Considering Tesla Stock Before January 29 Earnings Report

The electric vehicle (EV) manufacturer Tesla (TSLA) is preparing to release its latest quarterly results, which has sparked discussions among investors regarding whether to purchase its stock just before this announcement.

In the past months, Tesla has stepped back from the spotlight, with investors shifting their focus toward popular artificial intelligence (AI) stocks like Nvidia and Palantir. Meanwhile, Tesla's CEO, Elon Musk, has also been engaged in various business and political ventures, further diverting attention from the company during this period. With excitement surrounding the EV industry declining and growth showing signs of stagnation, both Tesla shareholders and possibly Musk himself appear to have lost some enthusiasm for the brand.

Despite this, it's important to note that Tesla's stock has risen by 100% over the past year, significantly outperforming the market. The company's current market capitalization stands at $1.3 trillion. As the company approaches its fourth-quarter earnings report set for January 29, potential investors are left questioning the wisdom of investing in Tesla shares prior to the update. Let's explore the situation more thoroughly.

Concerns Over Revenue and Profit Margins

To evaluate Tesla's stock, it is essential to assess its vehicle sales. Historically, Tesla experienced robust growth and unit sales. However, as of 2024, the company is witnessing a slump. Tesla's recent delivery numbers have shown a decline compared to previous years, impacting its market share in the EV sector, especially in the United States.

Additionally, Tesla has made significant price reductions to stimulate sales, which has affected its profit margins. In the last twelve months concluding with the third quarter of 2024, Tesla recorded a gross margin of 18% and an operating margin of just 8.5%. This figure marks a noticeable drop, falling to roughly half of what it was in previous years—a worrying trend for the company.

Given the recent price cuts and reduced delivery numbers, it is likely that investors should not expect a massive turnaround in Tesla's fourth-quarter performance. Revenue growth may remain weak, with profit margins continuing to lag behind historical averages.

Aspirations and Uncertain Growth Plans

While Tesla's current EV business is struggling, investors continue to highlight the company's ambitions beyond cars. Tesla is pursuing advancements in solar energy, commercial battery production, self-driving technology, and robotics, including the much-discussed Cybercab project and humanoid robot research.

These ventures sound promising, and Tesla's battery cell sector is experiencing rapid growth. However, investors may find it prudent to remain skeptical about how these developments will contribute to Tesla's overall financial health in the near term. For instance, Tesla has delayed the rollout of self-driving capabilities and robotaxi services, leaving many expectations unfulfilled. The company’s humanoid robot, known as Optimus, appears to be a compelling idea, yet its practical implementation seems distant, with reports indicating that initial demonstrations may have overstated Tesla's technological achievements in this area.

Another concern stems from Tesla's relative lack of investment in AI technologies. Musk has established a separate company, xAI, which has garnered $6 billion in funding. This raises the question of whether Musk's focus on AI will affect Tesla's growth or remain concentrated within this new venture. If this focus diverts resources from Tesla, it could hinder the company's business prospects.

Final Thoughts on Buying Tesla Stock

Considering the current facts, it is difficult to support a bullish outlook for Tesla's future. The EV market is showing signs of weakness, and the new initiatives lack clarity regarding their potential impact on financial performance.

What stands out most prominently is Tesla's valuation. With a price-to-earnings (P/E) ratio of 111, Tesla's stock price approaches four times that of the S&P 500 average. This is concerning given that Tesla is not experiencing rapid growth, is facing declining profit margins, and has made limited headway in expanding its operations.

Regardless of the outcome of Tesla's upcoming earnings report—whether they meet or miss expectations—investing in Tesla stock currently seems like a gamble, especially for long-term investors. It may be wise to hold off on making any purchases until after the earnings announcement.

Tesla, Stocks, Earnings