(Bloomberg) -- Tesla Inc.’s quarterly results this week drove home the lesson that profit and sales numbers don’t seem to matter much for this stock anymore. Instead, it’s Elon Musk’s narrative that’s wooing investors at the moment.
The electric-vehicle maker’s fourth-quarter earnings fell short of analysts’ expectations pretty much across the board. Profit, revenue and margins all missed. Even its sales growth outlook for 2025 was dialed back. Yet, the stock closed up 2.9% on Thursday, as investors shrugged off the disappointing report and instead focused on Musk’s upbeat tone on the robotaxi business, humanoid robots and artificial intelligence.
That’s an unusual reaction from equity investors, especially after they bid up the stock ahead of the report by nearly 80% since late October. As a result of that rally, the typically expensive valuation of the shares climbed to even loftier heights and dwarfed that of other mega-cap technology companies’ seen as Tesla’s peers. As of Thursday’s close, the EV maker’s stock was trading at 127 times forward earnings, compared to the 31 times average multiple for the biggest seven tech stocks.
Tesla is the only Magnificent Seven company whose profits for 2024 fell from 2023 levels. For the rest, earnings either grew or are estimated to rise in a comparable fiscal year, though not all have reported yet.
The disconnect between the company’s business fundamentals and its stock price elicited exasperations from Wall Street analysts who cover the stock.
“Who cares about estimates when Tesla is providing you supercharged narrative command,” said Dan Levy of Barclays, while JPMorgan’s Ryan Brinkman said the shares have “become completely divorced from fundamentals.”
Evercore ISI’s Chris McNally, who estimates that less than 40% of Tesla’s market capitalization is tied to EV and energy operations, noted that “analyzing Tesla from a quarterly results perspective is becoming increasingly problematic.” McNally and Barclays’ Levy have the equivalent of a hold rating on the stock, while JPMorgan’s Brinkman recommends selling.
Even the more bullish analysts found very little to feel cheerful about in the report. Canaccord Genuity’s George Gianarikas, who has a buy rating on Tesla, said the “results, and some near-term commentary left us less than nourished.” Truist analyst William Stein asked, “where’s the beef?,” noting that while Musk played the role of cheerleader, management was remarkably short on two critical points — details about new vehicles in 2025 and milestones for the AI achievements, especially the full-self-driving technology.
Tesla shares have been on a tearing run since Donald Trump won the US election in November, as investors bet that the friendship between Musk and the president will help the company realize its AI ambitions. But given the EV business still brings in 90% of its revenue, the health of that operation remains key.
Indeed, there are growing concerns about Tesla, even if the stock prices suggests otherwise. The company’s slowing EV sales and eroding profitability reflect steadily growing competition, which is forcing it to heavily discount its cars in order to boost sales. Then there is the new Republican government in Washington that is staunchly anti-EV. In his first few days as the President, Trump has already ordered his team to look into reversing Biden-era policies meant to boost the industry and encourage consumers to buy electric cars.
Tesla is a major beneficiary of these Biden policies and stands to lose from any aggressive rollbacks. At the same time, its robotaxi — on which a huge chunk of its $1.3 trillion market value rests — is far from a viable product right now, and it may be a while before it is ready for full commercial use. Musk on Wednesday said the company expects to start offering a paid service in Austin this June using self-driving Teslas that won’t rely on humans supervising the steering wheel.
“The earnings were terrible, but this company is now all hopes and dreams for Musk’s vision of autonomous driving and robotaxi,” said Thomas Thornton, founder at Hedge Fund Telemetry. “This is a market where fundamentals don’t matter anymore, people are buying assets such as Fartcoin that has obviously no intrinsic value.”
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