Earlier this week, the most-influential electric-vehicle (EV) manufacturer on the planet, Tesla (TSLA 2.13%), lifted the proverbial hood on its much-anticipated first-quarter operating results.
For years, Tesla has been the EV company that legacy automakers and EV pure plays have envied. It successfully built itself from the ground up to mass production, with nearly 1.85 million EVs produced last year. It's also the only pure-play EV company that's generating a recurring profit, based on generally accepted accounting principles (GAAP). Assuming the company is profitable on a GAAP basis in 2024, it'll mark its fifth consecutive year in the black.
But in spite of its first-mover advantages and historic outperformance of the benchmark S&P 500 over the trailing decade, Tesla's first-quarter operating results drove home (yes, more auto puns) just how uninvestable it is right now.
What follows are 10 figures that I believe clearly show why Tesla stock isn't worth your money.
Deliveries of the all-new Cybertruck have underwhelmed, thus far. Image source: Tesla.
5.5%: The company's operating margin
To start with, demand for EVs has tapered across the board at a time when EV upstarts and legacy auto companies are bringing clean-energy vehicles to market at a fast pace. A big uptick in competition, coupled with tepid EV demand, has coerced Tesla to slash the price of Model's 3, S, X, and Y on more than a half-dozen occasions since the beginning of 2023.
Over the past six quarters, Tesla's operating margin has plummeted from 17.2% to just 5.5%. Despite its first-mover advantage in the EV space, Tesla's operating margin is now lower than most legacy automakers.
28: Tesla's days of supply (inventory)
The purpose of reducing the sale price of Tesla's EVs is to keep inventory levels under control so it can ramp production. But in just three months' time, global vehicle inventory, which the company refers to as "days of supply," nearly doubled to 28 days from 15 days, as of the end of March 2024.
Even with aggressive price cuts, Tesla's inventory levels are rising at an alarming rate. This could be the impetus behind the company's decision to slash the price of its full self-driving (FSD) software to $8,000 from $12,000 last Saturday. Either way, rapidly rising inventory likely signals that more margin-crushing price cuts are on the way.
66%: Percentage of annual run-rate deliveries relative to production capacity
Another reason Tesla is wholly avoidable is its unused production capacity. Following years of claims that Tesla would have no issue ramping its production, first-quarter deliveries totaled just 386,810. This works out to less than 1.55 million EVs on an annual run-rate basis.
However, Tesla has annual production capacity of at least 2.35 million EVs at its gigafactories, including more than 950,000 EVs in Shanghai, China, over 650,000 EVs in Fremont, California, and in excess of 375,000 EVs from each of Berlin, Germany, and Austin, Texas. It's currently on pace to utilize only 66% of production capacity in 2024, which is probably why it's laying off around 10% of its workforce.
3,878: Total Cybertruck deliveries
Due to Tesla having to issue a recall on its recently launched Cybertruck to repair a faulty accelerator pedal that could become stuck in place, Wall Street and investors were able to get a bead on exactly how many of these new trucks have been delivered. The recall notice that went out to owners shows that only 3,878 have been delivered since production began in November.
The company's Texas gigafactory has the capacity to produce more than 125,000 Cybertrucks annually. But based on early demand and reservation follow-through, this new product is looking like a dud.
Negative-$2.53 billion: Tesla's first-quarter free cash flow
Slashing the price on its fleet of EVs isn't just bad for the company's operating margin. Following a long stretch of positive free cash flow (FCF) generation, Tesla delivered an abysmal $2.53 billion in negative FCF during the March-ended quarter despite only a modest uptick in capital expenditures.
Although Elon Musk proclaimed that his company would expedite the delivery of cheaper EVs to spur demand, it's undeniably worrisome that Tesla can't maintain positive FCF with a current average selling price across Tesla's lineup that's above $40,000. Further price cuts are likely to compound its cash burn.
10: The number of years CEO Elon Musk has proclaimed full autonomy to be "one year away"
During Tesla's conference call, Musk spent quite a bit of time emphasizing FSD, full autonomy, and his company's robotaxi ambitions. Unfortunately, we've been here before and learned that Musk's promises should be taken with a grain of salt.
Every year for the last decade, Elon Musk has suggested that Tesla is "one year away" from having full autonomy/Level 5 FSD. Despite these claims, Tesla is no closer to achieving full autonomy, or having robotaxis on public roads, than it was more than a half-decade prior. It's difficult to get excited about robotaxis when Tesla is still working on mastering Level 2 autonomy.
Image source: Getty Images.
51%: Percentage of Q1 pre-tax income from unsustainable sources
A deeper dive into Tesla's pre-tax income offers another reason this stock is uninvestable.
Although the company generated $1.55 billion in pre-tax income in the March-ended quarter, $442 million came from the sale of regulatory tax credits to other automakers. Further, it generated $350 million in interest income on its cash. That's 51% of Tesla's pre-tax income derived from unsustainable sources that have nothing to do with its core profit driver: selling EVs.
7%: Total sales growth from Tesla's Energy Generation and Storage segment in Q1
The Tesla growth story beyond its EV segment has significantly diminished, as well. The company's Energy Generation and Storage segment did manage a new high in aggregate sales during the first quarter, but growth slowed to just 7% on a year-over-year basis.
Additionally, while Services revenue is up, the gross margin associated with Services is an uninspiring 3% to 5% most quarters. Elon Musk would love for investors to believe that Tesla is more than a car company, but the financial statements prove him wrong.
$56 billion: The potential pay package Musk could receive
The ninth reason Tesla is completely uninvestable is the absurd $56 billion pay package Elon Musk is seeking to reinstate via shareholder vote at his company's annual meeting. In January, a Delaware judge voided Musk's previously awarded pay package worth an estimated $56 billion.
Under no circumstances should a CEO be paid 11% the value of a company's outstanding market cap -- especially when said company is now burning cash. Musk may be an innovator, but he has a lengthy history of failing to deliver on his promises and innovations. It's not worth crippling the company's future to pad his pocketbook.
63: Tesla's price-to-earnings ratio, based on consensus earnings per share in 2024
Last, but not least, Tesla stock has been getting more expensive as its share price has declined. With Wall Street's consensus earnings estimates falling, Tesla is currently trading at a lofty multiple of 63 times forecast earnings in 2024. That compares to the average auto stock that trades at 6 to 8 times full-year earnings.
The Tesla growth story looks to be over, which makes its stock completely uninvestable.
