Next week, on Wednesday, January 24th to be exact, Tesla will report their calendar Q4 2023 earnings. For many traders and investors, Tesla’s earnings are big news every quarter but to be honest, I have never really paid them much attention. I have maintained a long position in TSLA for many years, off of which I have traded. I have trimmed it periodically when I thought the stock was overbought and added to it when it looked oversold. That has worked quite well, in part because Tesla is so divisive that it has regularly swung from one of those states to the other. The lovers and haters of the company, its founder, and its products are so passionate, however, that they typically don’t let facts like actual performance get in the way of their opinions, making earnings almost irrelevant. I follow the results, of course, but rarely have they prompted any action on my part, and I certainly don’t trade in front of them.
This quarter, though, is different. There are just so many risks around these earnings that I will be completely selling out of my long-held TSLA position before the release.
This quarter, not only will Tesla’s revenue and EPS be gone over with a fine tooth comb by everyone, but also every word uttered in the ensuing conference call for analysts and investors will be parsed to death. Tesla, it seems, is potentially at a tipping point one way or another, and what happens next week could set a course for the company, and therefore the stock, for years…
Next week, on Wednesday, January 24th to be exact, Tesla will report their calendar Q4 2023 earnings. For many traders and investors, Tesla’s earnings are big news every quarter but to be honest, I have never really paid them much attention. I have maintained a long position in TSLA for many years, off of which I have traded. I have trimmed it periodically when I thought the stock was overbought and added to it when it looked oversold. That has worked quite well, in part because Tesla is so divisive that it has regularly swung from one of those states to the other. The lovers and haters of the company, its founder, and its products are so passionate, however, that they typically don’t let facts like actual performance get in the way of their opinions, making earnings almost irrelevant. I follow the results, of course, but rarely have they prompted any action on my part, and I certainly don’t trade in front of them.
This quarter, though, is different. There are just so many risks around these earnings that I will be completely selling out of my long-held TSLA position before the release.
This quarter, not only will Tesla’s revenue and EPS be gone over with a fine tooth comb by everyone, but also every word uttered in the ensuing conference call for analysts and investors will be parsed to death. Tesla, it seems, is potentially at a tipping point one way or another, and what happens next week could set a course for the company, and therefore the stock, for years to come.
From a business perspective, things haven’t been good for a while, at least by Tesla’s standards. There was always going to be competition in the EV space, but the assumption was that despite that, Tesla’s massive market share and first to market advantage would enable them to continue to post exponential growth, even as others got going. That, however, hasn’t worked out quite as anticipated, with companies in China and India, where costs are significantly lower and government help and subsidies are willingly given, growing much more rapidly than most forecast.
Tesla’s response has been the logical one for an established business facing competition…they have cut prices. That has resulted in much slower revenue growth than is priced into the stock, and trailing and forward P/Es of around 70 and 57 now look very hard to justify. Until recently buyers of Tesla’s cars, much like buyers of their stock, didn’t really care about the price, but there are only so many aspirational buyers of the cars. The less infatuated buyers who are looking at EVs now will be much more price sensitive. A continued price war with companies whose inherent cost base is significantly lower may help to maintain market share and thus pay off in the long term, but it is going to cause some pain over the next year or two.
Maybe that is why Elon Musk, the face and voice of Tesla since its inception, is talking about leaving. He says he wants more control of the company, but why should that be so only now? The move into AI and robotics that he quoted as a reason in his recent tweet (I’m sorry, I still can’t bring myself to write “X post”) has been underway for some time. It wasn’t a problem when Tesla was improving margins and stashing away vast amounts of cash, but if profitability starts to shrink, seeing through the plan will take the kind of long-term vision and commitment that Musk has shown plenty of, but which is generally in short supply among modern business leaders.
The one thing we know for sure about Elon Musk is that he likes to make a splash, and what better way to do that than to talk in much stronger terms about him possibly leaving during the earnings call, or even make an announcement to that effect?
On a personal level, he doesn’t have a lot to lose. Musk is an innovator and entrepreneur above all else so, while Tesla is clearly his baby, maybe all of the hassle that goes with running a mega-cap corporation is just not as appealing to him as was running the plucky little upstart that disrupted auto manufacturing. Obviously, I can’t get in his head, so I am speculating here, but I’m a trader, so speculation is my profession.
What makes me believe that Musk may drop a bombshell like that next week though is that he is, whatever you think of him, a smart man, and doing that would be a smart decision. There are really only two possible outcomes if he does. The board of Tesla could cave and give him the control he desires, in which case he wins. Or he could leave.
However, if Tesla does then go through an extended period of declining growth and shrinking margins, which looks likely at current pricing levels, let alone if more price cuts are to come, most people will believe it is because he is not there rather than because of decisions he made before he left. He would then be able to have his Steve Jobs moment, riding back in on a wave of nostalgia to “save” the company. I don’t know Musk personally, but what I do know of him suggests that he will find that possibility just too tempting to resist.
I still believe that Tesla is the best EV maker out there and that they have advantages that will probably lead to them continuing to dominate the industry for some time. That belief has made me a lot of money over the years, but as Q4 earnings approach, the risks are mounting. Growth is going to slow, and it is quite possible that it will be without the company’s iconic leader. If an announcement to that effect, or even a strong hint at it, comes next Wednesday the stock will collapse, so now seems like as good a time as any to cut and run.
