A ride on the Tesla roller coaster

Zacks Rank #4 (Sell) stock Tesla (TSLA) will report fourth-quarter earnings after Wednesday’s close. Over the long term, Tesla, a leading electric vehicle manufacturer, has been one of the best-performing stocks since its IPO in 2010, rewarding shareholders with an average compound annual return of ~42%. But the company’s stock has been on a rollercoaster ride for shareholders since 2020 amid concerns about tariffs, reputational damage, increased competition and a slowing electric vehicle market. Nevertheless, despite the noise, Tesla shares have quadrupled since a low of $100 in slow 2023 and are hovering near all-time highs as earnings approach.

Tesla Q4 EPS Details

• When: Wednesday, January 28^vol after the stock exchange closes.
• EPS estimates: Wall Street consensus estimates call for EPS of $0.45 (down 40% year-over-year) and revenue of ~$24.75 billion.
• Alleged/average traffic: The options market implies a post-market move of +/- USD 29.56, or 6.58%. Meanwhile, Tesla has seen an average move of 9.64%, with five moves down and three moves up over the last eight quarters.
• EPS surprise history: Over the last four quarters, Tesla has surpassed the Zacks analyst estimate by 11.10%.

Tesla: Why is the current electric vehicle business fading into the background?

Tesla’s existing electric vehicle business accounts for about three-quarters of its total revenue stream. However, unlike previous years, Tesla investors are unlikely to focus too much on this result for three reasons:

• The bad news is already included: With the expiration of the federal tax credit for electric vehicles, the slowdown in sales has already been priced into TSLA stock.
• Interest rates are expected to fall: Higher interest rates have led to a slowdown in the entire electric vehicle business. However, due to the expected decline in interest rates later in the year, the unfavorable phenomenon will be alleviated.
• Diversification beyond existing EV business: Tesla is diversifying its revenue sources beyond its existing electric vehicle business.

Tesla: Key Factors Affecting Earnings

Unlike classic electric vehicle makers, Tesla’s stock has always traded at a premium due to its ability to innovate. Although companies like it Ferry (F) i General Motors (GM) are one-dimensional, Tesla has dramatically expanded its product offering in recent years. Below are three key areas worth paying attention to.

Tesla Energy: Tesla’s most underrated business segment. Amid rising demand from energy-hungry data centers, Tesla Energy is seeing solid growth of 84% year-over-year. As AI development gathers pace, Tesla Energy is well-positioned to achieve triple-digit growth over the next few years. In addition to sturdy growth, Tesla Energy’s gross margins are expanding and reaching recent highs.

Tesla/FSD Robotaxi: Tesla’s robotxi network is finally being tested in two cities: San Francisco and Austin. Investors are betting that if Tesla can prove that its fully self-driving service is safer than the average person, it can win regulatory approval and expand nationwide, providing a significant recent source of revenue. From that perspective, Tesla just received some welcome news. Third party data from an AI insurer Lemonade (LMND) shows that the Tesla FSD is 2 times safer than the average human driver, prompting the company to offer Tesla FSD users a 50% discounted insurance rate. The lemonade data will lend a hand substantiate Tesla’s claims about FSD safety.

Optimus timeline: Elon Musk predicts that Tesla’s humanoid robot “Optimus” will eventually become Tesla’s best-selling product. For now, Optimus is scheduled for release next year. However, any update to this schedule will have an impact on the market.

Half-Tesla: Tesla’s long-delayed “Semi” truck is expected to enter mass production later this year. On Tuesday, Tesla struck a deal with Pilot Travel Centers to install 35 charging stations across the United States

Conclusion

While Tesla’s existing electric vehicle business faces headwinds, the company’s long-term value will depend on the success of its energy, autonomous vehicles and humanoid robots businesses. As Tesla edges closer to profits, investors will focus on whether Elon Musk’s ambitions for a diversified tech ecosystem can offset the current slowdown in its electric vehicle business.