tesla (NASDAQ:TSLA) This week's first-quarter earnings report didn't have much good news to share with investors.
As the company said in its review, challenges such as the Red Sea conflict, the arson attack at its Berlin factory, and ramping up production of the latest Model 3 have all increased costs and weighed on results.
The company also noted industry-wide challenges in electric vehicles (EVs), as EV sales appear to have plateaued in the industry. Tesla already reported a 9% decline in first-quarter deliveries, and first-quarter sales fell 9% to $21.3 billion, missing the consensus of $22.15 billion. Automotive revenue fell even more sharply, down 13% to $17.4 billion, due to price cuts both in the auto industry and at Tesla.
These price cuts significantly lowered operating margin from 11.4% to 5.5%, and adjusted earnings per share fell from $0.85 to $0.45, below analyst expectations of $0.51.
Despite the weak results, Tesla shares soared after hours, closing the preliminary session up 13.3%. CEO Elon Musk pulled off a familiar trick to focus investors' attention on the company's future products rather than its current struggles. His pitch was enough to reinvigorate the stock price.
“We should be thought of as an AI or robot company.”
Much of the earnings release focused on the company's goal of achieving self-driving, or fully autonomous, or FSD vehicles.
Musk is essentially betting the company's future on FSD, saying, “If you don't believe Tesla is the solution to autonomy, I don't think you should invest in the company.” He also said that FSD will allow Tesla owners to lease their cars, adding value to their cars, driving demand, and creating an entirely new business while Tesla operates its own self-driving ride-sharing network. We are envisioning a future in which we can build
In fact, Musk's above comment that the company should be valued as an artificial intelligence (AI) company rather than an automaker shows that he sees a future beyond just EVs, and why he It's obvious that he said that.
Even after Tesla stock has tumbled this year, it still trades at a significant premium compared to other traditional auto stocks. general motors, ford motor companyand Toyota. Part of this premium is due to Tesla's status as a pure EV manufacturer, as EVs are seen as the future of the industry. However, with EV sales growth currently stalling and price competition squeezing profits, the EV growth story appears to have diminished significantly. Tesla acknowledged that vehicle sales growth rates “may be significantly slower” than in 2023.
Given these challenges, much of Tesla's stock premium could come from its potential for AI and fully autonomous driving.
Focus on FSD
In Musk's view, Tesla is in pole position in the self-driving car race, with more than 5 million cars on the road. Once the technology is ready, the company can virtually flip a switch to enable fully autonomous driving. “It's only a matter of time before we surpass human reliability before too long, and we're really heading into a future of electric cars and self-driving cars,” Musk promised.
The opportunity for self-driving cars is probably huge, but it would be a mistake to think that Tesla will dominate this market. alphabetWaymo currently has millions of dedicated passenger miles in cities where it offers self-driving ridesharing, including Phoenix, San Francisco, and Los Angeles.
Other automakers like GM and Ford also have their own self-driving technology, and many technology companies are also joining the AV race. AmazonZoox and intelMobileye.
There is little evidence that Tesla is leading the FSD race, other than Musk's own speculation.For example, last year consumer report We ranked Ford's BlueCruise AV technology higher than Tesla's. In fact, a well-known product testing service says that GM: Mercedes-Benz, BMW,Toyota, Volkswagen Both have surpassed Tesla in self-driving technology.
That's not to say Tesla's technology isn't on the verge of major advances, but investors should take Musk's words with a grain of salt.
Tesla's CEO is mercurial and prone to exaggeration. He's clearly a visionary leader and deserves as much credit as anyone for pushing EVs into the mainstream, but he also over-promises on many occasions.
If FSD evolves the way Musk wants it to, it will undoubtedly be a game-changer for the company, but investors should be aware that there is already a significant premium priced into Tesla stock. As Musk himself has said, investing in Tesla stock at this point is more like a bet on Tesla's full self-driving potential than anything else, and that can swing both ways.
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Only 3 Letters Matter for Tesla Stock Investors Originally published by The Motley Fool