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Tesla posted its Q4 earnings this week and beat analyst estimates on EPS but misses on Revenues. However, the company forecast a 37% increase in production in 2023, the higher demand arising due to discounted prices. The strategy reduces operational margin to boost sales. Musk expects the price change to make the cars more affordable to the average consumer, thereby fencing off competition in the EV car market.
Illustration of key matrices:
Q4 2022 revenue of US$ 24.3 Bn grew 37% YoY, operating income of US$ 3.9Bn grew 49% YoY and EPS of US$ 1.07 is a growth of 54% YoY. The rising trends in these matrices over the last 5 quarters is impressive.
Key Risks: Cash from operating activities has declined -27% YoY, inventories have risen 123% YoY. In this scenario, the strategy to offer discounts to improve sales is likely the right way forward and if it works both these matrices should show improving trends in the future. The company has forecast production of 1.8 million cars in 2023 from 1.37 million cars in 2022.
The stock looked attractive @ 105 to 110 in early January for tactical / strategic allocations into portfolios. Read about it here: https://www.claritech.app/post/tactical-strategic-allocation-tsla The stock price has gained nearly 50% since. At the current price of 162, the PE ratio (TTM) is 44, while higher than the 30 PE when the stock was trading at 110, it is still well below the long term average PE of 228 that the stock has traded at.
The stock may look expensive at current levels. However, if there are opportunities, 125 to 145 seem attractive buy points for long term strategic allocation into portfolios. The stock may well have seen a long term low in early January if the corporate strategy to improve sales is successful.
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