“Tesla shares slide to 15-month low ahead of earnings, as Wall Street frets over price cuts, layoffs”  was the CNBC Headline prior to Tesla announcing their Q1 2024 results. 

The results? 

Tesla stock gapped up 13% post market hours, when they reported earnings on the 23rd  of April. Tesla missed most earnings estimates, but the stock still rallied? 

What is going on – and the Most Important Question, Is Tesla stock still a Good Buy Right Now?

In this article, we will provide a brief overview of their most recent earnings disclosure (the Good, the Bad, the Ugly), explore the potential risk-reward opportunity investing into Tesla today, and ultimately, whether we think that Tesla stock is a buy or sell now. 

We have a lot prepared for you, strap in tight!

What Happened to Tesla recently?

Despite the recent rally we’ve seen for Tesla, year-to-date they’re still down a whopping -34%. From price cuts, to production challenges with the Cybertruck, to Elon’s stock compensation debacle, to the delayed release of a new model. No wonder Tesla’s stock performance was far from ideal, some might even call it disastrous. 

The predicament they’re in? Tricky. And it’s reflected in their most recent earnings too. 

Overview of Tesla’s Earnings - Q1 2024

I can read off the figures from CNBC or Bloomberg, telling you that Tesla has missed revenue by $850 million, and earnings per share by 6 cents, and this figure and that estimate – but it doesn’t give you the big picture. Here are the important numbers we think you should know.

The Good about Tesla

• Record energy storage deployment in Q1
  
  
• GAAP Gross Margins quarter-on-quarter held up well (despite multiple rounds of price cuts and decline in sales)
  
  
• Elon Musk was very optimistic about the path forward for Tesla in the Earnings Call
  
  
• Elon floated the road map for a new vehicle refresh, in the first-half of 2025

The Bad about Tesla

• Demand for Tesla vehicles are waning, automotive segment had a 13% drop in sales, while overall revenue fell by 9% year-on-year
  • Tesla’s hyper-growth story is slowly breaking down, delivering negative growth instead
    
    
• Efficiencies throughout the business is not “catching up” – expenses are out-growing the slowdown in growth, leading to a compression of margins
  • But, Tesla announced that they are laying off more than 10% of their staff globally over the last two weeks, containing expenses
    
    
• Elon’s compensation package drama, which was overruled by the Delaware court, and shareholders are now kept in a limbo
  • Elon did float the idea that if he’s not well compensated, he would “build products outside of Tesla” 
    
    
• Tesla is re-focusing it’s investments to their AI infrastructure, spending $1B in capital expenditure in Q1 on AI alone
  • Leading to a negative free cash flow profile, and dipping into its cash reserves
  • If this trend continues, Tesla might be in a precarious position and be forced to raise funds either through debt or equity if the cash flow they produced is unable to cover their expenses
  • Stalling the development of Giga Mexico 

Why is Tesla Stock Going Up?

Given the context, the intuitive question would be “Why is Tesla stock still going up?”

Here’s what caught most investors and traders by surprise. 

Before going into earnings, there were many rounds of “pre-emptive news” to condition the minds of the investor base; from price cuts, to staff cuts, to margin cuts etc. Therefore, there was already a lot of pessimism being priced into the stock. 

The deciding factor? Elon Musk’s leadership and direction during earnings. 

The two best responses (in my opinion) from Elon was when he answered the question around the $25,000 vehicle. 

He replied “We’ll talk about this more on August 8… the way to think about Tesla is almost entirely in terms of solving autonomy and to turn on autonomy for a gigantic fleet. And I think it might be the biggest asset value appreciation in history when that day happens”. 

And when he assertively replied “If you value Tesla as just like an auto company, you just have to - fundamentally, it’s just the wrong framework. If you ask the wrong question, then the right answer is impossible. So I mean if somebody doesn’t believe Tesla is going to solve autonomy, I think they should not be an investor in this company”. 

Tesla, as a company, has always been mission-driven, looking to disrupt industries. Investors that cannot get onboard with that should never get near the stock. There will always be a thread of fervent belief and faith amongst diehard Tesla investors that Elon Musk is able to deliver on near-impossible promises – like kick-starting an EV revolution.  

Elon Musk has further brought home the point that the valuation of Tesla is substantiated by the potential of what they can achieve in the distant future, rather than the present. For investors that constantly harp on the past and present will never be able to appreciate Tesla’s future.   

How much will Tesla Stock be worth in 2025?

The most common question amongst investors today is to ask how much Tesla stock would be worth in 2025 (or insert date here). Truth be told, nobody knows. Whoever that tells you otherwise is probably smoking you. 

Piranha Profit’s True Value Finder™

Earlier this year, Adam Khoo (founder and chief master trainer of Piranha Profits) posted on his X Account, his intrinsic value calculation of Tesla worked out to be around $89 per share, even when he used Tesla’s peak Free Cash Flow figures in 2022, and assume a 19% growth rate over the next five years.

In 2022, their Free Cash Flow is $7.561B.

In 2023, it dropped to $4.357B

As of Q1 2024, on a trailing twelve month basis, it’s at an alarming figure of $1.382B.

Tesla’s free cash flow is depleting rapidly, and the two main reasons as discussed previously is on rapidly decreasing margins, and the heavy reinvestments into their AI infrastructure. 

Doing a projection of Tesla’s Free Cash Flow from here on (accurately) is close to impossible, especially when everything feels so uncertain. 

The Bottom Line, is Tesla a Buy or Sell?

The million dollar question, is Tesla Stock a Buy or Sell? 

We think that the larger question the investor should ask him/herself is – what role does Tesla stock play in your portfolio? 

The intuitive answer is – of course I just want to make the most amount of money possible. That’s the point of investments, right? In our view, yes and no. 

Sure, making money is good - buying companies when they’re cheap and selling for a profit is good. But you need to also consider the risk involved, your conviction and understanding of the company, the time horizon etc. When the going gets tough – that’s when you know about your relationship with the investment.

We need to first understand the type of investment Tesla stock currently falls under. Yes, it’s a $500 Billion company, but a large part of its current valuation is determined by where you see Tesla in the future. 

If you’re still of the opinion that Tesla is only a car business – the valuations today completely don’t make sense. Using the True Value Finder™, Tesla as a car company is worth between $60 to $90 per share tops. 

The additional price you pay – are for the optionality and potential of Tesla; from solving autonomy (through full self-driving), to energy distribution, to robotics (via Optimus). 

Like Elon Musk suggests, if you don’t believe Tesla is able to solve autonomy, you should not be an investor of this company. At current valuations, you’ll need to sit down with yourself and ask, how much margin of safety do you actually need – if you were to project Tesla’s future from here. Ie, how much risk are you willing to take? 

Our bottom line is that we tend to avoid certain businesses in particular industries with weak economics, and the automotive industry happens to be one of them. However, we do acknowledge the immense opportunity and potential Tesla possesses as a company. 

We think that Tesla is interesting as an investment opportunity, and for those that really want to participate in this development, having a small allocation to this company can serve as a call option – on a portfolio level. 

For us, having a concentrated position in a company like Tesla (with no margin of safety) might keep us up at night.