Down 35% year to date, Tesla's (TSLA +2.45%) stock has been in a tailspin as challenges like high interest rates and softening electric vehicle (EV) demand weigh on its business performance. That said, investor sentiment seems to be improving following the company's first-quarter earnings call, when CEO Elon Musk outlined his vision for the future.
Will the controversial billionaire over-promise and under-deliver, or is this the start of another sustainable bull run? Let's dig deeper to find out what the next five years could have in store for Tesla's stock.
First-quarter earnings weren't impressive
With Tesla's stock price up by almost 20% since earnings were released on April 23, casual observers can be forgiven for assuming its operational results were good. They weren't. In fact, they were the opposite. Sales slumped by 9% year over year to $21.3 billion, while earnings per share (EPS) of 45 cents missed the analyst consensus of 51 cents.
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On the whole, Tesla is selling fewer cars for less money. And this has a lot to do with macroeconomic challenges like high interest rates, which erode demand for new vehicles by making financing less affordable. Management has attempted to address this challenge with price cuts across the company's lineup. But while these efforts have probably limited the sales decline, they are also eroding Tesla's once-high operating margins, which fell from 11.4% to just 5.5% year over year.
CEO Elon Musk suggests that Tesla is not just a car company. However, automotive sales represented around 86% of its first-quarter sales. And while verticals like energy storage and services posted modest growth rates (7% and 25%, respectively), it wasn't enough to move the needle.
Tesla isn't a car company -- or is it?
With operational results in a tailspin, Tesla's recent stock price surge can only be explained by investor confidence in Elon Musk's ability to navigate the storm. In the first-quarter earnings call, the controversial billionaire highlighted Tesla's long-term strategy, which will include the accelerated rollout of more affordable options as soon as early 2025.
More importantly, Musk claims the new vehicles will use Tesla's existing Model 3 production lines, meaning less supply chain complexity than novel platforms like the Cybertruck, which had to overcome substantial production delays and cost overruns. Musk is also emphasizing Tesla's potential in autonomous driving with a robotaxi, which he plans to unveil in August.
Analysts at UBS predict the autonomous taxi market could be worth a whopping $2 trillion by 2030. And this would certainly be enough of an opportunity to make Tesla's traditional EV business a distant afterthought. But it is still unclear when (or even if) the technology will be ready for widespread adoption.
What will the next five years have in store for Tesla?
Tesla's history gives us a very clear lesson: Don't bet against Elon Musk over the long term. The company has returned over 900% under his visionary leadership over the previous half-decade, and he shows no signs of dropping the ball anytime soon.
That said, Musk also has a track record of overpromising and underdelivering. The executive has frequently pushed back his timelines for full-self-driving cars, and produced vehicles (such as the Cybertruck) with dramatically higher selling prices than expected. With this in mind, I think investors are placing too much faith in his most recent remarks. And with a forward price-to-earnings (P/E) multiple of 63, Tesla's valuation is beginning to look elevated considering its deteriorating fundamentals.
Tesla remains a great way to bet on Musk's leadership and potential to transition from automotive dependence. And it looks likely to outperform the market over the next five years. However, the present looks grim, and investors may want to wait for a lower price before buying the stock.
