The 2023 Tesla (NASDAQ:TSLA) stock rally continues, thanks to the electric vehicle company’s latest quarterly earnings report.
Satisfied by the numbers, and impressed by remarks made by CEO Elon Musk regarding the company’s outlook, investors bid up TSLA stock by another 10.97%, on the trading day following the earnings report.
But while it may look like Tesla has broken fully free of its 2022 slump, possibly on its way toward much higher prices, that may not be necessarily the case. Taking a closer look at the results, it’s clear that there’s more than meets the eye.
Furthermore, key issues such as rising competition and margin compression, remain serious threats to the future performance of the stock.
Although this post-earnings surge could continue in the immediate term, I would avoid chasing this rally. In the months ahead, the aforementioned risks could come back off the back burner, causing a serious reversal for shares.
| TSLA | Tesla | $177.90 |
Why TSLA Stock Is Soaring After Earnings
On Jan. 25, Tesla reported its fourth-quarter 2022 results. For the quarter, revenue came in at around $24.3 billion, up 37% year-over-year, and slightly ahead of analyst forecasts. Non-GAAP earnings came in at $1.19 per share, 6 cents per share above Wall Street consensus estimates.
But while the numbers themselves played a role, it was management’s commentary that really fueled the post-earnings rally for TSLA stock.
As InvestorPlace’s Larry Ramer discussed on Jan. 25, CEO Elon Musk made very promising statements regarding current vehicle demand, on the company’s post-earnings conference call. Namely, Musk noted that the EV maker is “seeing orders at twice the rate of production,” and that “demand will be good” going forward.
Musk’s commentary about demand, alongside statements that imply that lower per-unit production costs could help to outweigh recent vehicle price cuts, have perhaps assuaged competition and margin concerns held by many investors going into this earnings report.
However, in my view, that’s not a clear-cut takeaway from these latest results. There’s a reason why the numbers came in ahead of expectations. Not only that, Musk’s bold statements regarding current demand may not be indicative of how the rest of 2023 will play out.
Why the Latest Numbers Aren’t Cause for Celebration
Looking at Tesla’s latest earnings, guidance, and management commentary with a critical eye, it’s clear neither is cause for celebration. First off, a big reason behind Tesla’s beating on revenue and earnings last quarter was the result of analysts walking back expectations throughout the quarter.
Although it beat estimates, the company experienced a deceleration in revenue growth. Compared to the prior year’s quarter, gross margins also fell, by around 360 basis points.
Second, while Musk may be talking now about unprecedented demand, keep in mind that this demand boost may be temporary.
In response to the massive vehicle price cuts implemented this month, on-the-fence buyers may be deciding en masse to take the plunge now. A few months from now, this buzz surrounding the price cuts will likely have faded.
In turn, the company could again find itself dealing with softening demand, the reason why it slashed prices in the first place. Add atop this another worrisome factor, rising competition.
Sales growth during 2023 could still fail to outweigh the impact of lower vehicle prices on margins. This could result in a far less enthused reaction among TSLA stock investors when the company reports numbers in the quarters ahead.
The Verdict
Based on the stock’s post-earnings spike in price, Tesla’s quarterly results and outlook appear to many to be a signal that the situation has improved, and that the “story” has changed with TSLA. However, looking at the numbers in context, it’s questionable whether the EV maker really “knocked it out of the park” with its latest results.
Considering Musk’s bullish statements about demand, it’s unclear whether this strategic move will pay off for the company. It may have only a modest impact on demand. As I argued previously, if it’s the latter, Tesla’s profitability could decline.
Priced for perfection at 49.5 times earnings, and at risk of pulling back severely on any bit of future disappointment, it’s best to continue treading carefully with TSLA stock.
TSLA stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.