Barrons Independent

After spending considerable time analyzing Tesla's Q4 and FY 2024 financial report, I feel compelled to share my perspective as someone who's followed markets for over two decades through multiple cycles. Here's my unvarnished assessment:

The Fundamental Disconnect

Tesla's 2024 results reveal a company at a crossroads. With a $650+ billion market cap, Tesla is priced like a high-growth technology company, yet the numbers tell a different story:

• Core automotive business revenue declined 6% year-over-year
• Vehicle deliveries decreased 1%
• Operating margins compressed to 7.2% (from 9.2% in 2023)
• Net income dropped 53% year-over-year to $7.1B

As a value investor, I find it impossible to justify the current valuation based on these fundamentals. Tesla trades at approximately 91x trailing earnings while showing deteriorating performance in its main business line.

Where's The Moat?

Legacy automakers have caught up significantly in EV production. Tesla's once-insurmountable lead in battery technology and EV manufacturing is narrowing. The company has responded with price cuts, which has protected market share but at the cost of profitability.

The Q4 report repeatedly emphasizes that Tesla's future hinges on:

• Full Self-Driving (FSD) technology reaching "human levels of safety"
• Launching a Robotaxi business "later this year in parts of the U.S."
• Growing the energy storage business

The energy business shows genuine promise with 67% YoY revenue growth, but at $10.1B, it's still just 10% of total revenue.

The Narrative Vs. The Numbers

I'm particularly concerned by statements in the "Outlook" section. Tesla has revised its strategy for affordable vehicles, now planning to use "aspects of the next generation platform as well as aspects of our current platforms." Translation: the revolutionary manufacturing innovations promised for years are being scaled back.

The report states this approach will result in "less cost reduction than previously expected." This is a significant admission that undermines the growth narrative.

Meanwhile, Q4's net income was boosted by a $600M mark-to-market gain on digital assets – essentially cryptocurrency profits unrelated to operational performance.

My Investment Thesis

As a value investor, I look for three key elements:

• Strong fundamentals
• Reasonable valuation
• Margin of safety

Tesla fails on all three counts. The company faces:

• Intensifying competition in its core business
• Declining margins and automotive revenue
• Dependency on still-unproven autonomous technology
• Manufacturing capacity utilization issues
• A valuation that prices in flawless execution

The current share price requires perfect execution on autonomous driving, substantial energy business growth, and successful new vehicle launches. Any stumbles could trigger significant downside.

Bottom Line

If you own Tesla, you're not investing in what the company is today – you're betting on what it might become. That's speculation, not investment.

I have no position in Tesla and wouldn't consider one until either:

• The company demonstrates sustainable profitability growth in its core business, or
• The valuation adjusts to reflect current fundamentals rather than speculative future technologies

In my 25 years of investing, I've learned that betting on promises of revolutionary technology rarely ends well for shareholders who pay premium prices. I'll stick to companies where the numbers justify the valuation, not where the valuation requires a technological revolution to make sense.