Tesla shares fell 8% in early trading on Jan. 25 after the automaker narrowly missed its profit estimates and warned that its rate of expansion would be “considerably lower” this year. The company spent all of 2023 cutting costs to increase sales, which ate into its profits. The effectiveness of this tactic is waning, and executives are reaching the limit of their efforts to reduce the costs of the existing vehicle lineup.
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“Tesla is signaling that the days of 50% year-over-year growth, or even 30% to 40%, won’t happen in 2024,” said Seth Goldstein, an analyst at Morningstar Research. You can’t lower prices. “
In a rare move, Tesla did not offer concrete targets for the full year. For years, the control has told investors that it expects average annual growth of 50%. The company remained well below that target in 2023, despite falling prices. After a year in which vehicle deliveries were up 38%, analysts are forecasting a 20% increase this year to approximately 2. 16 million vehicles.
Tesla reported fourth-quarter earnings of 71 cents per share, below the average estimate of 73 cents. The company generated $25. 2 billion in revenue, less than the $25. 9 billion forecast by Wall Street.
Musk warned that all of this would be temporary. Tesla will build its least expensive next-generation vehicle at its factory in Austin, Texas, starting in the second half of next year, and then in Mexico. It will also be held elsewhere in North America. That could help the company attract more mass-market buyers who can’t afford the company’s existing models, which cost about $39,000 in the U. S.
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“That will be a challenging production ramp,” Musk said of the next-gen vehicle. “Once it’s going, it will be head and shoulders above any other manufacturing technology that exists anywhere in the world. It’s next-level.”
Until then, Tesla will try to reach new consumers with its existing lineup. Its newest vehicle, the Cybertruck, is rolling out gradually after launching in November. The company said the ramp-up of the stainless steel-clad pickup will be slower than other cars and didn’t give an annual sales forecast.
New products are of particular importance to Tesla because it has a fairly limited vehicle lineup. While sales of the Model Y sport utility vehicle and Model 3 sedan vehicles have soared, they still have relatively high sticker prices compared to China’s BYD Co. Ltd., the new EV leader. As high interest rates and inflation hit consumers’ wallets last year, Tesla marked down its vehicles in dramatic fashion.
That put a damper on profitability. Tesla’s automotive gross margin, excluding revenue from regulatory credits, came in at 17.2 per cent for the quarter, a slight improvement from the lowest in over four years. Tesla has blamed the lower profitability on price cuts, higher spending on research and development and other expenses, such as ramping up the Cybertruck.
Tesla is facing a tough festival from Chinese EV makers, which Musk says are “the most competitive automakers in the world. “Chinese brands will most likely succeed in exporting overseas, he said, unless price lists or other industrial barriers are put in place to halt their progress. The CEO witnessed the threat firsthand, with BYD overtaking Tesla as the world’s largest smart EV distributor in the quarter.
“Frankly, I think if you don’t put industrial barriers in place, these will largely destroy most other automakers in the world,” Musk said of Chinese automakers.
Musk also explained his advocacy for a 25% stake in Tesla to bolster his influence. The electric vehicle maker’s board of directors is unlikely to come up with a new pay plan for the CEO until a Delaware court rules on the regulations in a shareholder lawsuit over Musk’s large stock award approved in 2018.
— With Amanda Matos, Catherine Larkin and Danny Lee.
Bloomberg. com
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