Number shock at e-car pioneer: This is what Tesla’s future looks like

At first glance, Tesla’s numbers seem, if not good, at least somewhat tolerable. Earnings per share were 71 cents, slightly below the 73 cents analysts had forecast. However, thanks to its clever behavior, Tesla had significantly lowered analysts’ expectations in advance. And even these lowered expectations were missed. Additionally, business developments over the next few quarters are likely to be less than encouraging.

Things won’t get better in the next few quarters

Because Elon Musk’s company warned that there would be a serious slowdown in sales growth this year. Tesla also had to report another decline in gross margin compared to the same quarter last year as the company lowered prices to stimulate demand. This means the margin appears to be well below 10 percent.

What this means for the future is that Tesla is unlikely to achieve the super margins many expect in the long run. Because the star company is suddenly exposed to pressure from its competitors, especially the Chinese car manufacturer BYD. For this reason, the number of cars sold is likely to remain below expectations. This is a very dangerous development for the share price.

To justify its current share price of around $200, Tesla would need to become the world’s largest vehicle maker and generate sales of more than $350 billion by 2033 (nearly as much as VW and Mercedes combined now produce).

But this is not enough. At the same time, Elon Musk must manage to consistently maintain high operating margins of around 16 percent. However, a year ago “Handelszeitung” pointed out that Tesla’s margins were likely to come under pressure. This has been confirmed. It’s hard to imagine Tesla returning to high margins in 2022, given the trend.

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Even if Tesla could grow sales to $350 billion last year with an operating margin of 9.2 percent, that would justify a share price of about $100, or only half the current price. So there’s plenty of room down there.

Now Tesla has pointed out that the company is currently between two waves of growth. The declining growth wave was based on models 3 and Y. New models and Cybertruck will ensure the next wave of growth. But new models are also likely to suffer from increasing competition from companies like BYD and Toyota. The Japanese announced a major push into electric vehicles last summer. And it seems unlikely that the Cybertruck will improve the numbers by much. There are three main reasons for this:

• Production of Cybertrucks It is more complex than other models. So, despite smart design decisions and targeted pricing, margins will be lower than on top in-house models.
• A factory in Texas already produces Cybertrucks. However, their production capacity is only 125,000 vehicles per year. If demand for Cybertrucks exceeds this figure, special production facilities required. This will require additional investment and cause associated risks. If it later turns out that demand for cybertrucks has dropped significantly after the initial excitement, the value of this investment will be destroyed. However, if you decide against building Cybertruck factories, the truck may not meet sales expectations due to production bottlenecks.
• It is likely that there will be a significant number of buyers who prefer the Cybertruck over the traditional Tesla model. So some of the demand for the truck will come from Tesla’s own buyers. Based on these cannibalization It’s unlikely the Cybertruck will make a big jump in sales, which is still discounted at the current price even after yesterday’s setback.

The expected pink future has a low chance

Of course, it is debatable whether the arguments listed here truly give Tesla the value it deserves as a company. Finally, some factors were not taken into account. For example, we can say that the battery division is growing much faster than expected and this is how Tesla can justify its share price. Or new models generate so much excitement that there is actually a new wave of sales growth despite increased competition. It is also possible for Tesla to transform into an artificial intelligence company or reach new heights thanks to driverless cars.

But so far these are hopes that are not reflected in the numbers. This is not surprising, because Tesla is the epitome of a company whose prices are based mainly on hopes and not so much on profits made. In the past, stock buyers primarily evaluated Tesla’s future, and that future was painted very rosy.

Of course, it is not completely impossible for this bright future to come true. However, especially looking at the latest margin and revenue figures, the chances of this happening seem slim. The conclusion is that everything must go perfectly in practice for the electric vehicle manufacturer, otherwise this course of events cannot be justified in fundamental terms. Risk-conscious private investors should either avoid Tesla altogether or exercise extreme caution. In any case, it is important to keep a close eye on business developments if you want to bet on this superstar company.