Electric vehicle giant Tesla, Inc. (NASDAQ:TSLA), reported its first double miss in over four years, resulting in a lackluster response from investors. The stock plummeted by over 5% in after-hours trading.
Tesla investor and Future Fund’s Managing Partner, Gary Black, took to the social media platform X (formerly Twitter) to share his perspective on the results.
In the third quarter, Tesla reported adjusted earnings per share of $0.66, which fell short of the consensus estimate. The auto gross margin, excluding regulatory credits, was at 16.3%, below the expected 17.7%, as noted by Black. It’s worth noting that Tesla represents the second-largest holding in Future Fund’s flagship The Future Fund Active ETF (NYSE:FFND) exchange-traded fund.
Black also expressed concerns about the quality of Tesla’s earnings, mentioning that regulatory credits came in at $554 million, significantly higher than the expected $341 million. Moreover, the third-quarter tax rate was 8.2%, lower than the anticipated 11.9% rate according to analysts’ expectations.
Regarding other metrics, Black highlighted that the cost of goods sold dropped by 4.8%, the average selling price (excluding regulatory credits) decreased by 18.1%, and free cash flow fell short, at $848 million compared to Wall Street’s forecast of $2.1 billion.
On a positive note, Black mentioned that Tesla confirmed the first Cybertruck delivery date as Nov. 30 and that the company upheld its long-term production growth guidance of 50% or more. Additionally, Tesla ended the quarter with a cash reserve of $26.1 billion.
Interestingly, the company’s revenue also fell short of expectations, marking the first time both headline numbers missed estimates since the second quarter of 2019.
In light of Tesla’s third-quarter results, Black predicted that Wall Street analysts would likely reduce the 2024 adjusted earnings per share estimate by 4%-5% to $4.40 due to the auto gross margins in the third quarter, excluding regulatory credits, falling short of estimates. Despite CEO Elon Musk‘s emphasis on affordability, Black expected more price cuts, even though there wasn’t much elasticity in demand following the 2023 price cuts.
However, Black expressed his continued interest in the stock, pointing out the attractive 2024 P/E multiple of 55 times and the 2023-2027 compounded annual growth rate of 38% for earnings per share. He also noted the imminent start of Cybertruck deliveries, the $7,500 IRA credit expected in 2024, and the likelihood of at least one full self-driving licensing deal.
Future Fund has set a $300 price target for Tesla.
In a separate post, Black described Tesla’s earnings call as ranging from “not good” to “terrible,” highlighting various concerns and questions left unanswered.
“Lot of excuses about macro, new CFO seemed unsure, no answer to the question have auto gross margins bottomed, $25K car should be the highest priority, didn’t address the question why not buy down loan rates to 2-3% rather than cut prices by 20% to address affordability,” he said.
Black quoted a portfolio manager who expressed doubts about Tesla’s management. According to the portfolio manager, with the departure of CFO Zach Kirkhorn, Elon Musk now appears to be surrounded by individuals who are reluctant to challenge his decisions.
“As one PM said to me, with Zach gone, Elon seems surrounded by people who are afraid to disagree with him,” Black said.
Tesla ended Wednesday’s session down 4.78% to $242.68 ahead of the results and lost an incremental 4.24% in the after-hours session, according to Zenger News Pro data.
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