To The Moon

Share Price Performance:

• Year-to-date, Tesla's stock has seen a decline of 26.25%.

• Its current share price at USD 183.25, is also 55% below its all-time high of USD 409.97.

• Nevertheless, Tesla's 5-year annualized return was impressive at 32.11%, outperforming the S&P 500's 12.71% and Nasdaq-100’s 18.58% during the same period.

• Tesla( $Tesla Motors(TSLA)$ ) stock has also shown a 5-year annualized volatility of 65.59, in contrast to the S&P 500 and Nasdaq-100, which had significantly lower volatilities at 21.77% and 26.37%, respectively, over the same period.

• This implies that, although investors may be attracted to Tesla for its long-term returns, the high share price volatility may make it challenging for most investors to stay invested in Tesla.

4Q 2023 Earnings Call:

• Both Tesla’s revenue and EPS missed street expectations.

EPS: 71 cents vs. 74 cents expected (Missed by 4.1%)

Revenue: $25.17 billion vs. $25.6 billion expected (Missed by 1.7%)

• Gross Profit Margin declined to 17.6% (vs. 17.9% in 3Q 2023), and Operating Margin rose to 8.2% (vs. 7.6% in 3Q 2023, vs. 16% in 4Q 2022).

• Tesla further warned of “notably lower” vehicle sales growth in 2024.

• Tesla stock fell 12% on its earnings day.

Earnings Review:

• Vehicle sales still account for 83.7% of total revenue, but year-over-year (yoy) sales growth in Q4 has now slowed to 1.7% (compared to 5.9% in Q3), highlighting the risk of negative sales growth in the coming quarters.

• Vehicle deliveries managed to grow at 19.5% yoy in Q4, but the 1.7% yoy growth in vehicle sales suggests that a price cut is likely the main factor boosting delivery numbers.

• From the warning of lower vehicle sales growth in 2024, it appears that vehicle deliveries could be significantly less than the 37.7% yoy sales growth seen in 2023.

• The consensus among analysts targets a 20% growth in vehicle sales for 2024.

• Given stronger electric vehicle (EV) competition and a slower China recovery outlook, we see a price cut to boost vehicle sales as a potentially better strategy.

• We anticipate a possible further deterioration in Profit Margin due to more price cuts.

• However, the slight improvement in operating margin at 8.2% in Q4 versus 7.6% in Q3 suggests that the declining profit margin concern may not be as serious as analysts thought, despite delivering a gross margin of 17.6% (compared to 17.9% in 3Q 2023).

• The Average Selling Price per vehicle is USD 44,442, compared to a Cost Per Vehicle Delivered at USD 36,295. Notably, there's a larger decline in Cost Per Vehicle Delivered at -3.18%, versus a decline of -3.01% in the Average Selling Price per vehicle. This indicates that the declining speed of cost may be faster than the ASP, albeit the change is relatively small at this point. Investors should consider the possibility that Tesla may see margin recovery sooner than expected.

• Investors are growing impatient about the launch of Tesla's inexpensive entry-level $25,000 electric car, which may only arrive in the second half of 2025.

• Investors are worried that Elon Musk may not pursue AI and robotics at Tesla if he does not obtain a 25% voting right. However, he clarified during the earnings call that he is pursuing a greater influence over the company by seeking more voting control. He even suggested the possibility of creating a dual class of shares similar to Meta Platforms.

• In the future, Tesla's additional revenue may stem from selling regulatory credits, sharing the Supercharger Network, improving Cybertruck sales, launching new low-cost EVs, and rolling out Optimus and Level 5 Full Self-Driving (FSD).

• We perceive Tesla as more than just an Electric Vehicle (EV) company; it is also an Artificial Intelligence (AI) company. Its significant AI investments, such as Full Self-Driving (FSD), Optimus robots, and the supercomputer Dojo, have the potential to open up new addressable market.

Technical Analysis:

• Tesla's stock has nearly reached its support level at USD 179.85, representing 38.2% of the Fibonacci Extension level, and rebounded to close at USD 183.25 on Friday, indicating a potential interim bottom for Tesla.

• If a rebound commences, we anticipate a rally to USD 226, marking 23.6% of the Fibonacci Extension level. However, our preferred strategy, considering weak fundamentals, is to gradually accumulate at USD 179.85, USD 142.96, and USD 106.06, representing 38.2%, 50%, and 61.8% of the Fibonacci Extension level.

• We acknowledge that a worst-case scenario could involve Tesla's stock retreating to the 61.8% Fibonacci Extension Level at USD 106, nearing its 2023 low of USD 101.81.

• Furthermore, the Fibonacci Retracement level (from 2020's low to 2021's high) of 78.6% indicates that USD 107 could serve as a strong support.

• Furthermore, we identify the range of USD 106-107 as a strong support level, considering it as the Fibonacci Confluence Zone.

Conclusion:

• In summary, there is a possibility that Tesla shares could decline to around USD 100, driven by investor impatience with its long-term roadmap and a potential preference for other stocks in the Magnificent Seven that exhibit stronger near-term profitability potential, particularly in the Artificial Intelligence (AI) space.

• However, we have learned from history not to bet against Tesla and Elon Musk, as Tesla has many long-term secular growth catalysts that could boost the share price.

• Despite a weaker near-term earnings outlook, our long-term bullish outlook on Tesla persists. Factors contributing to this positive outlook include the anticipated Next Generation Platform (expected in 2025), a potential resurgence in gasoline prices driving EV adoption, better-than-expected execution on earnings targets, the potential rollout of a revamped Model Y, and prospects for multiples expansion (PE expansion) given the rate cut outlook.

• Tesla remains one of the most popular and volatile stocks on the US stock exchange. Notably, growth investors such as Gary Black, Cathie Woods, and Ron Baron continue to hold Tesla as one of their top investments, emphasizing the importance of not neglecting Tesla in growth portfolios.

• Currently, based on Bloomberg’s analysts' consensus, Tesla has an average 12-month target price of USD 222.07, representing an upside of 21% from its Friday closing price at USD 183.25.

Investment Strategies:

1) Buy deep in-the-money Tesla Leap calls. For example, buy Tesla Call option with a strike price of $110 with an expiration date of 21 Mar 2025. Delta is 0.897.

Pros: Delta is near 1, its profit and loss profile is similar to actual stock ownership, and the maximum loss is limited to the premium paid. Cons: LEAPS are typically more costly.

2) Gradually invest in Tesla stock. Our preferred accumulation levels based on technical analysis are USD179.85, USD142.96 and USD106.06.

3) Dollar-cost averaging: Set up an auto-invest plan to invest a fixed smaller dollar amount in Tesla at regular intervals.