Financial Report Outlook | Automotive business under pressure, will Tesla, Inc. (TSLA.US) high valuation be supported by the narrative of "AI and Energy"?

Tesla, Inc. (TSLA.US) will announce its latest quarterly earnings on Thursday morning Beijing time (Wednesday after US stock market close). The company continues to spark intense debate and remains one of the most controversial and closely watched stocks in the market. Investors' views on Tesla, Inc. are almost polarized, with either extreme adoration or extreme aversion. Some expect the stock price to plummet significantly, while others anticipate hefty returns. There are many questions surrounding Tesla, Inc. Is it an automotive company, or a technology company? How much potential does it have in the field of Full Self-Driving (FSD)? Will it become a market leader, or just one of many competitors? And what about its valuation? Some believe the company's valuation is too high, especially if it is considered as an automotive company. Since hitting bottom in April 2025, Tesla, Inc. stock price has been on a strong upward trend. Before a recent pullback, its stock price had already risen by over 100%. Performance Review: Third-quarter revenue reaches record high, but rising costs overshadow its shine Tesla, Inc. reached a record high in third-quarter performance, with deliveries reaching 497,099 vehicles and revenue reaching $28.1 billion, a 12% year-on-year increase. However, the strong delivery numbers masked potential demand challenges: it is estimated that at least 50,000 vehicles were sold before the end of the third quarter as consumers rushed to take advantage of the federal electric vehicle tax credit before it expired on September 30. Increased sales promotion and research and development project expenditures in the third quarter led to a 50% year-on-year increase in operating expenses to $3.4 billion, shrinking the operating profit margin to 5.8%. Earnings per share (EPS) decreased by 31% year-on-year to $0.50, below market expectations. The energy storage division of the company performed exceptionally well, with installed capacity reaching a record 12.5 GWh, an 81% year-on-year increase. The division's revenue reached $3.4 billion, gross profit reached $1.1 billion, far exceeding the automotive division. The company expects capital expenditures in 2026 to significantly increase from approximately $9 billion in 2025, primarily for artificial intelligence infrastructure, including the OptimusSiasun Robot & Automation project. Despite the increased expenditures, Tesla, Inc. achieved a record of approximately $4 billion in free cash flow in the third quarter, bringing its total cash and investments to over $41 billion, providing ample financial flexibility for its artificial intelligence development. What aspects to focus on during the fourth-quarter earnings call? Slowing growth momentum in fourth-quarter delivery data Weak delivery numbers may put pressure on Tesla, Inc.'s automotive business revenue and profit margins. However, the company's energy generation and storage business are expected to partially offset this unfavorable impact. With strong market performance of Megapack and Powerwall products, Tesla, Inc.'s energy business has been performing well. Tesla, Inc. delivered 418,227 vehicles in the fourth quarter, a 15.6% year-on-year decrease, below analyst expectations. The full-year delivery forecast for 2025 is expected to be 1.636 million vehicles, an 8.6% decrease from 2024, marking the company's second consecutive year of declining sales. Chinese competitor BYD Company Limited has surpassed Tesla, Inc. to become the world's largest pure electric vehicle manufacturer, with an expected delivery of 2.26 million vehicles in 2025. Energy storage is one of the few bright spots, with a record deployment volume of 14.2 GWh in the fourth quarter. Overall, Tesla, Inc. deployed a total of 46.7 GWh in the year, a 49% year-on-year increase, making energy an increasingly important profit-driving factor for Tesla, Inc. Analysts generally predict that revenue from the "energy generation and storage" business will reach $3.66 billion, a 19.7% increase from the same period last year. Analysts widely expect that, given the decline in delivery volumes, the company's revenue will shrink. The increasingly fierce competition is also putting significant pressure on profit margins, with expectations that this will further lead to a decline in profitability. The following are the forecasts made by LSEG analysts: Fourth-quarter revenue in 2025: $24.78 billion (a 3.6% year-on-year decrease) Revenue for the full year 2025: $949.6 billion (a 2.8% year-on-year decrease) Fourth-quarter non-GAAP earnings per share in 2025: $0.44 (a 39.4% year-on-year decrease) Non-GAAP earnings per share for the full year 2025: $1.63 (a 32.8% year-on-year decrease) Fourth-quarter operating profit margin in 2025: 4.58% (a 368 basis point year-on-year decrease) Operating profit margin for the full year 2025: 5.21% (a 408 basis point year-on-year decrease) Regional performance and strategic positioning The European market poses the biggest challenge for Tesla, Inc., with a forecast by Electrek predicting a 27.8% decline in sales in Europe for Tesla, Inc. in 2025, to 235,322 vehicles. Management's comments on European demand trends and the impact of CEO Elon Musk's political activities will be closely watched. In China, despite having mature local production capacity, Tesla, Inc. continues to lose market share and faces increasing competition from domestic manufacturers. Analysts forecast "automotive sales revenue" to reach $17.97 billion, indicating a 3.7% year-on-year decrease. Profitability trajectory and margin outlook Investors will be watching to see if the energy business can offset the softness in the automotive business, as the gross profit margin of the automotive business is under pressure from price competition and declining production volumes. With the cancellation of regulatory credit revenue due to violations in emission standards, regulatory credit revenue is expected to continue to decrease, as this historically high-margin revenue source will no longer exist. FSD Monetization Progress Last year, Full Self-Driving (FSD) technology was launched in Australia and New Zealand, with plans to expand to China and Europe pending regulatory approval. Musk recently announced that FSD will transition to a subscription model after February 14, with new users having to pay a monthly subscription fee of $99, instead of the previous one-time $8000 payment. This move aligns with Musk's $1 trillion compensation plan target of 10 million active FSD subscription users. Currently, FSD has only a 12% adoption rate in the fleet, which means that FSD has the potential to become a larger revenue source in the future. New Product Roadmap In the autonomous taxi (robotaxi) project, Tesla, Inc. has launched limited services in Austin and the San Francisco Bay Area, but on a much smaller scale than initially expected, with only about 200 vehicles currently in use. Tesla, Inc. has also failed to meet its goal of launching driverless taxis to the public by the end of 2025. Investors are eager to learn about Tesla, Inc.'s latest developments in achieving FSD, expanding services to the planned eight to ten cities, and the production timeline for Cybercab (currently scheduled to start production in the second quarter of 2026). Optimus humanoid Siasun Robot & Automation has become a crucial component in Tesla, Inc.'s future development blueprint. Musk likened it to a "money-making machine" during the third-quarter earnings call, indicating that it could potentially address global poverty issues. His compensation plan requires the deployment of one million OptimusSiasun Robot & Automation units, but the production schedule has been delayed from early 2026 to the end of 2026. Investors will closely monitor the production readiness, commercialization strategy, and feasible deployment plans. In addition, clear positioning of the next generation of economy models, apart from the low-priced versions of Model 3 and Model Y, remains critical for competing with Chinese manufacturers. Analysts caution against overvaluation The slowdown in Tesla, Inc.'s delivery rate highlights the growing pressure on its core electric vehicle business. The fourth-quarter delivery slump has led to Tesla, Inc. lowering its sales forecast for 2025 for the second consecutive year. It is noteworthy that the decline in sales in 2025 has further widened. In 2024, Tesla, Inc.'s deliveries decreased by 1% year-on-year, while in 2025, the decline exceeds 8%. Overall market weaknesses in the electric vehicle market, intense competition, and aging product lines have all had a detrimental impact on Tesla, Inc.'s sales. As a result, CEO Elon Musk is shifting focus towards autonomous vehicles and artificial intelligence as the driving force of the company's future. However, these projects will take several years to yield substantial returns. Currently, with Waymo's leading position in the autonomous taxi sector, Tesla, Inc. still has a long way to go. Promoting autonomous taxis from pilot projects to mass production, and transforming AI-driven projects into stable revenue sources, will take time. As it stands, Tesla, Inc. is a high-risk, high-reward stock. Tesla, Inc. currently has a Price-to-Earnings ratio of 201 times. The average target price given by Wall Street analysts is $389, representing a 13.4% downside from Friday's closing level. Valuation concerns are also reflected in analyst ratings, with 30 out of 51 analysts recommending "hold" or "sell". Technical analysis shows a bearish pattern After a sharp decline in April and a dramatic rebound, Tesla, Inc.'s stock price has seen little net growth over the past year. The upward trend since April provides support, but the stock price is currently approaching a potential downtrend range. Momentum indicators reinforce this bearish pattern; the RSI has fallen to around 37, while the negative MACD price difference suggests that as the stock price gradually loses support from the 100-day moving average, the downward momentum is accelerating. If the earnings report disappoints, the stock price may fall to the next support level around $383. On the other hand, if the earnings report exceeds expectations, the stock price may rise to $452, with resistance near the 20-day moving average.