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Tesla's Rollercoaster: Growth Pangs, Price Cuts, and Options on the Table

In an unexpected turn of events, Tesla's (TSLA) once-thriving growth story is navigating uncertain terrain, prompting shareholders to contemplate the exit ramp. 

The electric vehicle juggernaut, after missing EPS and revenue estimates for two consecutive quarters, issues a stark warning: the brakes might be applied to vehicle volume growth in 2024. A blend of high-interest rates and the fallout from the company's strategic missteps is sowing skepticism, ushering in a transformation from bullish optimism to bearish concerns.

tesla q4 earnings, investment disaster

The Cybertruck, Tesla's futuristic pickup that made waves upon its December debut, is losing its luster as a 2024 growth catalyst. Hopes that the Cybertruck would inject new vitality into Tesla's trajectory are fading, eclipsed by lackluster volume projections that cast doubt on the vehicle's potential to steer the company toward its growth targets.

Tesla's pricing strategy takes center stage in Q4, with the automotive gross margin missing expectations at 17.1%. Adding fuel to the fire, gross margin slips another 30 basis points to 17.6% due to lower Average Selling Prices (ASPs) outweighing manufacturing cost reductions.

As the growth engine decelerates, Tesla remains steadfast in spending, with operating expenses surging 27% in Q4. The aftermath? Operating income nosedives nearly 50% year-over-year to $2.1 billion.

Elon Musk's defense of price cuts hinges on prioritizing volume growth and market share over short-term profits. The rationale is rooted in Tesla's transition to a software/AI company, where more electric vehicles on the road mean greater opportunities to sell technologies like full self-driving (FSD). However, the timing and certainty of this transition remain uncertain, leaving investors skeptical of the stock's P/E ratio of 67x. Musk's acknowledgment of the high-risk nature of the AI supercomputer, Dojo, critical for FSD technology, further rattles shareholder confidence.

👉 Check Out Video --> TSLA Price Analysis

In the current scenario, Tesla finds itself in "no man's land," navigating through the maturity of the growth curve from the Model 3/Y platform, with the next substantial catalyst possibly years away. The anticipated surge hinges on the launch of Tesla's next-generation platform supporting a more affordable mass-market vehicle, slated for 2H25, as per Musk's optimistic timeline. However, with the growth trajectory seemingly stuck in neutral, a valuation markdown for Tesla's stock may be on the horizon.

Analyst Craig Irwin, commenting on Tesla's weak 4Q23 results and the continuous dip in adjusted auto gross margins, emphasizes that the notably lower growth guidance wasn't a shock. Pinning hopes on a next-gen vehicle, presumably the MiniCar, to reignite growth in '25, Tesla faces elevated risks associated with the new modular manufacturing approach. Irwin foresees multiple compression due to sluggish revenue growth, accentuated by headwinds from mix and persistent price cuts. Irwin concludes by asserting that Tesla's stock is seen as "egregiously overvalued."

Analyst Dan Ives Criticizes Tesla's Earnings Call as a "Train Wreck" and Adjusts Price Target

In the aftermath of Tesla's latest earnings call, Wedbush analyst Dan Ives minced no words, branding it a "train wreck" and expressing disappointment at CEO Elon Musk's failure to address investor concerns about recent price cuts. Ives communicated this sentiment to clients in a research note on Thursday, delivering a blow to Tesla's near-term prospects.

As a direct consequence of this perceived mismanagement and lack of clarity in the earnings call, Ives took decisive action by slashing Tesla's 12-month stock price target by 10%, setting it at $315. Despite this cut, the revised target still implies a potential upside of approximately 52% from Wednesday's closing figures.

Ives, in his note to clients, candidly conveyed the disappointment in Wedbush's expectations for Musk and his team to provide a comprehensive overview of the ongoing challenges related to price cuts, margin structures, and the evolving demand scenario. Instead, the analyst described the call as offering only a "high-level Tesla long-term view" and characterized it as another instance of a "train wreck conference call."

Tesla's fourth-quarter results, reported on Wednesday, fell short of expectations, with revenue growth at a mere 3%. The primary contributor to this lackluster performance was identified as the steep price cuts implemented by the automaker, reflecting softening demand for electric vehicles. Additionally, Tesla cautioned investors that volume growth might experience a notable decline in 2024.

Ives likened Tesla's recent price cuts to a "Category 4 hurricane in the near term," emphasizing the significant impact on the company's immediate outlook. The absence of clear communication and strategic guidance from Musk was described as a "bitter pill to swallow for the bulls" by the analyst.

Despite the short-term challenges and the disappointment surrounding the recent developments, Ives affirmed his long-term bullish stance on Tesla. He reiterated Wedbush's belief in the imminent mass-market adoption of electric vehicles and maintained the "outperform" rating for Tesla, underscoring the enduring confidence in the broader artificial intelligence narrative shaping the company's future.

Decoding Tesla's Market Maneuvers: Insights and Options Trading Strategies

In the whirlwind of Tesla's market fluctuations, discerning the opportune moment to make a move demands a strategic pause. As Tesla, or TSLA, grapples with what Gene Munster of Deepwater Management deems a "sobering outlook," the options market becomes a focal point for savvy traders aiming to navigate the potential bottoming process.

Tesla's recent revelations indicate a significant slowdown in growth rates, prompting a reassessment of its market standing. Despite quadrupling revenues since 2019, Tesla faces skepticism, with critics highlighting its comparatively smaller size in revenues compared to automotive giants like Ford, GM, or Toyota. Yet, the valuation discrepancy is striking, with Tesla's enterprise value towering at 8.6 times the combined size of GM and Ford.

Examining the margins paints a nuanced picture—Tesla boasts nearly 11%, twice that of the two major U.S automakers, but lags behind Porsche, whose margins stand at 13%. While the Model Y reigns supreme as the world's best-selling car and the first electric vehicle to claim this title, questions linger about the Cybertruck's resonance in the pickup truck market.

A decade ago, skeptics would have dismissed the idea of Tesla competing with the established automotive players, citing infrastructure, cash flow, dealer networks, and brand loyalty as insurmountable hurdles. Yet, Tesla defies expectations, outperforming U.S automakers in EV profitability and establishing an enviable position in the market.

Despite these triumphs, Tesla stands at a crossroads. While the Model Y leads in sales and the Supercharger network remains a distinctive advantage, valuation metrics signal caution. Trading at over 50 times earnings and over 30 times EV/EBITDA, Tesla lacks an attractive entry point with an adequate margin of safety.

In the face of this quandary, waiting becomes a prudent strategy. After a significant stock drop, allowing a few days for it to establish a new level becomes imperative. Enter the trade: selling puts. With potential support levels indicating a drop to 167, options traders could capitalize on elevated premiums post-gap down, selling cash-covered puts to explore an entry into the stock at more favorable levels.

This tactical approach allows traders to collect income from selling puts and consider acquiring the stock at lower levels, leveraging market dynamics in their favor.

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