A look at Tesla's earnings report and current valuation; Bullish vs. bearish case for Tesla

Yesterday, I took a look at Meta Platforms' (META) latest earnings and valuation. And today, I'll do the same with fellow Magnificent Seven stock Tesla (TSLA)...

The electric-vehicle ("EV") maker reported fourth-quarter earnings after the market close on Wednesday, and the stock jumped 3% yesterday. (The full shareholder deck is here, and here's the Wall Street Journal's summary: Tesla Caps Roller-Coaster Year With Mixed Fourth-Quarter Earnings.)

Revenue was $25.7 billion, up a measly 2% year over year ("YOY") and badly missing estimates of $27.3 billion. Automotive revenue in particular fell 8% due to heavy discounting. This was offset by a 113% jump in energy generation and storage revenue, as well as a 31% increase in "services and other revenue."

Meanwhile, gross margin decreased YOY from 17.6% to 16.3%, while operating expenses rose 9%. This resulted in operating income declining 23% YOY, as operating margin fell from 8.2% to 6.2%.

Adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") grew 25% YOY, though adjusted earnings per share ("EPS") only grew 3% to $0.73, missing estimates of $0.75. Over the last three years, full-year EPS has fallen from $4.07 to $3.21 to $2.42.

Operating cash flow rose 10% YOY, while capital expenditures rose 21%, resulting in free cash flow ("FCF") declining by 2% to $2 billion.

In summary, the company's top- and bottom-line growth was tepid and missed expectations – so why was the stock up yesterday?

To answer this, I checked in with my analyst Kevin DeCamp – a longtime Tesla bull – who told me in a private e-mail:

I think the rally indicates that not only has Elon Musk successfully shifted the narrative on the company from an EV manufacturer into a full-blown transportation, energy, AI, and robotics company, but also "Mr. Market" is starting to recognize the rapid progress Tesla is making with its latest version of Supervised Full Self-Driving ("FSD").

Elon was fired up on the conference call and made some wild updates and predictions:

• The Model Y was the best-selling car of any type globally in 2024.
• Massive Tesla Energy growth.
• Tesla will launch Unsupervised FSD (robotaxi) service in Austin, Texas this June and in California and other states late this year.
• High confidence that Unsupervised FSD will be available everywhere in North America in 2026.
• Owners will be able to add their own vehicles to the Tesla robotaxi fleet sometime next year.
• Lots of interest in licensing FSD from legacy automakers.
• "I think the interest level to license FSD will be extremely high once it is obvious that, unless you have FSD, you are dead."
• "When people look back on 2025 and the launch of Unsupervised FSD... it will be regarded as the most important year in Tesla's history."
• Mass production of the Optimus humanoid robot will begin this year, reaching 10,000 per month of version 2 by mid-2026.
• Optimus will eventually be the overwhelming value of the company.
• "We made many critical investments in 2024 in manufacturing, AI, and robotics that will bear immense fruit in the future, immense. In fact, to such a scale that it is difficult to comprehend."
• "There is a path where Tesla is worth more than the next top five companies combined."

Kevin concluded:

As a longtime Tesla bull who has been disappointed in the past with Musk overpromising on robotaxis, you'd think I would be sick of hearing this bullishness. However, I share his enthusiasm because I've experienced the progress myself and I believe him this time 100%. Go see for yourself with a test drive – all new Tesla vehicles have the capability (Supervised FSD).

I wrote after last quarter's earnings that a "car company should never be trading at a $875 billion market cap, but it's much more than a car company." Now, it's valued at $1.4 trillion, so maybe I was on to something? Or maybe the market likes that, in just a few months, Musk went from being targeted by a handful of federal agencies to having an office in the White House? That certainly helps, but it's not worth $525 billion...

In light of the recent news from Chinese AI company DeepSeek, consider how many companies are competing for the LLM (large language model) AI crown – Meta, Microsoft (MSFT), OpenAI, Alphabet (GOOGL), Amazon (AMZN), xAI, etc.

Now, try to think how many companies compete with Tesla in AI and robotics? How many have the fleet of cars, video data, and the manufacturing capability of Tesla? How many have a leader like Elon Musk? Tesla has laid the groundwork over the last decade to be the runaway leader in this enormous market that indeed is "difficult to comprehend."

I think it's clear that the market is finally starting to give Tesla credit for its AI and robotics, but I am confident that Wall Street is still highly underestimating its potential – and that's exactly the type of set up I like.

Thank you as always, Kevin!

For the bearish case, I turned to two sources: a friend who prefers to remain anonymous and Mark Spiegel of Stanphyl Capital. They both had a lot to say on social media platform X on Wednesday night after earnings came out... I've summed up their thoughts below:

• Tesla missed every important metric in the fourth quarter, reported no growth, and margins are down – yet the stock is up.

• The chief financial officer claimed "2025 will be a pivotal year for investments" while simultaneously saying "capex will be flat." He also implied margins will continue to decline this year.

• The company didn't reiterate its 20%-to-30% guidance from last quarter, only saying that guidance would be "up" – implying a number below 20%.

• Tesla claims it's going to offer robotaxi rides to paying customers in less than five months, despite having done zero autonomous testing on public roads.

• Musk's comments confirm that Tesla will launch what is essentially a geofenced ride-hailing fleet under teleoperation supervision – which is how Waymo operates. This contradicts the fact that Tesla has claimed it won't compete with Waymo.

• Musk's comments reveal that Tesla is disadvantaged at training FSD in China, so it's unlikely to be able to compete with domestic Chinese EV companies.

And finally, there's valuation...

At the recent price of around $400 per share and 3.5 billion diluted shares outstanding, that gives the company a market cap of $1.4 trillion and, with $29 billion of net cash, an enterprise value ("EV") of $1.37 trillion.

With trailing revenue of $97.7 billion and adjusted EBITDA of $16.6 billion, it's trading at 14 times EV/revenue and 82.5 times EV/EBITDA.

And with $2.42 of trailing adjusted EPS, it has a price-to-earnings multiple of (I hope you're sitting down) 165 times.

To be clear, Tesla is a great company with open-ended opportunities in some of the world's largest end markets, so I wouldn't recommend shorting the stock... But it's also light years away from a price at which I would consider buying.

You're better off popping a bowl of popcorn, sitting back, and enjoying the show...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.