Tesla Q4 Preview and Why People May Not Want To Buy Teslas in 2025

We're already in an auto recession but Musk makes Tesla more "un-buyable".

• Tesla’s Q4 2024 EPS of $0.72 should miss consensus estimates of $0.76 by 6% and the quality of earnings will be poor, with Automotive gross margin (ex-credits) sinking to 14.2% versus 17.1% in Q3 2024.

• For 2025, analysts estimate that Tesla will see 16% YoY growth in deliveries to 2.08 million units and 31% YoY growth in non-GAAP EPS to $3.25.

• Given the rising revulsion towards Musk’s political antics since Trump won, Tesla will struggle to grow deliveries and earnings this year (details below). With generous assumptions, I estimate 2025 deliveries will drop by 2% YoY to 1.75 million vehicles and EPS should plunge by 27% to $1.81, which is 44% below the Street’s $3.25 estimate.

• Musk set a steep hurdle for 2025 on October’s earnings call, predicting “20% to 30%” delivery growth, the roll-out of FSD “Unsupervised”, and “paid driverless ride-hailing” in Texas. All three of these targets should disappoint investors.

• The “refreshed” Model Y has received mixed reviews from Tesla fanboys. This is a concern as it made up 66% of global sales in 2024 and if it doesn’t grow much (like the refreshed Model 3 last year), Musk’s target of 20% to 30% growth this year is scuttled.

• While fundamentals may not have mattered for Tesla since the “robotaxi” pump began last April and after Trump’s election victory, it should be noted that in 5 of the 7 quarterly results since Q1 2023, disappointing results led to an average drop in Tesla’s stock of 11%.

Q4 Results Should Be Weak

Tesla’s Q4 2024 non-GAAP EPS should come in at $0.72, which is 6% lower than the Street’s estimate of $0.76 at the moment (Tesla IR usually comes out with their own consensus survey days before its results announcements to help bring the bar down).

The quality of earnings should be worse than in Q2 2024, where record-high ZEV credit sales of $890 million—which have 100% profit margins—propped up earnings that still missed estimates by 14%. In Q4, ZEV credits should still be at elevated levels of around $650 million, but Tesla’s Energy division should see a record-high gross profit of $861 million (19% of total gross profits). My main assumptions for Q4 results are as follows (refer to Figure 1):

Prices fall more than costs per unit due to an epic year-end push: Because Tesla said they “expect to achieve slight growth in vehicle deliveries in 2024” in their guidance for the year in their Q3 presentation, this called for at least 6.3% YoY growth to 515,000 vehicles in Q4. This was a positive surprise when it was announced last October given that Tesla had been guiding for “significantly lower growth than last year” in 2024 up until then.

But despite the steep discounts Tesla offered and the huge subsidies in China ($2,730 per vehicle), Tesla missed its 515,000 (+6.3% YoY) target by 3.8% and came in at only 495,570 (+2.3% YoY). While this was up by 7.1% versus Q3, steep price cuts in Q4 likely killed profitability, which is why I’m seeing Auto gross margins (ex-credits) at 14.2% in Q4 versus 17.1% in Q3 for the following reasons: