Tesla (TSLA) reported on Jan. 2 that 2024 was the first year it witnessed an annual decline in deliveries of its vehicles. Once an unrivaled powerhouse in the world of electric vehicles, analysts and investors are now scrutinizing the company. Is this the beginning of a new trend for Tesla?
Deliveries for 2024 stood at 1.79 million vehicles, down 1.1% from the previous year. The total also came in below the estimate of 1.806 million units, according to 19 analysts polled by LSEG. Although its figures came in higher than Chinese rival BYD’s (BYDDY) deliveries at 1.77 million, the company recorded a yearly uptick of 12.1%, unlike Tesla.
So, is this a sign that its time to bet against Tesla and its CEO Elon Musk? The performance of the Tesla share price suggests doing so would not be a prudent move. The stock is up 71% over the past year, not only propelling Musk to become the wealthiest person in the world, but the company also regained its place in the coveted $1 trillion market cap club after three years.
Let’s have a look at the possible drivers for further upside in the stock.
Tesla Bounces Back in Q3
Tesla exceeded Wall Street’s expectations in the third quarter after four consecutive quarters of missing bottom-line estimates, leading to its best single-day share price increase in over a decade.
The company reported Q3 revenues of $25.2 billion, reflecting 8% year-over-year growth. Key segments saw increases, with Automotive up 2% to $20 billion, Energy Generation up 52% to $2.4 billion, and Services up 29% o $2.8 billion. Adjusted earnings per share (EPS) grew 9% to $0.72, significantly surpassing the consensus estimate of $0.59.
Tesla also demonstrated strong cash generation. Net cash from operating activities nearly doubled year-over-year to $6.26 billion, while free cash flow grew an impressive 223% to $2.7 billion. The company ended the quarter with a cash balance of $33.6 billion, far exceeding its short-term debt of $2.3 billion.
The surge in Tesla’s stock following the Q3 results was primarily driven by improved operational metrics. After two quarters of production declines, Tesla’s production rose 9% year-over-year to 469,796 vehicles, while deliveries increased 6% to 462,890 vehicles. Supercharger stations grew to 6,706, up from 5,595 the previous year. Additionally, its operating margin improved to 10.8% of sales, signaling healthy profitability. These operational gains, alongside the earnings and revenue beat, contributed to the strong market response.
Meanwhile, in Q4, the company reported production and deliveries of 459,445 and 495,570 vehicles, respectively.
More Than Just a Car Company
Tesla remains the dominant player in the EV market, commanding approximately 51% of the U.S. market share by the end of 2023. With ambitious plans to sell 20 million EVs annually by 2030, the company projects 20%-30% vehicle growth this year, aiming to deliver around 2.1 million vehicles.
But Tesla is more than just a car company. It is a technology company building an advanced global ecosystem, which could enable Tesla to further become one of the most powerful and profitable corporations globally.
Beyond vehicle manufacturing, Tesla’s high-margin Services and Energy segments are becoming key contributors to profitability. The company is scaling its energy operations globally, including solar products and Megapacks, with new facilities in Shanghai and Texas. The Texas facility will also complete a 50,000-GPU cluster designed to reduce compute costs and reliance on third-party providers. This internal compute power will support advancements in Tesla’s Full Self-Driving (FSD) technology, development of the Optimus humanoid robot, and the integration of Tesla’s hardware-software ecosystem.
Further, the anticipated release of Full Self-Driving (FSD) V13.2 represents a pivotal step for Tesla in its pursuit of delivering fully autonomous vehicles. This update is expected to be a significant advancement over FSD V12, with Tesla claiming it is 500% more capable. While currently limited to early access members, FSD V13.2 has the potential to accelerate Tesla’s progress in entering the driverless car market, which is projected to reach $50 billion by 2032.
Tesla’s efforts in FSD also align with its introduction of the Cybercab, a pedal- and wheel-free robotaxi designed to transform the autonomous ride-hailing industry. Targeting production by 2026, Tesla aims to produce 2 million Cybercabs annually. However, as seen with previous launches, production challenges could delay this ambitious timeline.
In addition, Elon Musk's Boring Company may soon integrate Tesla’s FSD technology in its Las Vegas tunnels. This collaboration could play a key role in Tesla’s broader ecosystem, combining its EVs, supercharging infrastructure, software, underground transportation network, FSD, and robotaxis. Such an integrated approach would position Tesla to redefine urban mobility and create a more interconnected and efficient transportation model.
Meanwhile, Tesla’s edge in autonomous driving lies in its vast real-world data collection, powered by its global EV fleet. Each vehicle equipped with FSD hardware acts as a data-collection node, feeding high-quality driving data into Tesla’s systems. This approach allows Tesla to refine its FSD models more effectively than relying solely on simulations, ensuring continuous improvement.
In robotics, Tesla’s humanoid robot, Optimus, is advancing rapidly. Already in use at Tesla factories, Optimus is being refined using the same data-driven learning approach as FSD. This positions Tesla as a leader in autonomous robotics, with potential applications extending far beyond the automotive sector, further solidifying its role as a pioneer in AI and robotics.
Analyst Opinion
Overall, analysts have assigned a rating of “Hold” for the stock with a high target price of $515 which denotes upside potential of about 25.3% from current levels. Out of 37 analysts covering the stock, 12 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 14 have a “Hold” rating and 9 have a “Strong Sell” rating.
