Justin Sullivan
One of the worst-performing stocks over the past few months has been Tesla (NASDAQ:TSLA). While shares of the electric-vehicle maker have fallen largely on the back of drama surrounding CEO Elon Musk’s purchase of Twitter, there have also been concerns about slowing demand for the company’s vehicles. On Monday, Tesla announced its fourth-quarter production and shipment numbers, and the numbers are unlikely to allay those sales concerns anytime soon.
As Tesla continues to ramp up its new factories in Germany and Texas along with ramping up production in Fremont and Shanghai, new records are now expected to be announced each quarter. In early 2022, some of the company’s biggest supporters were hoping the name would ship more than half a million vehicles in the final quarter of the year. Due to COVID issues in China and some slower than expected production ramps, those expectations gradually declined. Tesla has announced new records for both production and deliveries as seen below.
Tesla Q4 vehicle numbers (company IR)
The first thing to notice is that production has significantly exceeded shipments for the second quarter in a row. Management attributed this to a “continued transition to a more even regional mix of vehicle designs”, resulting in more transit vehicles at the end of the period. Musk said earlier in 2019 that Tesla would soon fix the delivery spurt that’s causing lots of deliveries late in the quarter. That has still not really happened in the last three years, despite many opportunities to reorganize vehicle construction in the production facilities. As a result, the company produced more than 56,500 more vehicles than delivered in the second half of 2022. That will only help fuel concerns about sluggish demand.
This was the second straight quarter in which Tesla’s reported delivery numbers fell significantly short of estimates. In the chart below you can see how the street estimates essentially moved the fourth quarter around the 430k mark. In late December, Tesla Investor Relations sent out its usual estimate compiled by the company, which was just under 418,000 vehicles. Although that number was slightly below where it was on the street a few weeks ago, the actual number fell short by almost 13,000 units.
Q4 2022 deliveries vs estimates (Troy Teslike Twitter, Tesla IR)
The delivery result is even more disappointing when you consider a few key points. First, in the company’s third-quarter earnings report, the company’s CFO forecast “just under 50% growth” for the full year, which was itself a cut in guidance, and Tesla came in at just over 40% for 2022. Second, the fourth quarter saw plenty of promotions to boost demand. In the US, Tesla deferred a $3,750 credit at the end of the quarter, which was eventually doubled, along with the gift of 10,000 free Supercharging miles. Several promotions were run in China during the quarter, and these came even after prices were reduced earlier in the quarter. Some other promotions were even run in lower-volume countries to help, but apparently they weren’t enough. Tesla kicked off 2023 by offering a variety of other incentives in China to offset that country’s EV subsidy elimination.
I’ll be very excited to see Tesla’s auto sales per vehicle delivered when we get its fourth-quarter results (including leasing and credit) in about three weeks, especially with all the discounts out there. A lower sales mix of Model S and X vehicles will also add some headwind to this median price number, as will an increase in its leased vehicle share from Q3 2022. On the downside, the company will likely see some of its lagging revenue out fully self-driving, which have been held back for years, which should offset some of those sequential average revenue per vehicle losses.
The key number analysts are likely to focus on in the fourth quarter is gross margins. Tesla management has cited inflationary pressures on past earnings calls, and rebates certainly won’t help. Ongoing production ramps at the Berlin and Austin plants should improve those plants’ margins, although more production from Europe, which is taking away sales of Chinese-made vehicles, and the Shanghai plant’s closure for about a week in December could have little drag. At the start of Monday’s release, analysts were expecting $1.24 in non-GAAP EPS for the fourth quarter, compared to $1.05 in the third quarter. I’ll be watching to see how many more sales estimates go down as they’re already down over $1 billion since late October as seen below.
Tesla Q4 2022 Analyst Sales Estimate Average (Looking for Alpha)
As for Tesla shares, this news certainly wasn’t welcome to those looking for a near-term recovery. Tesla ended last week at around $123, just $15 above its recent multi-year low, after trading at more than $300 in late September. A great report could have sent the shares back towards the 50-day moving average, which is currently just under $180 but is falling by the day, but the near-term upside seems limited now. The average price target on the street was $248 on Monday, up from $336 about eight months earlier, but we could see further target cuts on non-delivery.
In the end, Tesla fell well short of delivery estimates for the second straight quarter. Management will be talking about regional builds, but it’s been talking about removing the quarter-end delivery spurt for years and still hasn’t done much about it. With production significantly outpacing shipments in the second half of 2022, bears will be talking about weak sales alongside a range of promotional activities. We’re likely to see analyst estimates and price target cuts now, and I don’t expect stocks to stage a massive rally ahead of earnings unless the overall market starts the new year with a decent rally.