Jan 25 (Portal) – Tesla Inc.’s (TSLA.O) aggressive price cuts have fueled demand for its electric vehicles, CEO Elon Musk said on Wednesday, downplaying concerns that a weak economy would dampen buyer interest.
The company on Wednesday slightly beat Wall Street targets for fourth-quarter sales and earnings despite a sharp decline in vehicle profit margins, trying to reassure investors it can cut costs to weather the recession and rising competition in the year ahead to manage something.
Sharp price cuts this month have positioned Tesla as the initiator of a price war, but its forecast of a 37% increase in car volume for the year to 1.8 million vehicles was lower than in 2022.
But Musk, who has missed his own ambitious sales targets for Tesla in recent years, said deliveries could reach 2 million vehicles in 2023 barring external disruptions.
Tesla’s sales prospects are the focus of investors amid a weaker economy. The company said it’s sticking to a long-term goal of a 50% annual increase in sales.
Musk addressed the topic at the beginning of a call with investors and analysts.
“These price changes are really making a difference to the average consumer,” he said, adding that vehicle orders roughly doubled in January, prompting the automaker to make small price increases for the Model Y SUV.
He said he expects a “pretty tough recession this year,” but demand for Tesla vehicles “will be good overall, despite a likely slowdown in the auto market.”
Shares rose 5.3% in extended trading.
CYBER TRUCK
The company is banking on older products, and Musk said its Cybertruck, its next new electric pickup truck, won’t start mass production until next year. Portal reported in November that the much-anticipated model would not go into mass production by the end of this year.
Tesla will detail plans for a “next-generation vehicle platform” at its investor day in March.
Tesla’s vehicles “are all in dire need of updates beyond the software,” said Jessica Caldwell, Edmunds executive director of insights. She said Tesla will largely rely on the cheaper device, as well as the Model 3 and Model Y, to bring EVs to the masses.
“The Cybertruck is unlikely to attempt to reach mass-market volumes like its Detroit competitors.”
[1/5] A Tesla charging station is seen in the early morning sun in Kettleman City, California, the United States, January 25, 2023. Portal/Mike Blake
Portal GraphicsReuters Graphics
Analysts said Tesla’s target is optimistic given the macroeconomic uncertainties.
“I think you’re going to see some serious demand destruction in consumer spending, and I think cars are going to take a big hit,” said Edward Moya, senior market analyst at OANDA.
Tesla said it doesn’t expect significant near-term volume growth from China as the Shanghai plant is near full capacity and recovering from production problems earlier this year.
“Even a small slowdown in demand will have a significant impact on the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
Tesla said its auto profit margins, which fell to a two-year low of 25.9% in the quarter, were above 20%, squeezed by the cost of ramping up battery production and new factories in Berlin and Texas and beyond Raw material, goods, logistics and warranty costs would be advised.
It is widely expected that aggressive pricing cuts will continue to squeeze margins. Tesla, which had made a string of price increases since early 2021, reversed course and offered discounts in the United States in December, followed by price cuts of up to 20% this month.
Analysts had said Tesla’s profitability left room for price cuts and pressure on rivals. The company’s net income of $9,000 per vehicle last quarter was more than seven times the comparable figure for Toyota Motor Corp (7203.T) in the third quarter. But it was down from almost $9,700 in the third quarter.
The company’s stock has seen its worst decline over the past year, hit by demand concerns and Musk’s takeover of Twitter, fueling investor fears that he could be distracted from Tesla’s leadership.
Musk dismissed polls suggesting his political comments on Twitter are hurting the Tesla brand. “I may not be popular with some,” he said, “but for the vast majority of people, my number of followers speaks for itself.” He has 127 million followers.
According to Refinitiv’s IBES data, revenue for the three months ended December 31 was $24.32 billion, compared to analysts’ median estimate of $24.16 billion.
Tesla’s full-year profit was supported by $1.78 billion in regulatory credit, up 21% year over year.
Adjusted earnings per share of $1.19 beat Wall Street analysts’ average of $1.13.
It ended the fourth quarter with 13 days worth of vehicles in inventory, more than four times the level of early 2022, and a record $12.8 billion.
Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru, additional reporting by Joe White and Ben Klayman in Detroit and Kevin Krolicki in Singapore Writing by Peter Henderson Editing by Sriraj Kalluvila, Matthew Lewis and Sam Holmes
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