2023 Tesla (Nasdaq:TSLA) shares continue to climb thanks to the electric car company’s latest quarterly earnings report.
Satisfied with the numbers and impressed by CEO Elon Musk’s remarks on the company’s outlook, investors sent TSLA shares up another 10.97% on the trading day after the earnings release.
But while it might look like Tesla is out of the 2022 slump for good, possibly headed for much higher prices, that’s not necessarily the case. A closer look at the results reveals that there is more than meets the eye.
Moreover, key issues such as increased competition and compressed margins remain serious threats to the stock’s future performance.
This post-earnings surge may continue in the short term, but I would avoid chasing this uptick. Over the next few months, the aforementioned risks could be put on the back burner, leading to a significant reversal in stock prices.
Why TSLA Stocks Soar After Earnings
On January 25th, Tesla reported its fourth quarter 2022 results. Revenue for the quarter was approximately $24.3 billion, up 37% year over year and slightly above analyst expectations. Non-GAAP earnings were $1.19 a share for him, beating Wall Street consensus expectations by 6 cents.
But while the numbers themselves played a role, it was management’s comments that really fueled TSLA stock’s post-earnings rally.
As at Investor Place Larry Ramer discussed on Jan. 25, and CEO Elon Musk made a very encouraging statement on current vehicle demand on the company’s post-earnings conference call. So Musk said EV makers were “taking orders at twice his production rate” and that “demand will be good” going forward.
Musk’s comments on demand, along with statements suggesting lower production costs per vehicle may outweigh recent vehicle price cuts, are likely to be embraced by many investors in this earnings report. Alleviated concerns about competition and profit margins.
But in my view, that’s definitely not the case with these latest results. Not only that, but Musk’s bold statements about current demand may not indicate how the rest of 2023 will play out.
Why the Latest Numbers Are Not Reasons for Celebration
Taking a critical look at Tesla’s latest earnings, guidance, and management comments, it’s clear that neither is reason to celebrate. First and foremost, a big reason Tesla outperformed last quarter’s revenue and earnings was the result of analysts’ downturns throughout the quarter.
Although better than expected, revenue growth slowed. Gross margin was also down approximately 360 basis points when compared to the same period last year.
Second, while Musk may be talking about unprecedented demand, be aware that this increased demand may be temporary.
Unfenced buyers may be deciding to plummet en masse in response to the massive vehicle price cuts that took place this month. A few months from now, the rumors of price cuts will probably fade.
In turn, the company could end up dealing with softening demand again, which is why it cut prices in the first place. Added to this is another worrisome factor: increasing competition.
Sales growth during 2023 may not yet outweigh the impact of lower vehicle prices on margins. That could lead to a much less enthusiastic reaction among TSLA’s stock investors when the company reports its numbers for the next few quarters.
verdict
Based on the stock’s post-earnings surge, Tesla’s quarterly results and outlook appear to many to indicate that things have improved and the ‘story’ has changed with TSLA. But given the contextual numbers, it’s questionable whether EV makers have really “jumped out of the market” with their latest results.
Given Musk’s bullish statements about demand, it’s unclear if this strategic move will benefit the company. The impact on demand is minimal. As we said before, the latter could make Tesla less profitable.
Perfectly priced at 49.5x earnings, and with the risk of any future disappointments setback even slightly, we recommend continuing to weigh TSLA stock cautiously.
TSLA shares receive a D rating portfolio grader.
As of the date of publication, neither Louis Navellier, the primary person responsible for this article, nor InvestorPlace’s research staff held positions (directly or indirectly) in the securities referenced in this article.
