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The "Magnificent Seven" group of stocks includes a lineup of seven leading U.S. technology companies: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Tesla (TSLA), Google's parent company Alphabet (GOOGL), Meta Platforms (formerly Facebook) (META), and Nvidia (NVDA). The artificial intelligence (AI) revolution has resulted in rapid growth for the majority of these names.
Though the Mag 7 group's gains this year are not as impressive so far as they were in 2023, the majority have seen their share prices rise significantly in comparison to the S&P 500 Index's ($SPX) 6.9% gain:
- Apple: down 11.5%
- Amazon: up 17.9%
- Alphabet: up 22.8%
- Meta Platforms: up 23.8%
- Nvidia: up 75.6%
- Microsoft: up 8.7%
- Tesla: down 31.3%
Electric vehicle (EV) giant Tesla has long maintained a stronghold in the market. Despite the overcrowded EV industry, Tesla's market presence has been unparalleled. Last year, the stock more than doubled in value, outperforming the overall market gain of 25%.
However, short-term headwinds have hurt the company's financial performance. Last year, the company reduced prices to increase production, which negatively impacted its margins. Tesla announced its Q1 2024 results on April 23 - and despite the disastrous results, the stock surged 12%. Let's see if Tesla stock is worth buying now.
Tesla: What’s Going on With the EV Giant?
In the first quarter, Tesla missed consensus estimates for both revenue and earnings, which should have affected its stock price. Surprisingly, the stock is climbing. Total revenue in the quarter dipped 9% to $21.3 billion, missing analysts' estimates by $955 million. Furthermore, adjusted earnings per share dropped 47%, missing an estimate of $0.05.
Globally, Tesla delivered 387,000 vehicles in Q1, down from 484,000 in Q4 2023. Year over year, deliveries fell from 422,000 vehicles. While the company has expanded into energy generation, storage, and other services, the sale of EVs remains its primary business. Total automotive revenue made up 82% of total revenue, and that segment's revenue fell 13% in Q1. Revenue from energy generation and storage, as well as services and other revenues, increased by 7% and 25%, respectively. However, a sharp decline in its primary profit-generating business is not a good sign.
Management stated that the lower average selling price, combined with the Model 3 update in the Fremont factory and Berlin production disruptions, contributed to the decreased deliveries and revenue. Furthermore, Tesla continues to face challenges in the Chinese market due to stiff competition.
Despite aggressive price cuts, Tesla's rising inventory levels of $2.7 billion and AI infrastructure capital expenditure of $1.0 billion resulted in a negative free cash flow of $2.5 billion. Tesla believes it has enough liquidity to fund future manufacturing, as it ended the quarter with $26.8 billion in cash, cash equivalents, and investments.
Last week, CNBC reported that Tesla CEO Elon Musk plans to reduce 10% of the global workforce to support the company's next phase of growth by cutting costs. At the same time, Musk is fighting to recover a $56 billion pay package and 25% voting rights to develop AI products. It appears absurd for a company to approve such a large compensation package while burning cash and struggling to make profits.
In the earnings call, Musk confirmed that the company will unveil its "purpose-built robotaxi or Cybercab" in August of this year. Investors must wait and see, as Musk has previously failed to deliver on his promises.
Tesla appears to be overvalued, trading at 66 times forward 2024 earnings. Furthermore, analysts predict that Tesla's earnings will fall by 17.4% for the full year. Tesla may have to focus on increasing its earnings to justify its overvaluation. Perhaps this is why Wall Street has mixed feelings about Tesla stock.
What Do Analysts Expect From Tesla Stock?
Overall, Wall Street has a neutral outlook for TSLA. Out of the 30 analysts covering Tesla stock, six have a “strong buy” recommendation, two rate it a “moderate buy,” 16 suggest it’s a “hold,” and six recommend a “strong sell.” The average price target of $180.28 suggests a potential upside of 5% from current levels. On the other hand, its Street-high estimate of $310 implies a potential upside of about 80% in the next 12 months.
The Bottom Line on Tesla Stock
While analysts expect 2024 to be a difficult year for Tesla, 2025 could be better. Analysts predict that revenue and earnings will grow by 21.4% and 40.4%, respectively. However, given Tesla's declining revenue and earnings, the stock's overvaluation, and the $56 billion CEO pay package request while the company is burning cash, it does not appear to be a good growth story to invest in right now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
