Tesla (NASDAQ:TSLA) Inc is currently the world's ninth largest stock by market capitalisation, boasting a whopping US $651.23 billion on the Nasdaq exchange.
Overnight, Tesla reported lower-than-expected earnings results for the fourth quarter of the 2023 financial year missing both revenue and earnings per share (EPS) estimates.
Analysts had anticipated a weaker quarter for earnings growth, but the revenue shortfall was unexpected.
The stock price subsequently dropped a solid 5% but was down just 0.63% at US close.
Kathleen Brooks, research director at CFD brokers XTB, asks, “Is Tesla the greatest growth stock in the market, even if it misses earnings estimates?”
Between two waves
Tesla's share price volatility around earnings reports is well-known. Should its share price decline remain steady at 0.63%, it would represent the smallest post-earnings decrease for the EV automaker since 2021.
Bloomberg data points to an average 9% drop observed over the past three quarters, which means the current slide would land Tesla in a stronger position than most expected.
Tesla’s EV business is riding a trough between two growth waves, according to the company – the first being the expansion of the model 3/Y platform and the second being the next-generation vehicle platform that will be produced in Texas.
Tellingly, Tesla’s latest earnings report revealed an important strategic pivot for the company – its energy storage arm of business is forecast to outperform its automotive sector in terms of revenue and deployment growth rates.
“While diversification is a good thing, autos are what Tesla is known for, and is the bulk of their business,” Brooks writes.
“Being told that the auto business would have disappointing sales growth this year, without giving any guidance on just how disappointing may not help its share price to recover after its weak start to the year.
“It would appear that being in between two growth waves is not a profitable place to be and investors typically do not like these messages.”
The good news
Brooks points to Tesla’s recent statements that the company had reached the ‘natural limit of cost down of our existing electric vehicle line up’ evidenced by steep discounts on Model Ys and other legacy models that are unlikely in the year ahead.
“This may help to protect revenue as Tesla moves into its new growth phase. It also noted that the biggest driver of profit generation in 2023 was part sales, used vehicle sales, merchandise and pay-per-use supercharging,” she said.
“This suggests that Tesla is moving towards becoming a full-service business, which may stabilise earnings growth in the future."
Brooks also points to developments in Tesla's autonomous driving technology, which places the stock in the burgeoning AI arena.
“It announced that it had trained data from a fleet of over a million vehicles. Rather than hard-coding every driver's behaviour, the new technology uses AI to influence vehicle controls, which Tesla says marks a ‘new era in the path to full autonomy’.
“Overall, the market has been downbeat on Tesla in recent weeks. However, with these results, Tesla has positioned itself as the ultimate growth stock with this earnings report – placing vision for the future above near-term profit growth.
“Its share price performance in the coming days could be a test of market sentiment. If the market warms to Tesla, it could suggest that growth stocks can make a comeback, which would be bullish for overall risk sentiment.”