Tesla (TSLA) shares experienced a nearly 4% surge in early trading on Thursday, a notable uptick following a rather underwhelming fourth-quarter earnings report released on Wednesday. While the financial results for Q4 2024 painted a picture of slowing growth and missed analyst expectations, the positive stock movement indicates investor optimism driven by future prospects, particularly those tied to advancements in autonomous driving technology. This article delves into the key factors contributing to this apparent paradox: Why Is Tesla Stock Up despite a less-than-stellar earnings report?
Disappointing Q4 Earnings: The Numbers
The fourth quarter of 2024 presented a mixed bag for Tesla in terms of financial performance. The company reported revenue of $25.7 billion, falling short of the $27.2 billion anticipated by analysts and only a modest 2% increase year-over-year. Looking at the full year 2024, revenue growth was a mere 1%, reaching $97.7 billion, signaling a significant deceleration compared to previous years.
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Adjusted earnings per share (EPS) also missed the mark, coming in at $0.73, below the $0.75 forecast by Wall Street analysts. Operating income saw a significant decrease, totaling $1.58 billion, a 23% drop from the previous year. While adjusted net income showed a slight 3% increase to $2.6 billion, the overall financial picture reflected pressures on profitability. Tesla attributed the dip in operating income to increased costs associated with artificial intelligence and other research and development projects, alongside reduced average selling prices for their vehicles.
The Musk Effect and FSD Optimism
Despite the lackluster earnings figures, the positive market reaction can be largely attributed to comments made by Tesla CEO Elon Musk during the earnings call. Musk announced that paid, unsupervised Full Self-Driving (FSD) is expected to be available in Austin, Texas, starting in June. More significantly, he projected that Unsupervised FSD would be accessible across the United States by the end of 2025 and globally by the end of 2026.
This ambitious timeline for FSD rollout has been interpreted by many investors and analysts as a strong signal of Tesla’s commitment to and progress in autonomous driving technology. Wedbush analyst Dan Ives highlighted this sentiment, stating, “With Unsupervised FSD expected to be available throughout the US by the end of 2025 and the rest of the world by the end of 2026 this will be a focus of the bulls.” This optimism surrounding FSD appears to be overshadowing the current financial headwinds in the eyes of investors. The potential of fully autonomous driving is seen as a game-changer, promising to unlock new revenue streams and significantly enhance the value proposition of Tesla vehicles.
Broader Challenges and Future Outlook
It’s important to acknowledge the broader context surrounding Tesla’s current performance. The company itself admitted in its shareholder presentation that it anticipates its auto business will return to growth in 2025 after experiencing declines in auto revenues in both Q4 2024 and the full year. Total auto production also fell in Q4, while deliveries saw only a marginal increase, indicating potential challenges in demand or production efficiency.
Analysts like Adam Jonas from Morgan Stanley pointed out the lack of detailed growth outlook from Tesla, noting the absence of any reference to Musk’s previous volume growth target of 20% to 30% for 2025. Furthermore, Tesla’s vehicle deliveries in 2024 missed analyst estimates and marked the company’s first year-over-year decline, suggesting increased competition, evolving market demand, and global economic factors may be impacting Tesla’s growth trajectory. Increased capital expenditure projections for the coming years and anticipated less cost reduction in new vehicle production also contribute to the complex financial landscape.
However, Tesla reiterated its plans to launch new vehicles, including more affordable models, with production slated to begin in early 2025. The company also reaffirmed its commitment to the robotaxi, Cybercab, with volume production targeted for 2026. These future product initiatives, combined with the advancements in vehicle autonomy, are presented as key drivers for a return to vehicle volume growth in the coming year.
Energy Business: A Silver Lining
While the automotive sector faces challenges, Tesla’s energy storage business continues to be a bright spot. The company expects energy deployments to grow by 50% year-over-year, demonstrating the strength and potential of this segment. This positive performance in energy storage provides some diversification and offsets some of the concerns within the automotive business.
Conclusion
In conclusion, the rise in Tesla stock price despite a disappointing earnings report can be primarily attributed to investor enthusiasm surrounding the company’s advancements in Full Self-Driving technology and Elon Musk’s optimistic projections for its widespread deployment. While current financial results reflect challenges and slower growth, the market appears to be forward-looking, placing greater emphasis on the transformative potential of FSD and future product initiatives. The promise of autonomous driving, coupled with a still robust energy business, seems to be outweighing immediate financial concerns and fueling investor confidence in Tesla’s long-term prospects.
