An Eventful Week With Tesla Up 19%! Is It Still A Buy?

$Tesla Motors(TSLA)$  share was up 19% for the week following its earnings call when CEO Elon Musk cheered investors with news that Tesla plans to begin production of new affordable EV models by 2025.

Tesla had a disappointing Q1 24 quarter.  Revenue fell 9% year over year, its steepest annual decline since 2012.  Tesla reported 45 cents in adjusted earnings per share on USD 21.3 billion in revenue, falling short of the 51 cents in expected earnings per share and USD 22.15 billion in expected sales.

Revenue dropped from USD 23.3 billion a year before and from USD 25.17 billion in the previous quarter. 

Net income for Q1 24 was USD 1.13 billion, a big decrease from USD 2.51 billion reported in Q1 23.  This decline reflects the influence of lower revenue, increased operating expenses and continued investments in research and development initiatives. 

However Tesla's overall profitability remains robust.  Tesla's automotive gross margin stood at 18.5%, demonstrating its capacity to maintain healthy margins even with price cutting.

The energy generation and storage segment also achieved a record gross margin of 24.6%, highlighting its increasing contribution to overall profitability.

Another area of concern was Tesla's cash flow.  It reported a negative free cash flow of USD 2.5 billion for the quarter.  This is due to an increase in inventory resulting from a mismatch between production and deliveries.  There is  also an  increase of capital expenditure due to expanding AI and factory development projects.  However Tesla expects inventory levels to normalise in the coming quarters, leading to a return to positive free cash flow.

Tesla continues to make substantial progress in its Full Self Driving (FSD) technology.  The potential applications of FSD includes Tesla's Robotaxi plans aiming to revolutionise the transportation industry.  Elon Musk is expected to reveal further details on Robotaxi on August 8.

Wall Street Analysts are still bullish on Tesla with an average Target price of USD 177.30, an upside potential of 5%, according to Tipranks. 

Wedbush has maintained its Outperform rating on Tesla with a Target Price of USD 275 from USD 300, citing a volume story in the near term while FSD and autonomy are the golden vision for Elon Musk and Tesla over the next decade. 

Bank of America analysts have upgraded Tesla stock from Neutral to Buy while maintaining their USD 220 price target.  This is due to Elon Musk's commentary which addressed key concerns and revitalised the growth narrative. 

Performance wise, even though Tesla is up 19% for the week, its shares are still down 32% year todate.  Tesla is only up 5% in 2023.

Tesla's Q1 24 earnings highlights its challenges and opportunities as it navigates the road towards an Electric and  Autonomous future.   As the EV market continues to evolve amidst tough competition, Tesla needs to continue to innovate, adapt and execute its future plans.  This is absolutely crucial to Tesla's success.

 In the short term Tesla's shares may face volatility but in the long term, Tesla is a growth story that will reward its investors well if they are patient. 

As the late Charlie Munger likes to say "The first rule of compounding is Never Interrupt It Unnecessarily." 

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