Why the Biggest Takeaway from Tesla's Earnings Isn't Its Financial Growth
Key Points
Tesla beat analysts' expectations on revenue, earnings, and free cash flow.
The company's Robotaxi fleet has begun operations in Dallas and Houston, joining Austin as the third city with driverless versions.
Tesla's long-term success will ride on its ability to bring robotaxis to the mainstream.
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When Tesla (NASDAQ: TSLA) reported its first-quarter (Q1) results on April 22, it was a much better showing than anticipated. Its revenue increased 16% year over year (YoY) to $22.4 billion; its EPS beat analysts' expectations; and its $1.4 billion in free cash flow really stood out because it was the complete opposite of what analysts expected.
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Despite the strong Q1 performance, that wasn't the biggest takeaway from Tesla's earnings. It had more to do with its pivot and progress toward a longer-term goal.
Image source: The Motley Fool.
Slow progress is better than no progress
What stood out most from Tesla's earnings was the milestone it reached in its robotaxi ambitions. In April, it launched unsupervised Robotaxi rides in Dallas and Houston, joining Austin as the only three cities with them. Tesla already has Robotaxi operations in the San Francisco Bay area, but those cars are supervised (drivers inside), so the Texas cities are different.
This progress is noteworthy because much of Tesla's long-term success will depend on its ability to make Robotaxis a nationwide reality. Yes, Tesla is an electric vehicle company at its core, but selling cars won't keep it relevant and dominant in the long run.
Tesla has made clear that it's putting its chips on Robotaxis, humanoid robots (it's developing one called Optimus), and general artificial intelligence (AI). These are much higher-margin businesses than selling cars, and could become reliable, more profitable segments.
So, any progress is better than none.
Tesla says it has "preparations underway" in Phoenix, Miami, Orlando, Tampa, and Las Vegas for its Robotaxi coverage.
You have to play the long game with Tesla's stock
Investing in Tesla is banking on its autonomous and robotics ambitions because, strictly as a car manufacturer, you couldn't justify its valuation amid the struggles of its car business. It missed its vehicle delivery estimates in Q1, inventory is building, and it continues to lose market share to competitors like China's BYD and Volkswagen.
And although Tesla is making some progress on Robotaxis, it's slow progress and still a ways away from being anything close to mainstream. There are regulatory hurdles, and we haven't reached the point where most people feel comfortable being driven by a driverless car. It's going to be a tough sell in many places in the country for the foreseeable future.
Tesla's stock is notorious for its volatility, so if you're investing, it should definitely be a long-term bet. It's likely to be a roller-coaster ride along the way, but if you can stomach that and keep your sights set on the "end" goal, you'll be in good shape.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.
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