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Tesla’s Dark Chapter Will Test Investor Patience
Tesla's December results and outlook effectively pushed back the positive inflection point in the business by a year. Now it looks to be the second half of 2025 before revenue growth will accelerate. In the near-term, shares will likely drift lower in what will be a vacuum of good news. By mid-year, details of the next-gen platform will arrive and anticipation of new models should mark a positive turning point in TSLA shares. Bigger picture: as traditional auto retreats from EVs, Tesla remains in attack mode.

Key Takeaways

2024 revenue growth will likely slow to 10% from 19% in 2023. The Osborne Effect is largely to blame.
Gross margins improved in December for the first time in a year. The bounce will likely be short lived.
The next-gen platform means Tesla can make more affordable cars at higher margins.
Other Takeaways

Another step down in growth

One of my 2024 predictions was Tesla would not announce a next-gen cheaper model. It’s looking like I’m going to be wrong. While the company stopped short of “announcing” a product, the December quarter conference call effectively introduced the first sub-$30k Tesla vehicle.

I missed this because I believed if Tesla announced an upcoming new cheaper model, the Osborne Effect would kick in and demand for Model 3 would slow this year, making a difficult 2024 meaningfully more challenging. The Osborne Effect is a  phenomenon of customers canceling or deferring orders for current products as they wait for new products to be released.

Since the company let the cat out of the bag that a new cheaper vehicle is on the horizon, it made sense that management lowered their growth outlook for 2024, calling for a “notable” slowdown in growth in 2024 compared to 2023 but stopped short of guiding to a specific growth rate. Coming into the quarterly report, consensus expectations were for 19% growth this year, in line with last year. After a day of analysts’ revisions, the Street now expects about 13% top line growth in 2024. My sense is growth this year will finish at 10%, suggesting there is still some downside to current estimates; as the first quarter progresses, those estimates will drift lower and by mid-year sell side model growth rates will be right-sized.

There is a positive side to the decline in growth this year in that it sets up for higher growth in 2025 and 2026. Musk expects that new model deliveries could start as early as mid-next year, which means the first half of 2025 growth rates will remain muted. By the back half, we should start to see a material increase in growth to around 30%, which should translate to blended growth in 2025 of around 20%. By 2026 growth should be closer to 30%.



Gross margins are central to the Tesla investment case because the metric best gauges whether the company is on track to be valued as a tech company or just another automaker. Tech companies have higher valuations because they have higher margins. Tech margins are higher because of the ability to use hardware to sell higher-margin software and services. That investment thesis is on pause for the near term.

Auto gross margins ex-credits improved quarter over quarter in December to 17.2%, up from 16.3% in September. The bad news? In 2024, I expect margins to decline given this year will continue to see investments in their next-gen platform and CFO Vaibhav Taneja’s commentary that the company is approaching a limit in cost improvements on the current platforms. This means we have to wait until the next-gen platform ramps, which will likely be in late 2025, before we see margins move back above 20%, which is still well below the peak at around 29% in mid-2022. While it may take five years to get back to those record margin levels, I believe that potential remains on the table with a combination of more efficient manufacturing and growth of higher margin FSD software revenue.


The Next-Gen Platform

Back in March, Tesla previewed the next-gen vehicle, saying they will cut assembly costs by half in future generations of cars and stopped short of revealing a timeline. Now as the next-gen vehicle was “announced”, Musk provided additional, yet minimal, color on the new manufacturing:

This is a revolutionary manufacturing system, significant -far more advanced than any other automotive manufacturing system in the world, like by a significant margin. Several years ago, I said the – perhaps the most important competitive characteristic of Tesla in the future will be manufacturing technology. And you will really see that come to bear with our next-gen vehicle.

Tesla’s new manufacturing process has been widely covered this past year, but details and are unknown. The idea is to produce more vehicles more efficiently by modularizing parts of the vehicle and sub-assembling them before putting them all together on an assembly line. The next-gen modular manufacturing approach is also termed “gigacasting”, and is much easier said than done. If Tesla is successful at gigacasting large portions of their vehicles it would further Tesla’s lead in producing profitable EVs.



This earnings call provided us with several “other” takeaways outside of the normal major business updates:

Cybertruck: The demand for Cybertruck is “off the hook”. Musk noted that production remains the bottleneck and they will sell every Cybertruck that is produced. Furthermore, Musk said he could raise pricing on early Cybertrucks to meet demand but opted not to. While acknowledged on the call, it’s important to note the Cybertruck was 25% more expensive than anticipated when released. In terms of production, the goal is to produce 250k or more per year starting in 2025. I believe it will be by 2026, a year behind the Street.

Optimus: Musk says Optimus could ship later next year, but based on this track record this would imply 2030 at the earliest (i.e., FSD). While it’s a science project today, Elon is onto something when it comes to the bot’s potential. When I think about how the world works, we move around in vehicles to get to and do work. These will be the two best robot form factors:

  1. A car to navigate roads
  2. A humanoid because all of our work is designed around humans. Elon says Optimus could ship next year, based on this track record would imply 2030 at the earliest.

FSD: While not addressed on the call, the investor deck did have a chart that outlined FSD miles driven to date, and that growth rate has slowed over 2023. Looking back, quarter over quarter autonomous miles driven growth was 100% in June, 73% in September, and 44% in December.

If we were at the cusp of an autonomous ChatGPT breakthrough moment, the sequential growth in the number of miles driven would more likely be stable and doubling every quarter.  Musk has been projecting FSD availability since 2017, and his prediction that we remain a year out remains unchanged.

Taxes: Taxes are going to rise from about 10% to about 25%. There’s no impact on cash taxes since this is basically an accounting change. High-reported taxes will negatively impact how Tesla will screen for some investors.


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