Last year was a good one for Tesla (TSLA), as the stock more than doubled to record one of its best annual returns - but TSLA has looked weak to start 2024, and has lost almost one-sixth of its market cap so far. The drawdown in Tesla shares is still much better than what we have seen in startup electric vehicle (EV) names like Rivian (RIVN) and Lucid Motors (LCID), particularly as the latter fell to record lows last week. The situations has been even more troublesome for China EV stocks, like NIO (NIO) and Xpeng Motors (XPEV), as they are bearing the brunt of the relentless sell-off in Chinese stocks. 

Returning to Tesla, the EV market leader will release its Q4 earnings this Wednesday, Jan. 24, after the closing bell. Here’s what to expect from the report, and whether you should buy the dip in TSLA stock.

Tesla Q4 Earnings Preview

Analysts expect Tesla’s Q4 revenues to rise only about 6% YoY to $25.78 billion. The company’s earnings per share, however, is expected to fall almost 44% to $0.60. The projected fall in earnings despite rising revenues is due to Tesla’s price cuts, which have taken a toll on not only its own margins, but also those of other automakers. 

Here’s what all investors should watch when Tesla reports its Q4 earnings tomorrow:

• 2024 Delivery Guidance: It will be crucial to watch Tesla’s 2024 delivery guidance. In both 2022 and 2023, Tesla’s delivery growth was below the long-term 50% CAGR that CEO Elon Musk previously talked about. Analysts expect Tesla’s revenues to rise by around 20% in 2024, and - even after taking into account the price cuts - that number implies that Tesla’s 2024 delivery growth will be nowhere near 50%.
• Operating Margin Progress: In Q3, Tesla’s operating margins fell to a multi-quarter low of 8%, thanks to its aggressive price cuts. While Tesla has been quite candid about the fact that it will prioritize delivery growth over margins, markets might want to know whether the company has set a floor for its margins, as the price cuts have continued in 2024, as well.
• Cybertruck Production Ramp-Up: Markets will also watch for comments on the production ramp-up of the Cybertruck, as well as any update on the low-cost model that the company has been teasing for some time now.
• Update on the German Plant: Earlier this month, Tesla temporarily halted production at its plant in Germany, due to supply chain disruptions amid Red Sea attacks. The company might provide an update on the plant, as well as the financial impact of the production suspension. Tesla might also provide color on its upcoming plant in Mexico, after having previously said that it would go slow amid the challenging macro environment.
• Musk’s Compensation: Musk created a furor recently when he said that unless he has a 25% stake in the company, he won’t be comfortable building artificial intelligence (AI) products at Tesla. During the earnings call, the question of Musk’s compensation might also crop up. While Musk does not draw a fixed salary or bonus from Tesla, his previous pay package was worth $56 billion and is under judicial review.

Tesla Stock Forecast: Analysts are Cautious Ahead of Q4 Report

Tesla has a consensus rating of “Moderate Buy” from analysts, and its mean target price of $241.25 is 13.9% higher than current price levels.

Wall Street is a bit cautious about Tesla ahead of the Q4 report. Yesterday, noted TSLA bull Adam Jonas lowered the target price from $380 to $345. The Morgan Stanley analyst sees 2024 as a challenging year for Tesla, and said, “Global EV momentum is stalling. The market is oversupplied vs. demand.”

Musk’s literal ultimatum to the board to approve another fat compensation package for him is another risk for Tesla, as it would lead to dilution for other shareholders. That said, in all probabilities, the board will still approve the compensation as, despite all the controversies, Musk is still Tesla’s best bet.

Should You Buy Tesla Stock Ahead of Q4 Earnings?

The sentiments are quite bearish ahead of Tesla’s Q4 report. While this does set the stage for a post-earnings rebound if the company can impress with its earnings and outlook, I see the probability of a spike as quite low.

That said, the recent dip in Tesla stock could be a good opportunity to scoop up the shares – especially for those who believe in the Tesla story, which is much more than electric cars, as the Elon Musk-run company transitions to being one of the prominent AI plays… unless, of course, the mercurial CEO decides to build AI products elsewhere, as he has warned.