As we are about a month away from the new year, investors may still be focused on reevaluating their portfolios. Part of this means looking at companies that performed well last year and thinking about whether they can do so again in 2024.
Just look at the electric vehicle (EV) maker. Tesla (NASDAQ: Tesla). Its shares rose 102% last year. But as of January 25, they are down 27% so far in 2024.
Investors should buy this top Electric vehicle inventory On the decline?
The struggles continue
Tesla just reported its fourth-quarter numbers, and it missed Wall Street's expectations. Revenue of $25.2 billion was up just 3% compared to the fourth quarter of 2022. Shareholders may not be used to that, given that Tesla has typically posted double-digit gains in top revenue like clockwork for most of the last decade.
As has been the case throughout 2023, Tesla is operating in a difficult time. rise quickly interest rates It has been a major headwind for automakers because it makes car purchases less expensive for consumers. To counter this, Tesla has implemented price cuts on numerous occasions to support unit growth. This helps explain why the company was able to deliver 20% more vehicles in the fourth quarter compared to the same period a year earlier.
The competitive landscape is also getting more intense, making things more difficult for Tesla. The company competes with many competitors not only in the United States but also internationally, especially in China. This could mean continued pressure on prices in the future.
The unfavorable backdrop had a significant impact on Tesla's profitability. Between 2020 and 2022, the company saw… Net profit margin Expanding from 2.3% to 15.4%, clearly demonstrating the advantages of scale. But these improvements reversed course.
During the fourth quarter, Tesla's gross profit margin and operating margin were much lower than they were in the fourth quarter of 2022. Selling cars at a lower price doesn't help the bottom line.
However, investors should be encouraged that profitability can start heading in the right direction in the future. “In our vehicle business, we continue to see improvements in our unit costs even though we are in the early stage of the Cybertruck rollout,” CFO Vaibhav Taneja said. Q4 2023 earnings call. “As a result, our automotive gross margin improved sequentially.”
What happens with Tesla's margins in the next few quarters should be what shareholders are paying the most attention to. This will prove whether Tesla is truly a premium, premium car company or if it is just like any other mass market car manufacturer.
It depends on your point of view
That's not to say it's all negative news when you look at Tesla. There are certainly reasons for optimism. Tesla is a pioneer in the electric vehicle industry, with an innovative and disruptive culture that supports its strong brand recognition. These factors should benefit the company in the long run.
The company is also working on building competency when it comes to artificial intelligence, especially around AI Supercomputer dojo. With millions of Tesla vehicles on the road, the company can collect and analyze massive amounts of data that could one day provide full self-driving capabilities. This could lead to major financial success for Tesla.
Ultimately, I think your interpretation of whether a stock is worth buying now on the dip comes down to simple valuation.
If you think the stock, which trades at a price-to-earnings ratio of 58.6, is inexpensive today and that Tesla will overcome its near-term challenges and return to strong growth and profitability sooner rather than later, you're not right. -Add Thinking Portfolio.
If you don't believe these things, it's easy to decide to pass on the stock until it shows more tangible signs of improvement.
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Neil Patel Its clients do not have any position in any of the mentioned stocks. The Motley Fool has positions in and recommends Tesla. The Motley Fool has Disclosure policy.
Tesla Stock Drops 27% in 2024: Time to Buy the Dip? Originally published by The Motley Fool
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