Musk took over Twitter on Oct. 28, 2022 purchasing the social media platform for $44 billion, some longtime Tesla stock bulls worried Musk’s focus on Twitter, along with negative attention, would weigh down Tesla stock.

Musk appeared to lessen those fears when he hired Linda Yaccarino, NBCUniversal’s advertising chief, as the new CEO for X Corp., formerly known as Twitter. The Tesla chief added Yaccarino will focus on business operations while he will work on product design and new technology.

At the time, Wedbush analyst Dan Ives wrote the news ends some of the “distraction risk around the Tesla story.”

However, Tesla stock cut back below a key technical level early on Nov. 16, following a four-day, almost 18% rally. The pullback also came after comments made on X by Chief Executive Elon Musk in support of an antisemitic post.

Meanwhile, Elon Musk on Jan. 15 posted on X that he feels he needs more TSLA shares and voting power before making the EV giant an AI and robotics leader.

Musk wrote that he’s “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” The chief executive added that he wants enough shares to be “influential but not so much that I can’t be overturned.”

Tesla’s Global Price Cutting Strategy

To maintain sales momentum in 2023, Tesla aggressively cut vehicle prices and offered discounts throughout the year. Auto gross margins, which peaked at 30% in Q4 2021 amid industry chip shortages, have plunged well below 20%.

Tesla continued cutting prices early in 2024, deciding in January to trim China vehicle prices on the Model 3 and two Model Y variants.

Analysts are still focused on vehicle pricing as Tesla closes out 2023. Bernstein analyst Toni Sacconaghi wrote in early January that auto gross profit margins “are a key question” going into Q4 earnings.

Sacconaghi models 15.7% auto gross profit margins for the fourth quarter but that they could drop lower given the impact of price cuts in September and October as well as significant discounting of inventory models in Q4.

On Jan. 11, Tesla stock traded below its 200-day moving average for the first since late November as Hertz (HTZ) announced it is selling about one-third of its EV fleet and that it predicts $245 million of incremental depreciation expenses related to the sale in the fourth quarter.

Hertz reported it will sell around 20,000 electric vehicles and that it expects to reinvest a portion of the proceeds from the sales into the purchase of internal combustion engine (ICE) vehicles to meet customer demand. In 2021, Hertz ordered 100,000 Tesla vehicles, with the goal to convert around 20% of its global fleet to EVs.

Tesla Momentum, Competition In China

Tesla ended 2023 with sales momentum in China. However, the EV dynamic in China could quickly change. Musk has said China’s EV companies are Tesla’s main competition — with BYD (BYDDF), Nio (NIO), Li Auto (LI), Nio (NIO) and others all making inroads in the EV market.

BYD, already far above Tesla EV sales including plug-in hybrids (PHEVs), overtook its U.S. rival in global BEV deliveries in the fourth quarter of 2023. Warren Buffett-backed BYD has also decided to open a plant in Europe, moving onto Tesla’s turf on another continent. BYD already is building plants in Thailand and Brazil.

Tesla is reportedly planning to revamp the Model Y in China with mass production beginning as early as mid-2024, according to Bloomberg. This comes after it launched a new Model 3 with a modest refresh.

But will that be enough? Chinese EV makers keep cutting prices and stepping up vehicle quality and specs.

Tesla EVs In Regulators’ Sights

Entering 2024, Tesla faces mounting pressure from regulators. A recent Reuters investigation found the EV giant has known of faulty suspension and steering parts across its model lineup going back at least seven years, but often blamed drivers when those parts failed.

Norway’s traffic safety regulator recently confirmed that it’s been investigating suspension failures in Model S and X vehicles since September 2022. A resolution is expected soon, with a recall possible.

Sweden announced on Dec. 22 that it’s also looking into similar issues.

The Reuters report could bolster regulators’ probes and provide fodder for class-action lawsuits.

This comes after a National Highway Traffic Safety Administration (NHTSA) investigation recently spurred Tesla to perform an over-the-air software “recall” on more than 2 million vehicles after determining that the Autopilot is prone to misuse after reviewing 1,000 accidents.

The NHTSA’s Autopilot safety probe is ongoing.

Next-Generation Electric Vehicle On The Way?

Meanwhile, Tesla bulls are also betting on the potential of the $25,000 next-generation Tesla electric vehicle.

Throughout 2023, Tesla said it continues to “make progress” on its next-generation platform. The EV company has remained mostly silent on details about its next-generation vehicle. At the annual shareholder meeting, Tesla teased a vehicle silhouette.

Musk said in early December that the first production line for the next-generation Tesla vehicle will be at its Texas facility. Tesla originally said the new vehicle would first be produced in Mexico, but that proposed plant is on the back burner

Wedbush analyst Ives estimates Tesla will announce the next-generation offering in six to nine months. That’s a big part of his outperform rating on TSLA shares.

However, it’s unclear when the next-generation vehicle would begin deliveries. Musk has promised “revolutionary” manufacturing to cut costs, but that could take a long time to develop.

Also, it’s unclear if Tesla’s next-gen EV will be eligible for tax credits, depending on its battery sourcing.

Is Tesla Stock A Buy?

Tesla stock has retreated 11% in January with TSLA shares tumbling 7.8% to 218.89 last week, plunging below the 50-day and 200-day lines. Tesla stock is in an awkward double-bottom base with a 278.98 buy point according to MarketSmith analysis.

The relative strength line, which tracks a stock’s performance vs. the S&P 500, is at its lowest level since late May, according to MarketSmith.

In 2023, Tesla doubled, easily outperforming the broader S&P 500 index. Tesla stock ranks fifth in the 35 member IBD Auto Manufacturers industry group. The stock has a 67 Composite Rating out of a best-possible 99. Tesla stock also has a 70 Relative Strength Rating and an 88 EPS Rating.

Almost single-handedly, Elon Musk has turned the auto industry on its head, essentially forcing it to get aboard the electric-vehicle train. It’s a reason why Tesla has been a monster stock over much of its history, especially during its stratospheric run from mid-2019 to late 2021.

Tesla stock has had mammoth runs and could again. But it’s not a buy right stock now.

Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.

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