The Hard Truth Tesla Stock Investors Need To Hear

Tesla's Rollercoaster Ride: What Today's Earnings Reveal

Tesla has had a rough day in the stock market after reporting earnings, with its shares dropping a significant 10.5%. At one point, the stock dipped to $214. This drop follows an earnings report released after hours yesterday, where Tesla missed its earnings per share (EPS) expectations but beat revenue forecasts. Yet, the company's car sale growth is slowing down, which has investors worried.

The Impact of the NASDAQ and Tesla's Earnings

The NASDAQ had a tough day too, falling nearly 3% as of this recording. The question on everyone’s mind is whether Tesla’s decline is a result of the NASDAQ’s drop or if Tesla’s struggles contributed to the broader market slide. While that’s an interesting question, our focus here is on Tesla as a company and what the numbers really mean.

Tesla's Financial Breakdown

Tesla’s automotive revenue continues to dominate, making up over 85% of its total revenue. But there’s a lot of buzz around the future of robo-taxis. In 2023, the robo-taxi market was valued at about $400 million—a drop in the bucket compared to its projected growth to $46 billion by 2030. That’s a staggering 120x increase over the next five to six years, which translates to a compounded annual growth rate of over 90%.

Even if Tesla were to capture a significant portion of that market, say 80%, it would still only amount to $37 billion in revenue. For context, Tesla’s total revenue for the past year was $95 billion. So, the potential growth from robo-taxis, while impressive, would still only add about 50% to Tesla’s current revenue, and that’s in the best-case scenario.

The Reality Check

Despite the exciting projections for robo-taxis, Tesla has missed several past targets set by Elon Musk. For example, back in 2015, Musk promised that Tesla cars would achieve full autonomy within three years. That hasn’t happened. Similarly, in 2019, he predicted that Tesla would have 1 million robo-taxis by 2020. We’re still waiting on that one.

The market cap of Tesla is currently around $770 billion. Musk once suggested that the company’s value would hit $500 billion thanks to robo-taxis. So, the fact that Tesla’s market cap is significantly higher than that suggests that there might be some overvaluation happening here.

Analyzing Future Growth

Tesla’s current valuation seems high compared to its financial metrics. For instance, Tesla’s price-to-sales ratio is about eight times, while the average company’s is around 0.5 to 1. Microsoft, a tech giant with a much higher market cap, is valued at a similar price-to-sales ratio, making Tesla’s current valuation difficult to justify.

In terms of cash flow, Tesla’s growth has been solid but not stellar. For the first quarter of 2024, there was a notable drop in units delivered compared to the same period in 2016. Even though the company’s revenue growth is strong, there’s concern about how sustainable this growth is, especially with ongoing price cuts and increased competition.

The Full Self-Driving (FSD) Debate

Let’s not forget the ongoing debate about Tesla’s Full Self-Driving (FSD) software. Priced at $99 a month, with a presumed 75% margin, each FSD subscription could theoretically add around $18,000 to Tesla’s market cap. To justify a $400 billion difference in stock price based on FSD alone, Tesla would need to sell around 22.2 million FSD subscriptions. Given the current market for cars and the cost of FSD, this seems like an ambitious goal.

Looking Ahead

Tesla’s stock price has been on a wild ride, and its future growth potential is a topic of great debate. The company has undoubtedly revolutionized the auto industry, but investors need to be cautious. Valuations are high, and many of the ambitious goals set by Musk have yet to materialize.

If you’re considering investing in Tesla, it’s crucial to differentiate between the company's revolutionary potential and its current stock price. Remember, investing should be based on the present value of all future cash flows, not just on hype or potential.

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Thank you for your time, and stay tuned for more insights and analyses on Tesla and other investments.

WATCH PAUL SHARE THE HARD TRUTH ABOUT TESLA STOCK