Head of Saxo Strats
Summary: Tesla is in a transition year, with growth slowing down and gross margins under pressure. The company is facing a number of risks, including rising interest rates, slowing EV demand, Elon Musk's fight for more control, wage pressures, and increasing competition. Tesla shareholders should prepare for more volatility and potential disappointments in 2024.
In our earnings preview this Monday we highlighted that Tesla had come to a point where the growth narrative is key for maintain a positive sentiment on its shares. The reason is that the gross margin is under pressure. Equities are quite simple sometimes. If the margin is under pressure the revenue growth figures matter more for investors. So how did Tesla do in Q4? Here are the key highlights:
Overall, Tesla ended 2023 with 19% revenue growth but adjusted net income declining by 29% as pricing pressures hit margin. Last year will still go down in history as the year that transformed the EV industry and Tesla is likely going to be among the winning group of EV-makers in the future. But one thing is the company’s performance, another thing is the stock price. Expectations have been so high and there is clearly a “Musk premium” baked into the share price that when there are growth hiccups it will hurt the share price. This year will undoubtedly be a transition year for Tesla and shareholders should prepare themselves for more volatility and potential disappointments.
A small beacon of potential upside surprise is the energy storage business which more than doubled installations in 2023 to 14.7 GWh and booked revenue of $1.4bn. It is too early to say, but maybe the energy storage business could be the “AWS of Tesla” meaning that Amazon’s AWS cloud business for many years were growing fast but was overshadowed by Amazon’s e-commerce business before it suddenly became clear that this was where all the profit was. Tesla’s energy storage business could be a repeat of Amazon’s AWS surprise. But it is still early days.
Another key aspect of Tesla that has come about is Elon Musk openly arguing, or some would say demanding, that he should have a stronger influence on Tesla. He has specifically said on X that he wants 25% of the voting rights, and that he supports a dual-class stock structure to give him this control with less economic impact for existing shareholders. The reason is that if he does not get more control he will go do AI and robotics outside Tesla. Is that a good idea to give him more control?
Our view is that a company that is as mature as Tesla should have processes in place and a great management team that whether Elon Musk is CEO or not, Tesla should be able to compete and become a top three EV-maker in the future. The question is whether the competitive landscape has changed to a point where it is more important than ever to be laser-focused on EV production instead of all these side projects. Winning the AI race is tough and robotics is an even more challenging task. Should Tesla shareholders really gamble ressources on these projects over focusing on beating BYD?
What are some of the key risks to consider as a Tesla shareholder over the coming year?
Tesla shares were down 6% in US extended trading hours last night, but the shares listed on German exchanges are down 8.5% in today’s session reflecting the failure of Elon Musk convincing the market about the near-term future.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
