Overview

Instead of directly addressing the challenges of competition and lagging product innovation highlighted in our report from September (Attached below), these challenges have been downplayed by Elon Musk and the rest of the market, instead riding on Tesla's ambitious future plans to launch the Cybercab, a self-driving taxi expected to enter production in 2026. Additionally, an advanced version of the Model Y sedan is set for release in March 2025. Musk has emphasised that 2025 will be a pivotal year for Tesla, with the anticipated commencement of its robotaxi business in June.

What happened since we published the report?

Unfortunately, the price of Tesla stock rose unexpectedly after the US elections as shown above. Over the past year, the stock has more than doubled, with a 75% increase in the past six months alone. As the chart above shows, stock performance tends to correlate highly with the revenue and earnings estimates of the years to come because investors are always forward-looking, however, we see a clear divergence from expectations after the election with the stock price shooting upwards. This surge is partly attributed to investor confidence in CEO Elon Musk's leadership and potential favorable regulatory developments.

However, confidence in Elon Musk alone must not be a reason to dismiss poor financial performance. On the 29th of January 2025, Tesla published its Q4 and FY 2024 financial results. Their revenue came in at $25.71 billion, -5.69% below expectations of $27.26. Their EPS (earnings per share) came in at $0.73 per share, -5.73% below expectations of $0.774 per share. Another disappointing quarter.

Another downplayed change is the fact that, for the first time, Tesla had to compete on price by cutting its prices to regain their spot as the #1 top electric manufacturer in the world in 2024 following stiff competition from BYD which has since overtaken still. Tesla was usually marketed as a premium product but it seems China is catching up on product quality and Tesla can not compete on product quality, forcing them to cut prices.

Subsidies for electric vehicles in Europe are being stopped by governments. This has led to Tesla’s first annual decline in deliveries and vehicle registrations in the 9 years it has been selling EVs. In 2022, Tesla predicted that its sales would grow 50% most years, but the prediction didn’t come true given the aging product portfolio and increased competition in China, Europe and the U.S. In the U.S., analysts say most early adopters of technology already have electric vehicles, and more mainstream buyers have concerns about range, price and the ability to find charging stations on longer trips.

Conclusion

We believe Tesla will continue facing challenges in meeting market expectations and navigating a competitive landscape. Just like we do, investors should monitor the execution of Tesla's upcoming projects and consider the broader industry dynamics when evaluating the company's future prospects.

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