Tesla’s most recent earnings call caused a lot of fuss in the market…
While there was a lot that could have gone better for Elon as far as the presentation was concerned, the long-term vision of the company remains intact!
Leading up to earnings, analysts were focused on two things:
1.) Margins
2.) Cybertruck production
Tesla has seen a drop in margins quarter after quarter with seemingly no end in sight.
This is largely a strategic move on Tesla’s part in order to focus on keeping vehicle sales up as opposed to the margins…
Higher sales numbers means more vehicles on the road and more data points for the company’s full self-driving (FSD) system.
I believe that autonomous driving will be the single biggest value generator for Tesla in the long run.
This begs the question…..why is Wall Street so obsessed with margins?
In order to understand this, we must first know how stocks are typically valued.
Analysts will often compare a company’s performance to other players in that industry and then assign a price target accordingly.
The problem is that the market struggles to figure out whether to view Tesla as a tech company or an automaker…
This is important because tech stocks tend to trade at much higher multiples and therefore have higher valuations.
This brings us back to margins…
This was one of the key differentiators between Tesla and other automakers over the last few years.
Tesla had gross margins that were closer to an Apple than a General Motors.
As a result, Musk’s company traded at multiples much higher than any other automaker!
With margins dropping like a rock though, many analysts are starting to think that Tesla should be trading at lower multiples.
We also had analysts show frustration in the slower-than-expected roll-out of the Cybertruck.
Elon said in the call that he doesn’t expect it to be a positive cashflow generator for Tesla over the next year to 18 months.
While this is certainly a negative in the short run, I believe that the vehicle will end up being a big win for the company in the long run…
That’s all for now!
Until Next Time,
-Damian