Tesla sales surged in the final three months of 2023 after the automaker cut prices and customers rushed to take advantage of electric vehicle tax breaks – schemes that will be harder to come by in 2024.
The company said Tuesday that it sold 484,500 cars in the fourth quarter, up from 435,000 in the third quarter and 405,000 in the fourth quarter of 2022. For the full year, Tesla sold 1.8 million vehicles. The gains put Tesla on track to sell more than two million cars in 2024, potentially overtaking established automakers such as Mercedes-Benz and Renault.
The recovery in sales in the fourth quarter should help ease investor concerns about whether Tesla can defend its dominance in the electric vehicle market as the company faces increasing competition from traditional automakers.
Over the past year, Tesla has lost market share to rivals such as General Motors, Hyundai, Ford Motor and Volkswagen as they released more electric vehicles. Tesla accounts for half of the electric cars sold in the United States. In 2022, Tesla accounted for two-thirds of the market.
Another electric vehicle maker, Rivian, said Tuesday that it sold nearly 14,000 vehicles in the final three months of the year. This number increased significantly compared to the previous year, but decreased by about 10 percent compared to the third quarter.
In China, the largest market for electric cars, Tesla faces strong competition from BYD and other Chinese automakers. In Europe, Volkswagen and its Audi and Skoda divisions sell more electric vehicles than Tesla, although the Tesla Model Y is by far the best-selling model on the continent, according to Schmidt Automotive Research.
In the United States, those interested in purchasing an electric car were strongly incentivized to take delivery of the car before the end of the year because of new regulations designed to exclude China from the supply chain.
Tesla had warned on its website that the two cheapest versions of its Model 3 sedan would no longer be eligible for $7,500 in federal tax credits after December 31. The cars have batteries made in China. Germany and some other European countries have also reduced subsidies for buyers of electric vehicles.
To maintain sales, Tesla cut prices and offered the Model 3 on its website for well under $30,000, after accounting for tax credits. By the end of December, the number of cheaper cars listed on the site appeared to have declined, suggesting the strategy was successful. But the price cuts hurt Tesla's profits, which fell 44 percent in the third quarter compared to the previous year.
Although fewer Teslas will be eligible for federal tax credits in 2024, the company is in a better position than most of its competitors. According to a federal government website, the performance version of the Model 3, which has upgraded wheels and brakes, will still be eligible for the subsidy, as will all versions of the Model Y sport utility vehicle. Tesla makes batteries for these cars at a Panasonic-powered plant in Nevada, allowing it to meet domestic production requirements.
That gives Tesla a significant advantage over competitors like Ford, which has said its Mustang Mach-E sport utility vehicle will not be eligible for the credit in the new year.
Ford and others rely on manufacturers in China for critical components. Ford is building battery factories in the USA, but they will not begin production until 2025.
General Motors has been building batteries at a new factory in Ohio, but has had difficulty getting the plant up and running at full capacity. Initially, only the Chevrolet Bolt will qualify for credits, GM announced in December. The Cadillac Lyriq and electric Chevrolet Blazer are no longer eligible.
GM has said it is adjusting its supply chain to allow these and other vehicles, including electric versions of the Chevrolet Silverado pickup and Equinox sport utility vehicle, to be approved early this year.
Tesla and other car manufacturers could also benefit from lower interest rates in the new year. Investors are betting that the Federal Reserve and other central banks will begin cutting interest rates as inflation cools.