Tesla’s earnings beat expectations on EPS but fell short on revenue and automotive gross margin, causing the stock to drop by 7%. The company reported $1.05 in EPS versus an expected $1.01, with $21.5 billion in total revenues versus $22.1 billion expected. However, the automotive gross margin was lower than expected due to higher raw material, logistics, commodity, warranty, and expedite costs, as well as production ramp costs for Gigafactory Texas and Berlin ramp of 4680 cells. Tesla reported 56% revenue growth year over year, but negative FX impacts hurt profitability. The company generated about $3.3 billion in free cash flow, with $2.2 billion in cash and marketable securities after paying down debt.
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Tesla Announces Earnings: Why the Stock Price Took a Hit
Introduction
Recently, Tesla announced its earnings and the news shook the market. After the market closed, the stock price dropped down to $205 from $215. The stock is now down more than 7%, and this has raised many concerns about the company’s future.
The Earnings Report
Tesla beat expectations with its earning per share (EPS) of $1.05 versus $1.01, but there were some caveats. There was a drop in revenue to $21.5 billion, compared to the expected $22.1 billion. The automotive gross margin, which is what many investors look at, was still lower than expected. Tesla came away with free cash flow of $3.3 billion, which is fantastic year over year.
The Reason for the Drop in Stock Price
There are a few reasons for the drop in Tesla’s stock price. Firstly, the higher raw material commodity and logistics warranty and expedite costs impacted their profitability. Moreover, there was a negative impact on revenue due to negative FX. Additionally, there was an increased in Average Selling Price (ASP), which helped growth in vehicle deliveries and other parts of the business. This helped Tesla report a profit growth, but there was an impact of $250 million due to negative FX.
The Future of Tesla
Tesla is still growing rapidly, and even though it crashed right after the market closed, it’s slowly returning to the $215 level. The main reason for their lower margins is the higher raw material logistics and commodity warranty and expedite costs. The cost of production ramp at Gigafactory Texas and Berlin also hurt their margin. However, despite these challenges, Tesla is still investing in new projects to get better growth in the future.
Conclusion
Tesla is reporting great numbers and showing massive growth in the fourth quarter. Although the stock price took a temporary hit, it’s still low compared to where it’s been historically. There are many things to account for in Tesla, and missing slightly on revenue while being so cheap should not cause the stock price to crash further. In the end, Tesla is still a company that is growing at an astonishing rate, and it has many growth vectors for the future.
