Consumer Lawsuit Threatens to Shake Tesla (TSLA) Stock – What's at Stake?

Electric vehicle (EV) pioneer Tesla, Inc. (TSLA) has revolutionized the battery-electric vehicle market. Despite rising competition from legacy automakers, TSLA remains the top EV seller in the United States. During the year's first half, TSLA sold 336,892 vehicles, nearly 300,000 units higher than the second-largest EV seller.

However, the Austin, Texas-based automaker faces a lawsuit from three customers over its vehicles’ driving range estimates. The proposed class action lawsuit accuses the company of falsely advertising the driving ranges of its electric vehicles.

On August 2, 2023, the lawsuit was filed in the U.S. District Court for the Northern District of California. The lawsuit alleges that TSLA “marketed its electric vehicles as having a grossly overvalued range in an effort to increase sales to consumers.” TSLA faces charges of fraud and breach of warranty, among others.

The lawsuit followed a Reuters article that alleged that TSLA had created a “Diversion Team” in Las Vegas to cancel as many range-related appointments as possible after its service centers got flooded with complaints from owners who expected a better performance from their vehicles based on the company’s advertised estimates and the projections displayed by the in-dash range meters of the vehicles.

The team aimed to divert as many appointments as possible to help save TSLA $1,000 per visit. The investigative article, which came out on July 27, 2023, also revealed how the company began exaggerating the range of its vehicles by rigging the range-estimating software years ago.

A person familiar with the matter said that the automaker had decided a decade ago that it would write algorithms for its range meter to show drivers rosy range projections on a full battery. He added that these optimistic range estimate directives came from CEO Elon Musk a decade ago.

The source said, “Elon wanted to show good range numbers when fully charged. When you buy a car off the lot seeing 350-mile, 400-mile range, it makes you feel good.” However, the news agency could not verify whether the automaker still uses algorithms to boost in-dash range estimates.

Earlier this year, TSLA was fined ₩2.85 billion ($2.13 million) by South Korean regulators as they found that their cars delivered as little as half their advertised range in cold weather. The Korea Fair Trade Commission (KFTC) found that TSLA cars driving range plunged in cold weather by up to 50.5% versus how they were advertised online.

TSLA’s stock has declined 17.2% in price over the past month. However, the stock is still up 89.1% year-to-date.

Here’s what could influence TSLA’s performance in the upcoming months:

Robust Financials

TSLA’s total revenues for the second quarter ended June 30, 2023, increased 47.2% year-over-year to $24.93 billion. Its non-GAAP net income attributable to common stockholders increased 20.2% year-over-year to $3.15 billion. Its adjusted EBITDA rose 22.7% year-over-year to $4.65 billion. The company’s non-GAAP EPS came in at $0.91, representing an increase of 19.7% year-over-year.

Mixed Analyst Estimates

TSLA’s EPS for fiscal 2023 is expected to decline 15.3% year-over-year to $3.45. On the other hand, its revenue for fiscal 2023 is expected to increase 22.9% year-over-year to $100.09 billion. Its EPS and revenue for fiscal 2024 are expected to increase 42.7% and 28.5% year-over-year to $4.92 and $128.66 billion, respectively.

Its EPS for the quarter ending September 30, 2023, declined 22.8% year-over-year to $0.81. Its revenue for the same quarter is expected to increase 16% year-over-year to $24.89 billion.

Stretched Valuation

In terms of forward EV/EBITDA, TSLA’s 41.69x is 324.2% higher than the 9.83x industry average. Likewise, its 7.42x forward EV/S is 519.5% higher than the 1.20x industry average. Its 69.58x forward non-GAAP P/E is 341.1% higher than the 15.78x industry average.

High Profitability

In terms of the trailing-12-month EBITDA margin, TSLA’s 17.86% is 66.4% higher than the 10.74% industry average. Likewise, its 12.97% trailing-12-month net income margin is 210.5% higher than the 4.18% industry average. Additionally, its 1.18x trailing-12-month asset turnover ratio is 18.5% higher than the 1x industry average.

Bottom Line

TSLA faces some severe allegations of fraud and breach of warranty. The class action lawsuit against the company could help customers get some money spent on the cars and probably force the automaker to change how it advertises its vehicles’ driving ranges.

However, the stock has not reacted too negatively to the headlines around the lawsuit. Recently, TSLA launched cheaper versions of its popular Model S and Model X vehicles in the United States, having a shorter range. This move comes after the automaker undertook price cuts in China on its Model Y and Model 3 vehicles. The company has been focusing on volume growth by cutting prices across its product range.

However, investors remain concerned over its falling gross margins as the company focuses on volume growth. Given the mixed analyst estimates and the possibility of a fine arising from the class action lawsuit, it could be wise to wait for a better entry point in the stock.

Will Toyota Motor (TM) Take Tesla’s Crown as the EV King?

Tesla, Inc. (TSLA) gained significantly from the world’s shift to cleaner modes of transportation. Due to its first-mover advantage, the company became the highest-selling electric vehicle (EV) company in the United States. However, its edge has been cut short as traditional automakers like Toyota Motor Corporation (TM) are making rapid inroads in the global EV market.

TM was again the world’s top-selling automaker last year, selling more than 10 million vehicles. After achieving massive success in the internal combustion engine (ICE) vehicle segment, the Japanese automaker is transitioning from combustion engines to electric cars. During the first half of 2023, Toyota Motor North America sold 270,476 EVs, including hybrids, making up 26% of the total sales volume.

Moreover, the company sold 51,535 EVs in June, making up 26.4% of its total monthly sales. On June 13, 2023, TM held a technical briefing session, “Toyota Technical Workshop,” under the theme “Let’s Change the Future of Cars.” In the session, the automaker announced various new technologies to help it transform into a mobility company.

The company announced plans to sell 1.5 million EVs annually by 2026 and achieve carbon neutrality by 2050, aiming to reduce average CO2 emissions for the vehicles it sells worldwide by 50% or more by 2035 compared to 2019. TM also announced that it was evolving batteries with new technologies to power its next-generation battery electric vehicles (BEV) in 2026.

TM intends to enhance the performance of the popular liquid lithium-ion batteries by improving the energy density of square batteries. The next-generation BEV to be introduced in 2026 will have a cruising range of 1,000 kilometers (621 miles).

Additionally, the bipolar structure battery used in Hybrid Electric Vehicles (HEVs) is being adapted to the BEVs, helping the automaker provide customers with various battery options, from low-cost, popular batteries to high performance. However, the most prominent announcement from the company was that it was accelerating the development of solid-state batteries for BEVs.

Solid-state batteries are known to be more durable and long-lasting than traditional liquid lithium-ion batteries. The company is looking to mass produce such solid-state batteries to commercialize them by 2027-2028. Apart from batteries, the company also announced its plans related to hydrogen.
It is promoting external sales of fuel cells using Mirai’s hydrogen units, having already received offers for external sales of 100,000 units by 2030. The company also established a new organization called Hydrogen Factory which will make immediate decisions under one leader, from sales to development and production, all at once.

Furthermore, under its manufacturing axis, TM announced that it would start using Giga casting, a form of assembly-line automation under which the car body will be constructed from three main components in a new modular structure. Adopting giga casting will enable component integration, helping reduce vehicle development costs and factory investment.

Additionally, self-propelling production technology will reduce the processes and plant investment by half. For the first quarter, TM’s revenue came 7.2% above the consensus estimate. It sold 2.53 million Toyota and Lexus cars during the first quarter, rising 8.4% year-over-year, out of which 34% were hybrids and other electrified vehicles.

During its earnings announcement, the company said, “Sales volumes across all regions increased compared to the same period a year earlier due to productivity improvement efforts made together with suppliers.” The automaker maintained its operating income forecast of ¥3 trillion ($20.98 billion) for fiscal 2024. Also, its revenue is expected to come in at ¥38 trillion ($265.78 billion).

Here’s what could influence TM’s performance in the upcoming months:

Robust Financials

TM’s sales revenue for the first quarter ended June 30, 2023, increased 24.2% year-over-year to ¥10.55 trillion ($73.79 billion). The company’s operating income rose 93.7% over the prior-year quarter to ¥1.12 trillion ($7.83 billion). Its net income attributable to TM increased 78% year-over-year to ¥1.31 trillion ($9.16 billion). Also, its EPS came in at ¥96.74, representing an increase of 80.3% year-over-year.

Favorable Analyst Estimates

Analysts expect TM’s EPS for fiscal 2024 and 2025 to increase 602.4% and 0.5% year-over-year to $18.73 and $18.83. Its fiscal 2024 and 2025 revenue is expected to increase 2.7% and 2.7% year-over-year to $284.12 billion and $291.83 billion. Its revenue for the quarter ending September 30, 2023, is expected to increase 14.5% year-over-year to $71.26 billion.

Mixed Valuation

In terms of forward EV/Sales, TM’s 1.43x is 18.2% higher than the 1.21x industry average. Likewise, its 14.57x forward EV/EBIT is 3.5% higher than the 14.08x industry average.

On the other hand, its forward Price/Sales of 0.81x is 11.1% lower than the 0.91x industry average. Its 9.17x forward GAAP P/E is 44.2% lower than the 16.43x industry average.

High Profitability

In terms of the trailing-12-month net income margin, TM’s 7.72% is 84.3% higher than the 4.19% industry average. Likewise, its 12.62% trailing-12-month EBITDA margin is 18.5% higher than the industry average of 10.65%. Furthermore, the stock’s 9.23% trailing-12-month Capex/Sales is 184.9% higher than the industry average of 3.24%.

Bottom Line

TSLA’s dominance in the EV market is reducing as traditional automakers like TM are gaining market share. TM is serious about its electrification plans as it announced its ambitious EV strategy involving longer, more durable batteries, the use of Giga casting in its assembly lines, and its push to use hydrogen as an energy source.

TM’s long and successful history of making ICE cars, the company is likely to succeed in its EV endeavor. TM is also trading at a considerable discount to TSLA. Given its robust financials, favorable analyst estimates, and high profitability, I think TM is well-positioned to outperform TSLA.

Can Tesla (TSLA) and Netflix (NFLX) Surpass Earnings Expectations?

Tesla, Inc. (TSLA) , the undisputed leader in EVs, is scheduled to release its fiscal 2023 second-quarter results on July 19 after the closing bell. Analysts expect TSLA’s revenue to increase 45.7% year-over-year to $24.67 billion for the quarter that ended June 2023.

The consensus earnings per share (EPS) estimate of $0.82 for the about-to-be-reported quarter indicates an increase of 8.2% year-over-year. For the fiscal year ending December 2023, the EV maker’s revenue and EPS are expected to increase 24% and decrease 13.2% year-over-year to $100.98 billion and $3.53, respectively.

Streaming giant Netflix, Inc. (NFLX) is also set to report its second-quarter earnings after the market close on July 19, kicking off media earnings season. The company is expected to put light on its subscriber momentum, the progress of its cheaper advertising tier, and the impact of its password-sharing crackdown.

Analysts expect NFLX’s revenue for the fiscal second quarter (ended June 30, 2023) to increase 3.9% year-over-year to $8.26 billion. However, the consensus EPS estimate of $2.86 for the same quarter indicates a decline of 10.8% year-over-year.

In addition, the company’s revenue and EPS for fiscal year 2023 are expected to grow 7.7% and 13.5% year-over-year to $34.06 billion and $11.29, respectively.

Let’s analyze each stock and determine the chances of them surpassing analysts’ expectations:

TSLA designs, develops, manufactures, and sells electric vehicles (EVs) and energy generation and storage systems in the United States, China, and internationally. The company operates through two segments: Automotive; and Energy Generation and Storage.

TSLA recently released its second-quarter production and delivery numbers, easily beating estimates as the effects of the company’s price cuts, coupled with federal EV tax credits, boosted sales.

In April, the EV maker slashed prices of some of its Model Y and Model 3 EVs in the United States, the sixth time of lowering U.S. prices this year. TSLA’s Model Y “long range” and “performance” vehicles prices were cut by $3,000 each, and that of its Model 3 “rear-wheel drive” by $2,000 to $39,990.

Further, the Elon Musk-led company lowered prices in Europe, Israel, and Singapore along with Japan, Australia, and South Korea, expanding a discount drive it commenced in China in January to drive demand.

During the second quarter, TSLA produced approximately 480,000 vehicles and delivered nearly 466,000 vehicles. The delivery figures easily beat Wall Street consensus estimates of 448,599 units and the previous quarter’s total of 422,875. Both production and delivery figures for the second quarter were all-time records for the company.

Yet, TSLA, earlier in April, reported a 4% sequential increase in deliveries in the first quarter and a 17.8% sequential rise during the fourth quarter.

Furthermore, TSLA is rapidly expanding its Supercharger network with industry competitors. On July 7, German luxury giant Mercedes-Benz (MBG.DE) became the latest to join Tesla’s Supercharger network.
Beginning in 2024, Mercedes-Benz electric vehicle owners would get access to 12,000 Tesla Superchargers across North America via the use of an adapter.

In 2025, new Mercedes EVs in North America would have TSLA’s North American Charging Standard (NACS) port built into the cars for access to the Supercharger network. This deal with Mercedes is similar to TSLA’s other charging partnerships with other automakers, Ford Motor Company (F), General Motors Company (GM), Rivian Automotive, Inc. (RIVN), and Volvo ADR (VLVLY).

On May 26, TSLA and F announced a surprise deal on electric vehicle charging technology and infrastructure. Under the agreement, Ford owners will get access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.

In addition, GM followed crosstown rival F in partnering with TSLA to use its North American charging network and technologies. Under this deal, GM owners will get access to Tesla’s 12,000 fast chargers using an adapter and its EV charging app beginning the following year.

Signing on additional partners to TSLA’s charging network is expected to be a boon for the EV maker’s top line. According to Piper Sandler analyst Alexander Potter, charging deals from partners could add upward of $3 billion in revenue by 2030 and up to $5.40 billion by 2032.

The company’s first-quarter revenue of $23.33 billion was slightly below Wall Street estimates of $23.35 billion. It reported a gross margin of 19.3%, compared to 29.1% in the same period in 2022, as the cost of several price cuts hit its profitability.

Furthermore, TSLA’s net income was $2.51 billion for the first quarter, a decline of 24% year-over-year, and its EPS decreased 23% year-over-year to $0.73. TSLA’s CEO, Elon Musk, also indicated that the company would prefer higher volumes to higher margins.

Analysts continue to ring warning bells on the company’s profit margins. Gary Black, co-founder and managing partner of Future Fund expects TSLA’s adjusted EPS for the second quarter to be around $0.87, higher than the prior quarter’s $0.85 and the year-ago quarter’s $0.76. The consensus estimate stands at $0.82 per share.

However, Gary Black predicts the company’s gross margin to contract as it had offered discounts on its vehicles to boost sales.

Another stock that gears for second-quarter earnings this week is NFLX. The company offers entertainment services. It provides TV series, feature films, documentaries, and mobile games across various genres and languages.

In May, after ignoring password sharing for many years, the streaming company expanded its crackdown on password sharing across the United States and more than 100 other countries, alerting users that their accounts cannot be shared for free outside their households. It also stated that an additional fee of $7.99 per month would be charged for shared passwords in the United States.

Since the company told its users they could no longer share accounts across multiple households, daily U.S. sign-ups for the streaming service climbed by the most in at least four and a half years.According to data from the analytics platform Antenna, between May 25-28, Netflix witnessed the four single-largest days for signing up of U.S. customers since the firm began tracking this data in 2019.

During that time, NFLX saw nearly 100,000 daily sign-ups on two of the days, based on the report from Antenna.

Furthermore, the streaming giant’s ad-supported tier began to show signs of life six months following its debut. NFLX revealed that its ad-supported tier garnered five million active users globally, with sign-ups having more than doubled since early this year. The company stated that more than a quarter of new signups opt for the ad-supported plan in countries where it is offered.

During the first quarter of 2023 that ended March 31, NFLX reported mixed first-quarter results, missing Wall Street subscriber estimates while surpassing analysts’ EPS estimates. The company reported an EPS of $2.88 compared to the consensus estimate of $2.86. While its revenues increased 3.7% year-over-year to $8.16 billion, it missed the consensus estimate of $8.18.

For the first quarter, NFLX added 1.75 million streaming subscribers, which fell short of the analyst estimate of 2.06 million additions. However, its average paid memberships increased 4% year over year, while the paid net adds were 1.75 million for the quarter compared to a negative 0.2 million in the prior-year quarter. Also, its non-GAAP free cash flow rose 164% from the year-ago value to $2.12 billion.

In recent days and weeks, several analysts have raised their price targets on NFLX’s stock. One central theme across Wallstreet is an expectation of optimistic updates on the progress of the company’s password-sharing crackdown and advertising tier rollout.

TD Cowen analyst John Blackledge said, “Netflix’s paid sharing coupled with the ad tier rollout should drive long-term revenue upside, and the launch of paid sharing in the second quarter of 2023 along with the ramping ad tier should help drive membership and revenue growth in the second half of 2023.”

The TD Cowen analyst forecasts net subscriber growth of 2.37 million during the second quarter, compared with a consensus estimate of around 1.70 million, and “revenue re-acceleration” in the second half of 2023. John Blackledge reiterated his “outperform” rating and $500 stock price target.

Also, UBS analyst John Hodulik increased his stock price target from $390 to $525 while maintaining his Buy rating.

Hodulik stated, “We continue to believe paid sharing will drive 5 percent-plus uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting. Netflix eliminated its basic ad-free tier in Canada (and de-emphasized in the U.S.), which we estimate could provide a 10 percent uplift to average revenue per user over time and should help scale the ad base faster than prior expectations.”

The UBS analyst raised his estimates and predicted second-quarter financials would surpass management’s guidance, adding that he and his team “still expect accelerating second-half growth.” Hodulik expects 3.60 million net subscriber gains in the about-to-be-reported quarter and 6.50 million in the third quarter.

Bottom Line

EV giant TSLA’s better-than-expected delivery and production figures for the second quarter will likely boost the company’s second-quarter earnings. However, concerns still revolve around the impact on margins due to discounts Tesla offered on its new vehicles across different regions. But vehicle prices stabilized in the second quarter after substantial reductions announced earlier in the year.

While streaming company NFLX took a hit after reporting its first subscriber loss in a decade last year and mixed financials in the first quarter of 2023, there are higher chances of beating analysts’ estimates for the second quarter, with rising expectations of positive updates on the company’s progress on the password-sharing crackdown and advertising tier rollout.

4 Stocks Expected to Have the Fastest Growing Jobs in the Next 5 Years

An apocryphal quote attributed to Charles Darwin observes that it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.

Regardless of what the ideas and constructs that have shaped and perpetuated our civilization would want us to believe, there is hardly an aspect of our modern life that is immune to or exempted from the laws of nature. At least (and hopefully at most) metaphorically, we are either running for food or running from being food often without being able to tell the difference.

Consequently, in an era of ever-increasing automation, digitization, and decarbonization, individuals and institutions more prepared to accept and embrace change would thrive in the intraspecific struggle for economic existence at the expense of their more inertial peers.

According to the Future of Jobs Report 2023 by the World Economic Forum, in the next five years, almost a quarter of jobs (23%) are expected to change through growth of 10.2% and a decline of 12.3%. Employers anticipate 69 million new jobs to be created and 83 million eliminated, amounting to a net decrease of 14 million jobs, or 2% of current employment.

According to Moody’s Chief Economist, Mark Zandi, the macro trends driving the change present challenges, such as the displacement of the majority of the existing workforce while demanding significant adaptations from the talent that is being retained and disrupting business by lowering entry barriers and switching costs to creating a level playing field.

However, on the flip side, he also highlights the enormous opportunity for improvements in productivity and efficiency, which would be instrumental in ensuring economic growth while managing a general demographic decline.

With specialization, digitization, and sustainability driving demand for talent and reshaping the global world of work at an unprecedented rate, white-collar generic and repetitive jobs are being automated away. At the same time, businesses can’t find enough specialists to design and implement artificial intelligence-led automation and blue-collar workers to take care of work that is yet to be automated.

Consequently, autonomous and electric vehicle specialists top the list of fastest-growing jobs in 2023. Close behind, AI and machine learning specialists could see only slightly less job growth, followed by environmental protection professionals.

Among the non-technological roles, heavy truck and bus drivers, vocational education teachers, and mechanics and machinery repairers look set to see around 2 million new jobs each between 2023-2027.

At the other end of the spectrum, roles like bank tellers, cashiers, and data-entry clerks would be rendered obsolete and, hence, are set to witness the fastest rate of decline in the next five years.

In the context of this fundamental shift, the following businesses which have opted to disrupt themselves and their respective industries rather than being disrupted appear best placed to keep attracting talent in the foreseeable future.

NVIDIA Corporation (NVDA) recently made headlines when its stock got its moonshot due to the widespread public interest in AI. Post its earnings release on May 24; the Santa Clara-based graphics chip maker has stolen the thunder by becoming the first semiconductor company to hit a valuation of $1 trillion.
NVDA’s A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants. To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of Nvidia’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

During a commencement speech on May 26 at National Taiwan University, NVDA CEO Jensen Huang’s message to his potential recruits was loud and clear, “You are at the beginning, at the starting line, of AI. Run. Don’t walk.”

Tesla, Inc. (TSLA)

The global e-mobility pioneer’s automotive segment includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of automotive regulatory credits.

In the recent earnings call, TSLA’s maverick CEO Elon Musk signaled that the automaker will target larger volumes of sales versus higher margins but said he expects the company “over time will be able to generate significant profit through autonomy.”

The company recently scored a major victory as an infrastructure provider by striking a deal with two of its rival automotive manufacturers, Ford Motor Company (F) and General Motors Company (GM) , to grant their vehicles access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.

Moreover, since TSLA’s energy generation and storage segment includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products such as the Solar Roof and Powerwall, the stock could also be an energy transition play.

AGCO Corporation (AGCO) manufactures and distributes agricultural equipment and related replacement parts worldwide. The company provides telemetry-based fleet management tools, including remote monitoring and diagnostics, which help farmers improve uptime, machine and yield optimization, mixed fleet optimization, and decision support.

AGCO’s Precision Planting, Headsight, and Intelligent Ag Solutions brands provide retrofit solutions to upgrade farmers’ existing equipment to improve their planting, liquid application, and harvest operations.

On May 4, AGCO announced a capital improvement project, dubbed “Planter Accelerate,” scheduled to begin in the second quarter of this year and continue through the first quarter of 2024. The project aims to increase production capacities for Massey Ferguson and Fendt Momentum planters at its Kansas facilities in Beloit and Cawker City.

Canadian Solar Inc. (CSIQ) is a designer, developer, manufacturer, and seller of solar ingots, wafers, cells, modules, and other solar power and battery storage products internationally. The company, headquartered in Guelph, Ontario, operates through two segments: Canadian Solar Inc. (CSI) Solar and Global Energy.

On June 15, marking its first foray in the United States, CSIQ announced establishing a solar PV module production facility in Mesquite, Texas, with an annual output of 5 GW, equivalent to approximately 20,000 high-power modules per day. This follows the company’s successful track record of production in Canada, China, Brazil, Thailand, and Vietnam.

The new facility, expected to commence production around the end of 2023, represents an investment of over $250 million and will create approximately 1,500 skilled jobs once fully ramped up.