Why Tesla Stock Fell After Record Earnings

Against all prior expectations, electric vehicle manufacturer Tesla encountered a substantial 11% drop in its share price while unveiling news of unprecedented profits and a slew of uplifting developments.

In fact, the firm reported a top line of $24.9 billion for the second quarter of fiscal 2023, marking a 47% increase year-on-year. This revenue acceleration was a rebound from the previous period, where its sales growth was much less vigorous at just 24%, leading TSLA to implement drastic price reductions across the board.

However, these reductions weren’t without consequence; Tesla’s gross margin plummeted 682 basis points to 18.2%, while the outfit’s operating fraction fell a little less dramatically from 14.6% to 9.6%. However, despite the margin shrinkage, the corporation’s operational cash flow swelled 30% to $3.07 billion.

Moreover, from a production point of view, the venture created over 920,000 units and delivered 889,000, showcasing an enviable rate of throughput in all of 2023.

Indeed, TSLA’s strategy is a calculated gamble for ensuring growth. By slashing prices, it’s aiming to boost consumer demand and escalate production. While this approach results in short-term profit contraction, it’s expected to bolster the long-term worth of the enterprise.

Although this decision has led to decreased profitability, it has also allowed Tesla to stay on track with its trajectory for expansion. The company has communicated to stakeholders its aim to achieve a consistent annual growth rate of 50% in the future, and it appears willing to embrace reduced earnings in order to secure this aspiration.

All that said, the market wasn’t impressed. Yes, there are other issues weighing on investors’ minds – the delays to Tesla’s much-hyped Cybertruck and what Musk calls “turbulent times” – but a decrease to the bottom line is an insult very few shareholders will overlook.

Is Dojo The Catalyst That TSLA Urgently Needs?

As Tesla’s in-house supercomputer project, Dojo is designed to train artificial intelligence (AI) systems for autonomous vehicle navigation. It’s a high-octane machine anticipated to handle colossal volumes of video data at unparalleled speeds.

In fact, Elon Musk has already portrayed the platform as a powerhouse in terms of processing capacity; it is engineered to consume enormous volumes of video data – a vital component in creating a robust autonomous driving system – and the supercomputer is projected to drastically expedite Tesla’s journey toward achieving full self-driving capabilities.

To carry out its work, Dojo employs a distinct architecture that distinguishes it from its counterparts. It uses a 7nm process node and boasts a high-speed, low-latency fabric that interlinks the GPUs. This facilitates efficient scaling, empowering the system to manage vast data volumes effortlessly.

Moreover, the supercomputer’s architecture is tailored to optimize video data processing, a critical element in training AI for autonomous navigation. By processing more data at a higher velocity, Dojo can aid Tesla’s AI in learning and enhancing more rapidly, potentially resulting in safer and more dependable autonomous driving systems.

Likewise, the ability to analyze visual images is vital, as this functions as the eyes of an autonomous car, providing a complete perspective of the vehicle’s environment. It presents a diverse mosaic of specifics, capturing everything from other automobiles and individuals on foot to road indicators and traffic signals. It’s these elements that a self-driving car needs to comprehend and engage with to navigate the roads safely. The role of Dojo in this process is to interpret this data, enabling the AI to accurately understand its environment and make informed driving decisions.

Dojo’s prowess has been juxtaposed with other supercomputers, especially those harnessing Nvidia’s GPU chips. While Nvidia’s are prevalent in numerous supercomputers, Tesla’s choice to develop its own for Dojo could give the company a significant edge.

For example, by creating its own microprocessors, Tesla gains greater control over design decisions, enabling it to customize the hardware specifically for AI training. This could result in more efficient processing and quicker training periods, giving Tesla a competitive advantage in the race toward complete autonomy.

The advent of the supercomputer as a functioning piece of machinery could have profound implications for Tesla’s business. Firstly, it could hasten the company’s advancement towards full self-driving, a target integral to Tesla’s vision from the outset. Realizing this could endow Tesla with a competitive edge in the automotive sector.

Secondly, Dojo could unveil new revenue avenues for Tesla. Musk has alluded to the prospect of offering its know-how as a service to other companies, which could generate additional revenue for the business.

Undoubtedly, Dojo signifies a major leap forward in Tesla’s quest for full self-driving technology. Its unique architecture and potent processing faculties could expedite the evolution of autonomous driving systems, potentially revolutionizing the future of transportation. And as Tesla continues to push the envelope of technology, the world – and the firm’s shareholders – eagerly await to see what the future unfolds.

Is Tesla A Buy?

There’s a sense that TSLA’s walking a precarious tightrope regarding its pricing strategy. Sure, its unit sales will go up quite dramatically in the short term, but there’s a toll to be paid in profits further down the line.

Worryingly, that toll looks like it’s starting to bite – profitability is down, and it’s anyone’s guess whether Tesla’s vision of 50% year-on-year growth can be maintained.

Ultimately, the stock is valued at a premium at 75x its forward earnings. And with narrow margins and uncertainty ahead, it’s probably best to sit this one out.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.