Last week, electric vehicle (EV) manufacturer Tesla (TSLA +2.96%) delivered its fourth-quarter and full-year results. From deteriorating margins and shrinking cash flow due to a mix of price cuts and demand issues, to a not-so-confident outlook on the company's artificial intelligence (AI) projects, it wasn't Tesla's best moment.
Ultimately, many investors criticized CEO Elon Musk for the uninspiring report. And one prominent analyst on Wall Street did not hold back or mince his words.
Dan Ives of Wedbush Securities used the term "train wreck" to describe the conference call. He doubled down on this stance by releasing a list of 10 action items that he suggested Musk and his team could undertake in order to win back investor confidence.
With the stock already down over 20% this year, let's dig into what Ives is suggesting and assess how taking his advice could impact Tesla in the long run.
What does Dan Ives think?
After taking a couple of days to digest the earnings report, Ives took to X (formerly Twitter) to post some ideas he has for Tesla's management.
Yesterday was a dark day for Tesla (and us) but this is not the end. It's about the next chapter-how Musk/Tesla move forward at this historical moment. We will be discussing our Top 10 List for Musk to Turn Around Tesla Narrative on @CNBCClosingBell at 3 pm with @ScottWapnerCNBC pic.twitter.com/AHCGZBiccT
-- Dan Ives (@DivesTech) January 26, 2024
Many of the items on Ives' list revolve around artificial intelligence (AI). This should not come as a surprise, given the company's hefty investments in autonomous driving.
Indeed, back in October, Musk sparked some excitement among investors when he posited that AI could make Tesla the most valuable company in the world. Furthermore, with the company periodically releasing videos online showcasing the progress of its other ambitious AI projects, such as its Optimus humanoid robots, it can be hard not to buy into the hype.
Image Source: Getty Images.
What do I think?
Dan Ives is one of my favorite researchers on Wall Street. I have an immense amount of respect for the work he and his team publish. But among his 10 suggestions illustrated above, I am not aligned with the following:
- 4: Hold an AI day.
- 9: AI acquisition spree.
- 10: Provide long-term AI financial guidance.
Companies are known to produce presentations to help facilitate big announcements. Palantir did this last year to help market its new Artificial Intelligence Platform product, and Apple has historically debuted its new products during live conferences. Tesla, for its part, has hosted similar events that have garnered excitement around developments such as the Cybertruck.
However, I see hosting an AI day as immensely risky. For starters, investors already see previews of the company's AI-powered products through posts on social media. With that said, I'll admit these can be misleading -- even if those previews are being livestreamed.
If the company demos its AI products in front of an audience and it doesn't go as planned, it could be detrimental to Tesla's reputation. While these events do not need to be live, pre-recorded presentations may carry an equally negative perception.
Regarding Ives' suggestion of an acquisition spree, this one is a head-scratcher for a couple of reasons. First, Tesla has not been a historically acquisitive company. Those deals it has completed have mostly been for smaller companies that it likely pursued in order to speed up certain technology roadmaps. Sometimes, it can be more efficient to buy intellectual property rather than build it in-house.
Acquisitions of any size come with their share of challenges when it comes to integrating new employees, identifying ways to cross-sell additional services, and so on. Moreover, Ives' suggestion to specifically focus on AI deals comes with the risk of Tesla losing sight of its core mission to increase manufacturing output and sell more EVs.
Given the above, I view providing financial guidance around AI-powered services as carrying the biggest risk of all. Musk has missed deadlines time and again. While Tesla has ultimately found a way to deliver over the long term, Musk's aggressive timelines have caused some to doubt his management. Given the company's AI ambitions are still unfolding, it could be irresponsible to include the potential financial impact of these services in its financial guidance -- no matter how lucrative an opportunity they represent.
My primary concern about the points above is that all of them revolve around AI. Given that Musk himself has referred to some of the company's AI ambitions as long shots, doubling down on them right now carries a risk-reward dichotomy that may not sit well with investors. Ultimately, allocating more time toward AI at the moment could be a distraction.
Be prudent and keep expectations realistic
The item on Ives' list I support the most is his call for the board of directors to approve a share buyback. That could go a long way with investors. The caveat is that despite Tesla stock's precipitous fall post-earnings, it very well could be the beginning of a broader sell-off as more investors digest the overall picture. It's hard to know with any certainty.
And to be clear, I think the points made by Ives all carry good intentions. My view is that this list is his way of trying to get Musk and his team to bring some tighter controls and governance to the table. I can't disagree with that stance.
I think the most appropriate thing for Tesla's management would be to stay true to its long-term goal of producing 20 million cars per year. Although this is just my opinion, I think Tesla garnered a lot of support -- particularly from retail investors -- due to its core mission of moving green energy forward.
AI can be a tangent of Tesla's overall business, but right now, I think the company needs to win back investors by showcasing that it's a leading car company and that it's focused on building that business above all else. The developments surrounding AI are exciting, and I am bullish on their long-term potential. But for now, it may be best for Tesla to focus on the car business and get back to strong unit economics. The company can do this if it follows Ives' suggestion of halting its price cuts. While this alone won't turn around the entire picture, it's a good start.
