It looks like things are going from bad to worse for Elon Musk.
The billionaire’s Tesla (NASDAQ:TSLA) shares fell dramatically in early trading on Thursday, dropping by over 10% before noon. And it wasn’t just results that had investors worried about Tesla stock. So, let’s get into what happened and whether investors should see this as an opportunity or a warning of more to come.
Promises, promises
Musk came out reporting that results for the electric vehicle (EV) maker may have been bad in 2023, but it would also be “notably lower” in 2024 in terms of growth. This came on top of earnings that fell below analyst estimates as well.
Revenue grew 3% year-over-year for the quarter, with vehicle production and deliveries up as well, though still below estimates. Furthermore, operating income dropped by 47% and adjusted earnings per share (EPS) by 40%. Still, there was plenty of cash on hand, with Tesla stock reporting an increase in operating cash flow by 33% compared to the same time last year.
Now, Musk believes that while 2024 will be hard, the focus should be on the future. That future includes Tesla stock’s cheaper, next-generation EV. These should be made during the second half of 2025. But investors weren’t on board with this, given the slowing EV industry as a whole and increasing competition.
Harder and harder
Tesla stock is going to find it harder and harder to keep investors interested, especially as competition increases. While the company may have been the innovator behind EVs, it’s these other companies that are likely going to see higher margins.
Competition will especially come down due to China, and that could mean that the days of 50% or even 30% growth year over year are behind them for now. And no matter how cheap they make these future cars, it’s unlikely to meet the same prices as its competitors.
Then there is Musk himself, who called for a larger stake in the company up to 25% from 13%. If not met, he would develop artificial intelligence products “outside of Tesla.” This comment scared many investors, even those who are bullish on Tesla stock, as too many shares would dilute their holdings.
Recommendations
So, what did analysts come away with? Nothing positive, really. Bulls are scared off by the rough road ahead, with one historically bullish analyst referring to earnings as a “train wreck.” They further went on to state they “were dead wrong expecting Musk and team to step up like adults in the room on the call and give a strategic and financial overview of the ongoing price cuts, margin structure, and fluctuating demand … instead, we got a high-level Tesla long-term view.”
So, instead of some concrete guidance, investors were met with threats. And while Musk believes there will perhaps be growth in 2025, that doesn’t seem likely either.
The fact is, it won’t be until 2026 that these cheaper models really start to hit availability. And that still isn’t guaranteed. So, should investors get into Tesla stock? Right now, I would suggest it is far too volatile. Instead, look out for concrete evidence to get back in during the next year.
