As we're about a month into the new year, investors might still be focused on reassessing their portfolios. Part of this means looking at companies that performed well last year and thinking about whether they could do so again in 2024.

Just look at electric vehicle (EV) maker Tesla (TSLA -2.04%). Its shares soared 102% last year. But as of Jan. 25, they have tanked 27% so far in 2024.

Should investors buy this top EV stock on the dip?

The struggles continue

Tesla just reported its fourth-quarter numbers, and they missed Wall Street expectations. Revenue of $25.2 billion was up by just 3% compared to Q4 2022. Shareholders might not be used to this, given that Tesla typically posted double-digit top-line gains like clockwork for most of the past decade.

As has been the case throughout 2023, Tesla is operating in a difficult time. Rapidly rising interest rates have been a major headwind for automakers because they make buying cars less affordable for consumers. To combat this, Tesla implemented price cuts on numerous occasions to support unit growth. This helps explain why the business was able to deliver 20% more vehicles in Q4 than in the year-earlier period.

The competitive landscape is also intensifying, making things more difficult for Tesla. The business competes with numerous rivals not only in the U.S. but also internationally, particularly in China. This could mean ongoing pricing pressure in the future.

The unfavorable backdrop has had a huge impact on Tesla's profitability. Between 2020 and 2022, the company saw its net profit margin expand from 2.3% to 15.4%, clearly showing scale advantages. These improvements have reversed course, though.

During the fourth quarter, Tesla's gross margin and operating margin were significantly lower than in Q4 2022. Selling cars at lower price points doesn't help the bottom line.

However, investors should be encouraged that profitability could start heading in the right direction going forward. "In our vehicle business, we continue to see improvements in our per unit costs despite us being in the early phase of Cybertruck rollout," CFO Vaibhav Taneja said on the Q4 2023 earnings call. "As a result, our auto gross margin improved sequentially."

What happens with Tesla's margins in the next few quarters should be what shareholders pay the most attention to. This will prove whether Tesla is really a differentiated and premium car business or just like every other mass-market automaker out there.

It depends on your perspective

This isn't to say it's all negative news when you look at Tesla. There are certainly reasons to be optimistic. Tesla is a leader in the EV industry, with an innovative and disruptive culture that supports its powerful brand recognition. These factors should benefit the business in the long run.

The company is also building competency when it comes to artificial intelligence, particularly with its Dojo supercomputer. Thanks to the millions of Tesla vehicles on the road, the business can collect and analyze massive amounts of data that could one day bring about full self-driving capabilities. And this could result in outsize financial success for Tesla.

Ultimately, I think your interpretation of whether the stock is a buy right now on the dip comes down to a simple assessment.

If you believe that shares, which trade at a price-to-earnings ratio of 58.6, are inexpensive today and that Tesla will overcome its near-term challenges and get back to posting strong growth and profitability sooner rather than later, this is a no-brainer portfolio addition.

If you don't believe these things, it's an easy decision to pass on the stock until more concrete signs of improvements are made.