Story Stocks^®

After a reprieve last quarter in which Tesla (TSLA) snapped a streak of four consecutive EPS misses, the EV maker returned to its disappointing ways in 4Q24, missing on both the top and bottom-lines as its automotive business continues to struggle amid a fiercely competitive market. However, despite the weak results, which include an 8% drop in automotive revenue and a 350-bps dive in automotive gross margin to 13.6%, the stock has held up quite well. This resilience can be tied to investors taking a longer-term view of TSLA and its substantial, but very much unproven, growth prospects revolving around autonomous driving and the company's Optimus humanoid robots.

• TSLA's price cutting ways have been well documented for some time now and the impact of those cuts were felt once again in Q4. In China, the company lowered its prices on the Model Y SUV -- which was the best-selling vehicle of any kind in 2024 -- and in the U.S., it slashed the prices of Model Y, Model X, and Model S each by $2,000. As a result, the lower ASP's dragged automotive revenue lower, while also squeezing TSLA's automotive gross margin and profits.
• Fortunately for TSLA, easing raw materials prices and improved manufacturing efficiencies are helping to soften the blow from the price cuts. In fact, COGS per vehicle dipped below $35,000, marking the lowest level in TSLA's history. This enabled adjusted EPS to edge higher by about 3% yr/yr to $0.73.
• Another bright spot was the energy generation and storage business. Revenue in this segment soared by 113% yr/yr to $3.06 bln, helping TSLA to avoid reporting a yr/yr total revenue decline for just the third time over the past five years. Still, the modest 2.1% revenue increase was TSLA's third weakest performance over this same time period.
• Given the weak numbers for Q4, it's rather surprising to see the stock holding up as well as it has today, especially since Elon Musk signaled that vehicle growth could be muted again in 2025. It appears that the market is looking beyond 2025 and is focusing on the 2026-2028 timeframe instead -- a period that's expected to be incredibly strong, according to Musk. By the end of 2025, Musk expects TSLA to have an unsupervised FSD option available in parts of the U.S., paving the way for a more widespread release in 2026.
• TSLA also reiterated that Cybercab, the company's robotaxi vehicle, is scheduled for volume production in 2026 with tests set for many U.S. cities by the end of this year. Also, in typical Musk fashion, he made some bold claims such as TSLA ultimately being worth more than the top five companies combined, and that the company's Optimus humanoid robot may generate revenue into the trillions. 

Overall, this was another rough quarter for TSLA and FY25 is shaping up to be a transition year as this lackluster growth likely continues. Investors are brushing this off for now, though, as the lure of major growth catalysts in FY26 and beyond captivate the imagination. Whether those catalysts shift from imagination into reality remains to be seen, but TSLA could be on the cusp of entering a new, powerful growth cycle.