After a rough start to the year, Tesla (TSLA +0.69%) stock is suddenly bouncing back. As of this writing, the growth stock has risen more than 20% from lows last week. The big rise comes as investors hunt for bargains in some of the market's hardest-hit names. But while the rebound may feel encouraging, it's not clear that it reflects a change in Tesla's underlying business trends.
Tuning out the stock's noisy volatility, let's look at the underlying fundamentals to see if this is really a dip worth buying.
NASDAQ: TSLA
Key Data Points
Tesla's growth has nearly halted... for now
The electric car maker's most recent earnings report, released in late January, painted a picture of a business facing significant headwinds. Revenue for the fourth quarter came in at $25.7 billion, up just 2% from year over year. A high interest rate environment has made vehicle affordability difficult, and Tesla hasn't escaped this challenge.
The anemic growth rate Tesla saw in Q4 was about in line with the company's unimpressive full-year revenue growth rate of 1%. These low growth rates are a far cry from Tesla's 19% growth in 2023 and its 51% growth in 2022. No wonder investors punished the stock earlier this year. This has been a notable downshift for a company long viewed as a hypergrowth story.
Reflecting this more subdued growth story, Tesla has changed the wording of the "outlook" section of its earnings reports over the last few years. In 2022, Tesla told investors that it aimed to continue growing production at a 50% compound average growth rate, with some volatility in the growth rate expected in some years. By 2023, however, Tesla changed the section to educate investors about how the company is "currently between two major growth waves" as the company prepares its "next-generation vehicle platform." But the company's 2024 outlook is perhaps the most conservative. It no longer mentions the "growth waves" and instead simply says that Tesla expects its vehicle business to "return to growth" in 2025. Of course, Tesla did note that it expects its energy storage business to increase deployments by about 50% this year -- and given this segment's recent momentum, this seems achievable.
To be fair, investors should welcome Tesla's shift toward more conservative guidance. There's no reason to put the cart before the horse. Still, it's clear that Tesla doesn't expect to return to spectacular growth rates any time soon, and investors shouldn't either.
The real issue is valuation
Given both Tesla's history of product execution and the company's current product pipeline, the company will almost certainly see its growth rate reaccelerate in the coming years. Two products likely to launch soon, for example, include an autonomous ride-sharing network and more affordable Tesla models. The company has said it will launch its ride-sharing network in Austin this summer and that it will launch more affordable vehicle models this year. Both these could be major catalysts for Tesla's sales.
On top of these catalysts for Tesla's core automotive business, the company has incredible momentum with its energy storage products. Energy storage deployments in Q4, for instance, rose 244% year over year to 11 gigawatts. Though this growth rate will likely come down in 2025, it's reasonable to expect at least 50% growth in deployments during the period. Finally, there's Tesla's more speculative product plans for humanoid robots.
The problem, however, is that Tesla's stock may have already priced in a reacceleration. Shares trade at 134 times earnings. Given the capital-intensive nature of the automotive business and the speculative nature of the company's product plans, it's fair to say that this premium might be too high.
Of course, there's always a chance that Tesla executes better than I expect. It wouldn't be the first time if it did. The company's staggering growth in its first decade as a public company, after its initial public offering (IPO) in 2010, far exceeded even the most bullish analysts' forecasts. Of course, we're dealing with a much bigger Tesla now -- one with a market capitalization of nearly $900 billion. But this doesn't mean we should rule out the possibility of returning to mind-blogging growth rates. Nevertheless, investors should at least proceed with caution, especially with the company expected to release its Q1 delivery numbers next week. If quarterly deliveries come in meaningfully worse than expected, shares could take a hit.
