Tesla Stock Analysis Q1 2024

Introduction

In recent years, few stocks have generated as much heat and debate as Tesla. Once soaring to astronomical heights, with a valuation surpassing that of the next 10 automakers combined, Tesla has since experienced a significant decline in its share price. Despite this, it remains the most highly valued automaker on the planet. Nevertheless, the burning question remains: Is Tesla truly deserving of the lofty price the market is willing to shell out for its shares? In this article, we will meticulously analyse Tesla company to see how good of an investment Tesla could be for the current market valuation. Additionally, we will delve into the rationale behind the current market valuation of the company, while also exploring potential future scenarios and their implications.

Company Overview

Tesla, an electric automotive company, was co-founded by Martin Eberhard and Marc Tarpenning in Palo Alto, California, in 2003, with the aim of developing sustainable transportation solutions through mass-market electric vehicles. Later, Elon Musk, the current CEO, also assumed the role of co-founder.

The company’s main focus lies in electric vehicles, but it is also actively engaged in energy generation and storage. Tesla gained recognition for its efforts in mainstreaming electric vehicles and providing reliable options for early adopters. Additionally, Tesla operates an extensive EV charging network spanning North America, Europe, the Middle East, and the Asia Pacific region.

While Tesla’s primary markets are in China, North America, and Europe, it also maintains a presence in the Asia Pacific and Australia regions.

Tesla’s leadership team includes Elon Musk, Tom Zhu, Vaibhav Taneja, and Lars Moravy.

Business Model

  • Tesla’s primary business revolves around the production and sale of premium and sub-premium electric vehicles, emphasizing sustainability and cutting-edge technology, particularly in autonomous driving.
  • Targeting EV enthusiasts and tech aficionados, Tesla markets its products at premium prices, above the market average.
  • Operating on a direct-to-consumer (D2C) model enables Tesla to engage directly with end consumers, bypassing intermediaries.
  • Tesla emphasizes vertical integration, manufacturing most car parts in-house. This strategy enhances supply chain management and cost control.
  • In addition to vehicle sales, Tesla generates revenue from energy generation and storage solutions.
  • Significant revenue also comes from regulatory credits, further bolstering Tesla’s financial standing.

Market Analysis

Tesla Market in China

Tesla holds the top position in the Chinese market, closely rivaled by BYD. However, Tesla faces formidable competition in China from several companies, including Aito by Huawei, Changan (owned by the Chinese state), Wuling, and Li Auto. While Tesla still commands the majority of the market share, BYD has rapidly narrowed the gap and even temporarily surpassed Tesla in 2023.

The Chinese market is witnessing a rise in nationalistic sentiments, which could potentially work against Tesla. Moreover, in a market known for its price sensitivity, Tesla’s vehicles are relatively expensive. For instance, the cheapest Tesla model, the Model 3, sells for nearly $36,000 in China, whereas the BYD Seal, a sub-premium model, sells for approximately $25,000.

The ongoing geopolitical tensions between the United States and China also pose risks for Tesla’s operations in the future. However, the Chinese government is actively incentivizing electric vehicles (EVs) and implementing policies to promote their adoption.

Despite these challenges, Tesla enjoys a robust brand value, which serves as a significant advantage for the company in the Chinese market.

Tesla Market in USA

The electric vehicle (EV) landscape in the US is becoming increasingly competitive, with traditional automakers such as Chevrolet, Ford, Volkswagen, Hyundai, Kia, BMW, and Mercedes making significant strides in the EV segment. Tesla may encounter challenges in establishing its audience in the US market moving forward, given that its EVs are notably more expensive than the budget-friendly alternatives introduced by traditional car manufacturers. Furthermore, luxury car brands are also entering the EV market segment. Tesla experienced a decline in market share from 65% in 2022 to 55% in 2023, indicating a shifting competitive landscape. As traditional car makers continue to offer competitive pricing, Tesla’s market share is likely to further decrease in the future.

Tesla Market in Europe

In 2024, Tesla experienced notable success in Europe, driven by recent price reductions that stimulated demand for the Model Y. Both the Model 3 and Model Y emerged as top-selling electric vehicle (EV) models on the continent.

This report indicate that Tesla claimed the second position in EV sales in Europe, trailing only behind BMW. However, competition remains intense, with established brands like Mercedes, Audi, and Volvo also vying for market share.

Over recent years, EV sales in Europe have surged dramatically, surpassing 60% growth in the previous year alone. European automakers maintain a firm grip on market share, leveraging their extensive experience and robust distribution networks.

For Tesla, Europe represents a dual challenge: while it offers a mature market with affluent consumers keen on Tesla’s offerings, navigating stringent regulations, especially for models like the Cybertruck, presents hurdles. Additionally, Tesla’s self-driving technology faces obstacles in Europe, where regulatory approval may lag behind other regions.

Tesla Market in Middle Ease, South East Asia, Australia

The electric vehicle (EV) market in the Middle East is experiencing rapid growth, set to nearly triple to 7.6 billion USD by 2028 from 2.7 billion USD in 2023, as per Deloitte’s report. Saudi Arabia is making substantial investments in the EV industry, with startups such as Lucid and Nio gaining traction. Established brands like BMW, Mercedes, and Volkswagen maintain popularity in the region. Tesla made its foray into the Middle East market in late 2023, and its trajectory in this market will be intriguing to observe. With its robust brand value and the Middle East’s inclination toward established brands, Tesla’s journey here holds promise.

Southeast Asia emerges as one of the swiftest developing regions globally. Fueled by a thriving economy, the populace is increasingly drawn to electric vehicles. Presently, the market size stands modest at approximately 1.5 billion USD (according to this report), yet poised for rapid expansion in the near future. Notably, Chinese brands wield significant influence in this area, potentially posing challenges for Tesla to carve its niche in this market.

The Australian electric vehicle (EV) market is experiencing a surge, with sales soaring by over 100% in recent years, as outlined in this report. Tesla’s Model 3 and Model Y lead as the top-selling EVs in the region, solidifying Tesla’s dominance. Nevertheless, competition is intensifying, notably with BYD emerging as the third-highest seller in the market. Despite this, Tesla maintains a robust market share and remains the preferred choice over other brands. Moreover, the Australian government is actively endorsing the EV industry to align with its 2050 net-zero emission plan.

Financial Analysis

Revenue & Gross Profit

Over the past year, revenue has remained stagnant, showing no growth. Specifically, in Q1 2024, it decreased by 15%, dropping from 25.1 billion USD to 21.3 billion USD. Consequently, gross profit also experienced a corresponding 15% decline during this period. Several major factors have contributed to this revenue decline:

  1. Weakening demand for electric vehicles (EVs) (Further details provided in a later section).
  2. Escalating competition in key markets such as China, the US, Europe, and others (Further details provided in a later section).
  3. The off-season for car sales in the largest market, China, owing to the celebration of Chinese New Year.

Tesla’s Revenue and Gross Profit in last 9 quarters (in millions USD)

Period (Quarters) Revenue Gross Profit
Q1 2022
18,756
5,460
Q2 2022
16,934
4,234
Q3 2022
21,454
5,382
Q4 2022
24,318
5,777
Q1 2023
23,329
4,511
Q2 2023
24,927
4,533
Q3 2023
23,350
4178
Q4 2023
25,167
4,438
Q1 2024
21,301
3,696

Tesla's Revenue and Gross Profit

in millions (USD)

No Data Found

Operating Expenses, Capital Expenditure & Net Income

Operating Expenses have been consistently increasing. For past 4 quarters the operating expenses have been +15% in Q2 23, +13% in Q3 23, -1.6%  in Q4 23, +6% in Q1 24. Operating expenses have increased primarily due to the following reasons : 

  • Research and Development: This encompasses the creation of new models such as the Tesla CyberTruck and the advancement of technologies like Full Self-Driving. Tesla has announced its intention to significantly increase capital expenditure, attributing mainly to AI.
  • Selling, General  and Admin Expenses : Tesla’s Selling, General and Admin expenses have been constantly increasing. 

Capital expenditure has been increasing rapidly. Capital expenditure was 2.0 billion, 2.4billion, 2.3billion and 2.7 billion USD in Q2 23, Q3 23, Q4 23 and Q1 24 respectively. Increase in Capex is caused by following main reasons.

  • Setting up manufacturing Units (Capital Expenditure): Tesla’s vehicles, such as the Cybertruck, require specialized manufacturing infrastructure. Tesla has made substantial investments in constructing factories globally, including facilities in Nevada, Shanghai, Berlin, and Texas. 
  • Setting up charging stations and energy storage solutions (Capital Expenditure): Tesla’s rapid charging network forms the cornerstone of their vehicles’ dependable charging capability. Additionally, Tesla’s energy generation and storage solutions contribute significantly to the company’s revenue stream.

Net Income has been consistently decreasing for the past year due to an increase in operating expenses and stagnating revenue. An increase in operating expenses is not leading to an increase in revenue which is quite concerning for the company.

Tesla’s Operating Expense, Capital Expenditure and Net Income in last 9 quarters (in millions USD)

Period (Quarters) Operating Expense Capital Expenditure Net Income
Q1 2022
1857
1767
3280
Q2 2022
1770
1730
2269
Q3 2022
1694
1803
3331
Q4 2022
1876
1858
3707
Q1 2023
1847
2072
2539
Q2 2023
2134
2060
2614
Q3 2023
2414
2460
1878
Q4 2023
2374
2306
7943
Q1 2024
2525
2773
1144

Tesla's Operating Expense, Capital Expenditure and Net Income

in millions (USD)

No Data Found

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