Tesla Inc’s (TSLA.O) aggressive price cuts have fueled demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, downplaying concerns that a shaky economy would stifle buyers’ interest.
The company slightly topped Wall Street targets for fourth-quarter revenue and profit earlier on Wednesday despite a sharp drop in vehicle profit margins, and it attempted to reassure investors that it can slash costs to cope with the recession and as competition escalates in the year ahead.
Steep price cuts in January have positioned Tesla as the initiator of a price war, but its estimate of a 37 percent rise in car volume for the year, to 1.8 million vehicles, was down from last year’s pace.
However, Musk, who has failed to hit his own ambitious sales targets for Tesla in recent years, said this year deliveries could reach 2 million vehicles, absent external disruption. Tesla’s sales prospects, as it faces a weaker economy, are a major focus for investors. The company said it maintains a long-term target of a compounded fifty percent annual jump in sales.
Musk discussed the issue at the beginning of a call with investors and analysts.
“These price changes really make a difference for the average consumer,” he said, adding that vehicle orders were nearly twice output in January, causing the automaker to make small price hikes for the Model Y SUV.
He said he expected a “pretty difficult recession this year,” but demand for Tesla vehicles “will be good despite probably a contraction in the automotive market as a whole.”
Shares soared 5.3 percent in extended trading.
CYBERTRUCK
The firm is relying on older products and Musk said its Cybertruck, its upcoming new electric pickup truck, would not start mass production until 2024. Reuters in November reported that the long-awaited model would not be produced in volume until late in 2023.
Tesla will lay out plans for a “next-generation vehicle platform” at its investor day in March.
Tesla’s vehicles “are all in desperate need of updates beyond software,” said Jessica Caldwell, Edmunds’ executive director of insights. She said Tesla will heavily rely on the cheaper unit as well as Model Y and Model 3 to bring EVs to the masses.
“It’s unlikely that the Cybertruck will attempt to achieve mass-market volumes like the Detroit competitors.”
Analysts said Tesla’s target is bullish given the macroeconomic uncertainties.
“I think that you’re going to see some severe demand destruction across consumer spending and I think cars are going to take a big hit,” Edward Moya, senior market analyst at OANDA, said.
Tesla said it does not expect significant near-term volume growth from China, since its Shanghai plant was running near full capacity, bouncing back from production challenges earlier in 2023.
“Even a small cooling of demand will have significant implications for the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
Tesla said that its automotive profit margins, which fell to a two-year low of 25.9% in the reported quarter, would be higher than 20%, pressured by costs of scaling up battery production and new factories in Texas and Berlin, as well as higher commodity, logistics, raw material, and warranty costs.
Margins generally are expected to come under more pressure from its aggressive price cuts. Tesla, which had made a series of price hikes since early 2021, changed course and offered discounts last month in the United States, followed by price cuts of as much as 20% this month.
Analysts had said Tesla’s profitability gave leeway to slash prices and pressure rivals. The company’s $9,000 in net profit per car in the fourth quarter was more than seven times the comparable figure for Toyota Motor Corp (7203.T) in the third quarter. But it was a drop from almost $9,700 in the previous quarter.
The company’s stock recorded its worst drop in 2022, battered by demand worries and Musk’s acquisition of Twitter, which sparked investor concerns he would be distracted from running Tesla.
Musk ignored surveys that imply his political comments on Twitter are hurting the Tesla brand.
“I might not be popular” with some, he said, “but for the vast majority of people, my follow count speaks for itself.” He has 127 million followers.
Revenue was $24.32 billion for the quarter ended Dec. 31, against analysts’ average estimate of $24.16 billion, IBES data from Refinitiv showed. Tesla’s full-year earnings were propped up by $1.78 billion in regulatory credits, up 21% from a year before.
Adjusted earnings per share of $1.19 beat the Wall Street analyst average of $1.13.
It closed the fourth quarter with 13 days’ worth of vehicles in inventory, more than four times higher than the start of last year, and a record $12.8 billion in value.
