Tesla (TSLA -3.69%) Chief Executive Officer Elon Musk isn't lacking in ego.
The tech visionary aims to colonize Mars and embed microchips in the brain, and that's when he isn't busy with his day job running Tesla and SpaceX, and overseeing X, the social media site formerly known as Twitter.
However, the Tesla chief sounded more like Larry David than a space cowboy on Tesla's recent earnings call, urging investors to curb their enthusiasm for the company's planned products and the business's growth.
On the highly anticipated Cybertruck, which Musk introduced roughly four years ago, he told investors to "temper expectations."
He added, "It's a great product, but financially, it will take, I don't know, a year to 18 months before it is a significant positive-cash-flow contributor." He also noted that demand for Tesla's first truck has been strong with more than 1 million reservations, but he said that making it at scale and making it at a price people can afford would be "insanely difficult."
Musk also saved some kvetching for interest rates, telling investors:
I am worried about the high-interest rate environment that we're in. I just can't emphasize this enough, that the vast majority of people buying a car, it's about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally.
The Tesla CEO isn't wrong about interest rates, but Tesla, even with the recent price increases, is still generally viewed as a luxury vehicle maker, or at least a premium one, and higher-end consumer products have held up much better than those at the lower end in the current economy, making it odd for him to use interest rates as a scapegoat.
Additionally, car sales industry-wide have been strong this year with motor vehicle and parts sales up 6.2% in the U.S. through the first nine months of the year, indicating that rising interest rates haven't had a meaningful impact on car-buying overall.
Image source: Tesla.
How did Tesla's quarter go? Meh.
Musk didn't spend much time discussing the company's third quarter, but the results were the company's weakest in some time. The stock fell 13% in the two days following Wednesday's earnings report after the market close.
Revenue growth was the slowest since early 2020 when the pandemic struck. The top line rose just 9% to $23.4 billion, which missed the average estimate of $24.1 billion, and automotive revenue rose 5% to $19.6 billion.
Margins and profits also narrowed as the company cut prices to stay competitive and keep inventory moving. Operating margin fell to 7.6%, its worst performance in several quarters, and adjusted earnings per share fell from $1.05 to $0.66, below estimates of $0.72.
Tesla didn't give specific details on its outlook, and though it maintained its long-term target of 50% annual production growth in its earnings report, management seemed to cast some doubt on that on the call, at least for 2024. It gave a vague answer to a question about analyst projections of 2.3 million vehicle deliveries in 2024, which would represent 28% growth.
Chief Financial Officer Vaibhav Taneja responded to the question, saying the company was focused on increasing volumes in a cost-efficient manner, another sign that Tesla is taking a cautious approach in the high interest rate environment.
AI, on the other hand, is pretty good
If there was one area that Musk was still hyping it was artificial intelligence (AI), and he didn't spare any hyperbole in that regard, saying AI "has the potential to make Tesla the most valuable company in the world by far."
He continued to tout the potential of fully autonomous vehicles and autonomous humanoid robots, a program the company calls Optimus.
Management shared few details on new AI products, but its full-self-driving (FSD) beta has now logged more than 500 million miles, and its latest update of FSD, version 12, functions much like the human brain, Musk explained.
He also saluted his company's AI team, saying, "Tesla has the best real-world AI team on Earth, period, and it's getting better."
Should Tesla investors be worried?
Tesla vehicles may be known for a smooth ride, but investors should know by now that riding Tesla stock is anything but.
The challenges in its vehicle ramp-up with its Cybertruck shouldn't be dismissed, and Tesla also seems to be slow-walking construction of a factory in Mexico due to uncertainty in the global economy. There are also some valid questions about reduced growth in the broader EV market, which is evidenced in part by Tesla's price cuts as well as its slowing revenue and volume growth.
However, a decent chunk of the stock's valuation owes to its potential in AI with Robotaxis, Optimus, and more, and that should help put a floor on the stock until bulls like Cathie Wood, who see Tesla leading a $9 trillion robotaxi market, are proven wrong.
Based on Musk's commentary, 2024 is shaping to be a challenging year for Tesla. Interest rates are expected to remain elevated. Cybertruck production looks like a long slog and production growth is likely to be below its 50% target.
For long-term investors, that may not matter, especially if Tesla has a breakthrough in AI like robotaxis, but for now, expect Tesla stock to be stuck in neutral until the EV market and macro conditions improve.
As Musk advised regarding the Cybertruck, investors should be prepared to curb their enthusiasm.
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October 22, 2023 at 06:45PM
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