Ahead of Tesla’s (NASDAQ:TSLA) upcoming quarterly earnings release, the TSLA stock sell-off has continued.
The market has soured on electric vehicle plays, and not only smaller, more speculative names. Even this established and profitable EV market leader has become the victim of shifting market sentiment.
Worse yet, there is a strong chance that this sell-off carries on after earnings. I wouldn’t expect a repeat of the post-earnings rally this stock experienced four quarters ago.
So, does that mean one should hit the brakes on TSLA if they own it, avoid at all costs if they don’t? Not quite. While now is not an ideal time to initiate or add to a position, a stronger opportunity to do so could arrive later this year.
To find out why, let’s take a closer look, and see what’s the best move with Tesla before the Q4 2023 earnings report hits the street.
TSLA Stock Earnings Preview
Post-market on Jan. 24, Tesla will release results for Q4 and the full year 2023. With the EV maker releasing its delivery numbers for the respective periods at the start of this month, the market has a general idea of how Tesla’s top line will come in.
For the quarter and year, deliveries came in at 484,507 and 1.808 million vehicles, respectively. For the full year, deliveries increased 38% compared to 2023. Yet while that may sound promising for the earning release, keep in mind that all eyes will be on the earnings themselves, along with guidance updates.
A big reason for the rising bearishness about TSLA stock right now are concerns about the impact of the company’s continued slashing of vehicle prices on margins and profitability. With this, it makes sense that 12 out of 18 analysts have made downward revisions to their Q4 earnings forecasts in the past 90 days.
Given the current mood of the market for EV stocks, instead of the market reacting positively to bold statements from CEO Elon Musk, investors are more likely to focus on one/several negative aspects of the release, using them as justification to sell.
A Possible Silver Lining
Beyond it being not definite that TSLA stock will tumble or tank post-earnings, it’s hard to pinpoint the extent in which shares could reverse course, if concerns about slowing growth and a further margin squeeze keep on building. The market’s overall direction will, of course, play a role as well.
Investors remain bullish about a “Fed pivot,” or a lowering of interest rates by the Federal Reserve later this year. However, excitement about this cooled down earlier this month, and could cool down again. If that happens, it could hurt the valuations of growth stocks like TSLA.
However, there is a silver lining, is Tesla slides another 25%, 30%, even 50% from here. At lower price levels, the stock (richly priced today at 66.7 times forward earnings) could sink down to a more-than-reasonable valuation. From there, after riding out today’s challenge, the company and its shares could make a tremendous comeback.
In the near-term, as economic conditions normalize, and growth for Tesla could re-accelerate. A renewed “EV boom” may also help Tesla improve its margins. On a longer time frame, assuming two milestones are achieved, there is TSLA to experience another period of turbocharged price appreciation.
Bottom Line: Sit Tight for Now
The two key milestones for Tesla are the bringing of autonomous driving capability and a low-priced vehicle to market. There is still high uncertainty over whether the company can deliver on its autonomous driving promises, but considering its track record, I wouldn’t say this possible catalyst is completely off the table.
Being able to sell this feature would bode well for market shares, as well as margins/profitability. Bringing the low-priced Model 2 to market might enable Tesla to increase its share of the overall automotive market.
The resultant impact on growth/profitability could in turn justify a move back to the stock’s split-adjusted all-time high (over $400 per share) and beyond.
While I wouldn’t fight the trend, long-time TSLA stock investors do not need to bail. If you’ve looking to add exposure, keep an eye out, and be ready to pounce following a severe sell-off.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
