Barrons Independent

Tesla (NASDAQ: TSLA) has long been considered as an industry disruptor, pushing the limits of electric vehicles (EVs), AI-powered self-driving cars, and energy solutions. However, its earnings report for the fourth quarter of 2024 paints a mixed picture, exhibiting both encouraging and worrying indicators.

The corporation recorded $25.7 billion in revenue, representing a 2% growth year on year. However, operational income fell 23% YoY to $1.6 billion. Even more worrying is Tesla's ongoing decline in gross margin, which has fallen to 16.3%, its lowest level in previous years.

With AI and Full Self-Driving (FSD) at the forefront, Tesla is betting on a future beyond car sales. But, as competition in the EV industry heats up and economic constraints grow, is Tesla still a smart investment, or should investors be wary? Let us take a deep dive.

Tesla’s Financial Performance - Growth Slowing Down?

Tesla's financial figures for Q4 2024 reveal both strengths and weaknesses. While the company continues to generate significant revenue, profitability is eroding, prompting questions about its long-term viability.

The key numbers from the report include:

• Total Revenue: $25.7 billion (Up 2% YoY)
• Automotive Revenue: $19.8 billion (Down 8% YoY)
• Energy Generation & Storage Revenue: $3.06 billion (Up 113% YoY)
• Operating Income: $1.6 billion (Down 23% YoY)
• Net Income: $2.3 billion (Down 71% YoY)
• Gross Margin: 16.3% (Down from 19.8% in Q3)
• Operating Cash Flow: $4.8 billion (Up 10% YoY)

Tesla's sales growth has slowed dramatically, particularly in its main automotive division, which is down 8% year on year. The decline is primarily due to decreased average selling prices (ASPs) and Tesla's aggressive price cuts to remain competitive. While these initiatives have helped to increase deliveries, they have also reduced profit margins.

On the positive side, Tesla's energy business is booming. With sales up 113% year on year, this area is becoming a more crucial element of Tesla's overall strategy. The completion of the Megafactory Shanghai in December demonstrates Tesla's commitment to increasing its energy storage capacities. Despite high energy revenue, the majority of Tesla's company is still based on vehicle sales, thus diminishing automotive profits are a big concern for investors.

Tesla’s Strengths - AI, Energy, And Market Expansion

While Tesla's fourth-quarter numbers reflect margin compression, the business continues to innovate and position itself for future growth. One of Tesla's most significant advantages remains its leadership in EV production and battery technology.

The company's low cost per vehicle, which fell below $35,000 per unit in the fourth quarter, is critical to preserving its competitive advantage. Despite increased competition from traditional automakers and new EV startups, Tesla still benefits from brand strength, scale, and production efficiency.

Tesla is also investing extensively on artificial intelligence (AI) and full self-driving. The business reported that more than three billion miles had been driven on FSD (Supervised), with ongoing enhancements to its AI-based driving technology. Elon Musk has boldly stated that Tesla is on pace to provide a fully autonomous robotaxi service by the end of 2025.

If successful, this might open up a new cash stream beyond typical car sales. Another important strength is Tesla's rapidly expanding energy segment. The increase in Megapack production and the forthcoming launch of Powerwall 3 indicate that Tesla is serious about diversifying beyond vehicles.

Tesla's financial position remains robust, with $36.6 billion in cash reserves that allow the business to invest in AI, energy, and new vehicle models. This cash cushion also protects against economic downturns and market volatility.

Declining Margins, Stock-Based Compensation, And Overpromising AI

While Tesla continues to enter new markets, there are a few red flags that investors should not ignore. One of the primary problems is decreased profitability. Tesla's operating margin dropped to 6.2% from 10.8% in Q3. To compete, the company is lowering its pricing, but this is having a direct impact on its profitability. If this pattern continues, Tesla may struggle to maintain profitability growth absent dramatic expense cuts or new income streams.

Another warning indicator is Tesla's aggressive stock-based compensation (SBC) policy. The company reported $2.6 billion in non-GAAP net income, which eliminates SBC charges. Tesla relies heavily on equity compensation to pay personnel, which dilutes shareholder value over time.

Tesla's AI and FSD promises remain very speculative. Elon Musk has been promising completely autonomous driving for years, but Tesla's FSD software requires active driver monitoring. Regulators in the United States, Europe, and China have been reticent to authorize self-driving technology, potentially delaying Tesla's robotaxi ambitions. If Tesla fails to deliver on FSD, it may disappoint investors who have anticipated AI-driven future profitability.

The EV market is becoming increasingly competitive. Legacy automakers like Ford, General Motors, and Volkswagen are increasing EV manufacturing, while Chinese firms like BYD are actively pushing into global markets. With so many new entrants into the EV business, Tesla's market supremacy is threatened.

Is Tesla Stock Still A Buy?

The dilemma for investors is whether Tesla's long-term growth prospects exceed its short-term hurdles. On the positive side, Tesla remains a pioneer in EV innovation, and its AI-powered future could open up new revenue streams.

If Tesla successfully introduces robotaxis and extends its energy business, it might be valued significantly more than a vehicle firm. Investors who trust in Tesla's long-term prospects may view the recent decline as a purchasing opportunity.

On the negative side, Tesla faces diminishing margins, increased competition, and unproven AI claims. Given the company's high valuation, any execution errors could result in severe stock price decreases. If Tesla fails to meet FSD targets or loses market share to competition, the company may struggle to justify its current valuation.

Should You Invest In Tesla?

Tesla is one of the most interesting firms on the stock market, but it also carries considerable risks. While the long-term ambition for AI, autonomy, and energy is encouraging, the diminishing profitability of its core car industry is a huge issue. For ambitious investors who trust in Tesla's AI-driven future, purchasing at current pricing might be a long-term investment.

However, for risk-averse investors, waiting for Tesla to demonstrate profitability in new segments may be the better option. Finally, Tesla's stock remains very speculative, and its future is dependent on whether it can effectively convert from an EV manufacturer to an AI and energy powerhouse.

Frequently Asked Questions

Who Owns Tesla?

Elon Musk is Tesla's largest shareholder, with over 20% ownership. Other individual investors include Zachary Kirkhorn and Kimbal Musk. Well-known investment firms like Vanguard Group and Tesla Inc. are some of the largest institutional Tesla shareholders.

How Much Is The Cheapest Tesla?

Tesla's Model 3 is the cheapest Tesla car available. With the base model retailing for $40,380 , this car is Tesla's first attempt at a mass-market electric car to appeal to automobile shoppers of a wide range of budgets.

Why Are Teslas So Expensive?

Basic economics dictates that when demand for a product is high, the price rises. The high demand for Teslas is fueled in part by the green energy movement. Tesla cars are all-electric, so they do not consume greenhouse gas-emitting gasoline and do not directly create carbon dioxide.

Conclusion

Tesla is at a pivotal point. While its energy business and AI goals look intriguing, deteriorating car margins and competition create concerns. The next three years will determine whether Tesla can maintain its leadership position or if its AI-powered goals remain just that: dreams.