Taking a look at Tesla in the wake of earnings

Tesla (TSLA) is back in focus again...

The electric-vehicle ("EV") maker reported first-quarter earnings after the market close yesterday, and the stock jumped as much as 9% this morning.

(The full shareholder deck is here, and here's the story from the front page of today's Wall Street Journal: Tesla Profit Sinks, Hurt by Backlash Over Elon Musk's Political Role.)

So today, let's take a closer look at the report and the stock's valuation...

Revenue was $19.3 billion – down 9% year over year ("YOY"). Automotive revenue in particular tumbled 20% due to global vehicle deliveries falling 13% as well as heavy discounting.

This was offset by a 67% YOY jump in energy generation and storage revenue, as well as a 15% increase in "services and other revenue."

Meanwhile, gross margin decreased YOY from 17.4% to 16.3%, while operating expenses were up 9%. This resulted in operating income declining 66% YOY, as operating margin fell from 5.5% to 2.1%.

Adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") fell 17% YOY, and adjusted earnings per share ("EPS") fell 40% to $0.27, missing estimates of $0.41.

Note that these figures would have been worse, but Tesla redefined its adjusted earnings to exclude $97 million of mark-to-market losses in the company's bitcoin holdings in the first quarter, whereas it previously had included these gains throughout 2024 ($261 million in the first quarter last year). Tesla disclosed this in the footnotes and adjusted all prior periods to account for this sleight of hand...

Operating cash flow of $2.2 billion looked good on a YOY basis – as last year's first quarter was weak, at only $242 million. And capital expenditures declined from $2.8 billion to $1.5 billion YOY. That resulted in free cash flow ("FCF") rising from a $2.5 billion loss to a $664 million gain, and a slight increase in cash to about $37 billion.

Reviewing Tesla's key metrics over the past three years, it's hard to see much overall growth – and the recent trends have been poor. Here are the exact tables from the shareholder deck on page 23:

 So why is the stock up today and pretty much flat over the past three years, as you can see in this chart?

To answer this, I checked in with my analyst and longtime Tesla bull Kevin DeCamp...

Regular readers will recognize Kevin's name – I frequently share his insights when it comes to Tesla and EVs.

As Kevin told me in a private e-mail, the most important thing in the first quarter was an "unprecedented simultaneous changeover of the Model Y lines globally as Tesla began producing a significantly upgraded version."

The Model Y car accounts for about two-thirds of Tesla's total production and was a top seller globally last year. In his e-mail to me, Kevin also noted that:

As you can imagine, this meaningfully impacted Tesla's production: as the CFO mentioned in the last earnings call, "This changeover will result in several weeks of lost production in the quarter. As a result, margins will be impacted due to idle capacity and other ramp-related costs, as is common in any launch, but will be overcome as production is ramped."

Kevin also said that this reduced demand, as buyers waited for the upgraded model. And as he continued in his e-mail:

Shockingly (or not), however, the major press outlets have been attributing Tesla's "plummeting" demand to Elon Musk's involvement with DOGE and the Trump administration – for example, see this Heard on the Street column in today's WSJ: Tesla Has a Deep Hole to Pull Out Of.

This narrative is understandable given all the Tesla protests and vandalism that has occurred (by people who apparently haven't heard of Tesla's "Sentry Mode," which records their acts). Even Musk acknowledged in an interview that Tesla dealerships getting firebombed isn't good for sales – who would have thought? However, given the major changeover in lines for its highest volume product, I think it's still too early to fully assess how much brand damage Tesla has suffered.

Kevin concluded by outlining why he remains bullish on the stock.

He says that although the company's first quarter looked like a "financial disaster on the face of it," Tesla nailed the global Model Y transition... generated positive FCF... and has $37 billion in cash to fuel its ambitions. As he also said in his e-mail:

Investors were also relieved to hear during the conference call that Musk's time allocation to DOGE, starting next month, "will drop significantly" and that Tesla's planned robotaxi launch in Austin, Texas in June remains on track. Combined with the continued ramp of the Model Y, these positive catalysts should help the company get back on track.

The stock was up slightly in extended trading hours after the earnings release, but rallied more significantly with the rest of the market on the positive macro news related to China and the trade war. I expect the stock to continue being heavily affected by macro factors until we get more visibility on true sales trends, progress on artificial intelligence and robotics, and the success of the robotaxi rollout in Austin.

And looking ahead, Kevin says that considering the significance of autonomous vehicles for Tesla's future, the second quarter could be "one of the most important of this decade."

Thank you as always for your insights, Kevin!

Turning to valuation...

At a recent price this morning of around $256 per share and 3.5 billion diluted shares outstanding, that gives the company a market cap of roughly $896 billion and, with $30 billion of net cash, an enterprise value ("EV") of $866 billion.

With trailing revenue of $95.7 billion and adjusted EBITDA of $15.5 billion, it's trading at about roughly 9 times EV to revenue and about 55.8 times EV to EBITDA.

And with $2.11 of trailing adjusted EPS, that gives the stock a staggering price-to-earnings multiple of around 121 times.

I've said many times that Tesla is a powerful company with open-ended opportunities in some of the world's largest end markets.

As such, I still don't recommend shorting the stock. However, it's also light years away from a price at which I would consider buying.

Rather than trying to be a hero by picking a side, you're better off sitting back and enjoying the show...

Best regards,

Whitney

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