The carmaker’s earnings call is scheduled for early on Tuesday (Wednesday AEST).
Ahead of the result, founder and CEO Elon Musk announced sweeping price cuts across its fleet in China, aimed at reclaiming some of its lost market share. The company flagged plans to cut staff earlier this month.
In the too-hard basket
That refocus on costs may have come too late, however, according to Trent Masters, global portfolio manager at Sydney-based Alphinity Investment Management, who said Tesla was one of two Magnificent Seven stocks – alongside iPhone maker Apple – that continue to confound him.
“It seems like the company’s focus came off just as the competition started coming in,” he said.
“Some of the Chinese manufacturers are pumping out some pretty decent EVs, so the question was how could Tesla keep these super high margins against the competition – and now we’re seeing them compress to something more like a normal automaker,” he said.
That was echoed by long-time Tesla bear Ben McGarry from Sydney hedge fund Totus Capital, who is avoiding the stock, despite owning other “Mag 7” members, including Amazon and Alphabet.
“We’ve put Tesla in the too-hard basket from a return and brain-damage point of view,” the long-short manager said last month on a call with investors. “Earnings are going backwards and that does explain to me the recent underperformance.”
Tesla CEO Elon Musk will front investors later this week. Bloomberg
Analysts appear split, however, with around a third still advising investors to buy the stock. Sell ratings amount to around 1-in-4 brokers, with the remaining 40 per cent retaining a hold rating.
Morningstar strategist Seth Goldstein is among those still backing the stock, saying it looks undervalued.
“Following the decline in first-quarter deliveries, we think Tesla will reduce costs in 2024 to maximise profits,” he wrote.
“Tesla will aim to stabilise unit gross profit margins in the automotive segment and focus on improving company-wide operating profit margins – so, we see no reason to change our outlook for the company.”
Mr Goldstein hoped to see further clarity on strategy and how Tesla will find growth with a smaller workforce.
Tesla’s much anticipated result arrives ahead of earnings calls from Meta, Alphabet and Microsoft, which will all report at the end of the week.
Putting Tesla to one side, improved earnings from the Magnificent Seven are expected to drive a year-long tech rally that stalled in March.
Mr McGarry said he used the weakness in Alphabet’s share price to add to the fund’s AI-exposed positions, but added that concerns around the impact to its search business from competitors like ChatGPT were as yet unclear.
“Alphabet has seen off numerous threats to its monopoly in search over the years and this time may or may not be different,” he said. “For now, the business is flying and the company is using its huge cash flows and balance sheet to buy back stock at attractive prices.”
