Tesla Health Check for Q1 2024: Shaky at Best
EV sales slow down in the US where Tesla generates 50% of its revenues
EV sales in the US are horrible and getting worse. This is dangerous for Tesla as 50% of its revenues come from the US, where its prices are the highest in the world, as are its fixed costs.
Fun fact: Tesla Q4 2023 sales in California—the EV “Mecca” of the US—dropped by 10% YoY while other BEV sales spiked by 80% YoY.
EV startups, Lucid and Rivian, announced 2023 results & 2024 guidance today. Both missed by a wide margin and traded down in the after-hours.
Ironically, Tesla traded higher. Rivian—a strong EV brand in the US—guided for deliveries of 57,000 in 2024, which was 28% below consensus estimates of 80,000. Rivian also announced layoffs of 10%. This doesn’t bode well for Tesla, which has excess capacity in the US.
Average used EV prices in the US are -40% in the past 6-12 months. This was all caused by Tesla’s unprecedented 20% price cuts since January 2023 and is now the main cause behind the downward spiral in EV prices.
Americans now seem to be joining the UK & Germany in their aversion towards EVs: they’re too expensive. The average EV in the US has over 100 days supply versus normal rates of 60 days.
Tesla is the Magnificent 7’s “elephant in the room”. It’s a monstrosity of automotive valuation that doesn’t shrink despite being insignificant on the global stage, unlike the other 6.
Tesla trades at a 2024 PER of 66x versus Toyota’s 10x. Toyota’s Q4 2023 pre-tax margin was 15% versus Tesla’s 9%. Part of why BEV sales are declining is because of better affordability & convenience of hybrids. Toyota has a 65% share of the global hybrid market.
My thesis on why Tesla is still richly valued at $20 is detailed here.
Good News First: China & EU Deliveries Seem Firm
While it’s always premature to “guestimate” Tesla’s quarterly deliveries mid-quarter (2/3 of sales are shipped in the last month of each quarter), Figure 1 shows a 3-month moving average of Tesla’s deliveries in China and the EU, combined.
Whatever the comps are this first quarter in China, it won’t be a fair comparison to Q1 2023 in China, when car demand was still evolving from the COVID lockdowns of late 2022.
Figure 1 shows that recent sales volumes for Tesla in China and the EU are quite firm, but it should be noted that Tesla cut prices by 4% in China and 5% in the EU in January. This points to lower profits this quarter.
Figure 1: Tesla China + EU Deliveries (3-Month Moving Average)
Source: CPCA & TMC Europe
Tesla is Likely Suffering in the US
EV sales in the US have fallen off a cliff in terms of growth momentum. EV sales in California—the Mecca of EV sales in the US—surged by 80% YoY in Q4 2023 versus Tesla’s decline of 10% YoY. Figure 2 shows the inventory of popular EV brands in the US right now.
Anything above 60 days of inventory is unhealthy. All of the models below will see huge price cuts which will, in turn, put more pressure on Tesla’s prices. The ICE makers that are transitioning to EVs can remain cash-flow positive because ICE vehicles are highly profitable at roughly 10%+ pre-tax margins versus Tesla’s 9% in Q4 2023.
Figure 2: EVs Piling Up on Dealers’ Lots
Q1 Non-GAAP EPS Should Be 16% Below Consensus
The consensus estimates for Q1 adjusted EPS are $0.66 based on 477,872 units of deliveries at Tesla. My Q1 estimates are for an EPS of $0.56 based on 468,929 in deliveries. Tesla usually ships 2/3 of its quarterly deliveries in the last month of the quarter, so earnings outlook could change at the end of March.
Based on announced price cuts in China and the EU last month, average unit prices in Q1 should be down by 2.3% QoQ versus Q4 2023. Costs per unit are tough to predict, but based on comments by Tesla’s CFO on last month’s earnings call, cost reductions have reached their limits (COGS/unit fell by 3.4% QoQ in Q4 2023).
While the usual indicators for costs are trending downward (commodities are down by 5% QoQ and lithium hydroxide is down by 29% QoQ), logistic costs should be up sharply versus Q4 2023 given the idling of Tesla’s German plant due to conflicts in the Red Sea.
Tesla Capped at $240; Should be Excluded From the Magnificent 7
Based on rolling consensus estimates, Tesla traded as high as 67x 2024 EPS estimates last December. At its current share price, Tesla trades at 66x current consensus non-GAAP EPS estimates of $0.66 (for reference, Toyota Motor trades at 10x 2024 estimates while generating twice Tesla’s profit margins).
This is likely why Tesla has traded in a narrow range since getting sold off by 12% after Q4 2023 results on January 24th. Given that Q4 2023 results were the fifth consecutive quarter of misses and auto sales are weakening globally, it’s hard to see Tesla trading higher than its 67x PER peak recorded in December 2023 (details here).
Furthermore, after Elon Musk stated on Tesla’s January 24th earnings call that its “Dojo” supercomputer is “not a sure thing at all”, there is no reason to value Tesla as an “AI” stock.
Some Tesla bulls may argue that Tesla’s “Full Self-Driving (FSD)” product is a form of AI, but it is a product that is still under regulatory investigation by both NHTSA and the DOJ. FSD is also a source of roughly 65 lawsuits in the US.
While it might sound hyperbolic, Tesla at $20 would still be more expensive than Toyota on a valuation basis (see details in this report).
Figure 3: Valuations & Returns Among the “Magnificent 7”
Note: None of the above is investment advice.
Thank you for an interesting article. Here is my first question: when you talk about "average used EV", what is the definition of such car? 3 years old, after first owner?
Have “Deliveries” been defined yet as for a while it was unclear if it was to customers, to dealers or to subsidiaries or whatever it suited them for that quarter.