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Who is driving Tesla?

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

The question of who is guiding the direction of Tesla’s stock performance has been a subject of much debate. It could be argued that, much like a Tesla vehicle, the stock is on autopilot with its CEO, Elon Musk, simultaneously steering a number of other ventures such as Twitter, SpaceX, and Tesla. In 2022, Tesla experienced a difficult year as its share price dropped 65%. This decline removed the company from the exclusive trillion-dollar valuation club and also caused it to lose its position as the fifth-largest company on the S&P 500 Index.

However, 2023 has proven to be a different picture altogether, not only the stock has bounced back, to some degree, helped by the top and bottom lines beats in its Q4 2022 financial report, in addition to that its enigmatic CEO hyped up investors that Tesla might produce a whopping 2 million cars this year.

In the fourth quarter, Tesla’s delivery figures contributed to the highest quarterly revenue of $24.3 billion. The company reported automotive revenue of $21.3 billion, a 33% increase from the same period the previous year. However, there is ongoing concern about the company’s margins due to its recent price cuts, which had a negative impact on the Automotive Gross Margin and Total Gross Margin, as seen in the company’s Q4 financial results.

If we look under the surface, however, one of the reasons why tesla barely was able to beat its bottom line, is mainly because, prior to the release of its latest quarterly report, earnings expectations were massively revised downward in the last couple of weeks.

Tesla has reported that its vehicle deliveries reached 1.31m over 2022, marking a 40% jump in deliveries compared to last year, best year in terms of total deliveries.

Despite reporting impressive annual growth in vehicle deliveries, the significant decline in its stock performance last year can be blamed on the overpromising and underdelivering game that Musk has been playing with his investors.

Hyping up investors’ expectations, by targeting 50% growth rate, and then failing to meet them, by achieving only 40%, is like a pin that meets a balloon causing substantial cracks the Tesla’s growth narrative.

This decline in stock price last year can also be attributed to several other factors, including growing competition in the EV market both in the US and China, continued supply chain issues, broader economic downturn. Shortages of semiconductors and other materials kept auto industry production down, allowing companies across the industry to focus on higher-margin models and book strong profits, even as sales volumes fell. These factors have put pressure on the company’s sales, leading to a shrinking backlog, a sign that future demand is weakening.

In response to these challenges, Tesla has announced that it will be cutting prices on its electric vehicles. It started off first in China at the end of last year and in 2023 the price cuts followed in the U.S. and Europe. The move aimed at boosting sales by driving volume growth. With the drop in prices ranging from 6% to 20% in the U.S., effectively allows more Tesla models to be eligible for newly revised tax incentives of $7,500 that kicked in January 1st under the Inflation Reduction Act.

However, the price cuts can be seen also as a sign of strength – a display of pricing power and cost superiority. Tesla brought battery manufacturing and other parts of its supply chain in-house, and standardized vehicle designs to improve economies of scale. Hence, it comes as no surprise that they are achieving economies of scale here by being the most effective on the “net profit per vehicle” metric.

Lastly, do not get too optimistic about the stock, Tesla might have driven some demand, but it will be at the expense of its future margin compression.

On top of that, lots of macro headwinds are blowing into the market face, which seems rather complacent for now , amid the gloomy earnings outlook. Perhaps the earnings do not yet fully reflect the possible risks and challenges that may arise from a potential recession, only pricing in a “soft landing” scenario.

As the Earnings per share (EPS) downgrades continue to make headlines, the extend of which is in line with recessionary years (red circles). Traditionally, as earnings fall, the price is the next, metric to fall in line.

In summary, Tesla’s financial performance may be relatively resilient during a recession, but it is not completely immune to economic downturns. Despite being a leader in the electric vehicle market, Tesla’s aggressive price cuts are a double-edged sword. While it may increase demand, it will worsen its future profitability. Given where we are in the current cycle, slowing global economy and rising interest rates, investors may be hesitant to give Tesla the necessary boost for the company to achieve its target of 50% growth rate that Elon Musk’s growth story is based on.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Violeta Todorova

Senior Research

Violeta se unió a Leverage Shares en septiembre de 2022. Ella gestiona la realización de análisis técnicos, investigación macroeconómica y de acciones, y ofrece información valiosa que ayuda a la definición de estrategias de inversión para los clientes.

Antes de unirse a LS, Violeta trabajó en varias empresas de inversión de alto perfil en Australia, como Tollhurst y Morgans Financial, donde pasó los últimos 12 años de su carrera.

Violeta es una técnica de mercado certificada de la Asociación Australiana de Analistas Técnicos y tiene un Diploma de Postgrado en Finanzas e Inversiones Aplicadas de Kaplan Professional (FINSIA), Australia, donde fue profesora durante varios años.

Julian Manoilov

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Julián se unió a Leverage Shares en 2018 como parte de la principal expansión de la compañía en Europa del Este. Él es responsable de diseñar estrategias de marketing y promover el conocimiento de la marca.

Oktay Kavrak

Head of Communications and Strategy

Oktay se incorporó en Laverage Shares a fines de 2019. Él es responsable de impulsar el crecimiento del negocio al mantener relaciones clave y desarrollar la actividad de ventas en los mercados de habla inglesa.

Él vino de UniCredit, donde fue gerente de relaciones corporativas para empresas multinacionales. Su experiencia previa es en finanzas corporativas y administración de fondos en empresas como IBM Bulgaria y DeGiro / FundShare.

Oktay tiene una licenciatura en Finanzas y Contabilidad y un certificado de posgrado en formación empresarial de Babson College. También es titular de una certificado CFA (Chartered Financial Analyst).

Sandeep Rao

Investigación

Sandeep se unió a Leverage Shares en septiembre de 2020. Está a cargo de la investigación de líneas de productos existentes y nuevas, clases de activos y estrategias, con un enfoque particular en el análisis de eventos y desarrollos recientes.

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