Tesla Inc’s aggressive price cuts have fueled a wave of demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, responding to concerns that a weak economy will limit buyer interest.
The company earlier on Wednesday beat Wall Street’s revenue and profit targets for the fourth quarter despite a sharp decline in vehicle profit margins and sought to reassure investors that it can cut costs and continue to generate cash as competition intensifies next year.
Deep price cuts this month put Tesla in a position to initiate a price war, but its forecast for a 37% increase in car volume for the year to 1.8 million vehicles was lower than in 2022.
Tesla’s sales outlook, as it faces a weak global economy, is a key point for investors. The company has a long-term goal of a 50% annual increase in sales.
Musk addressed the issue at the start of a call with investors and analysts. “These price changes really do make a difference to the average consumer,” he said, adding that demand was roughly double in January and that sales in 2023 could hit 2 million cars, without external disruption. The stock rose 4.3% in extended trading.
The company relies on older products, but Tesla said its Cybertruck, its next new electric pickup truck, will go into production at a plant in Texas later this year. The company said it will detail plans for a “next-generation vehicle platform” at its investor day in March.
“Tesla’s plans to rapidly increase production will only support profit growth if there is demand to meet it. Even a small cooling in demand will have significant consequences for the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown. Executives forecast that prices will remain relatively low, averaging $47,000, and that auto margins, which fell to a two-year low of 25.9% in the reported quarter, will be above 20%. Musk also said a recession is likely.
Acknowledging concerns about an uncertain economy, Tesla said it is “accelerating our cost reduction plan and moving toward higher production rates” in the near term.
The company that transformed the global electric vehicle market has outperformed the industry, growing sales and profits at record highs in recent years, weathering the pandemic and global supply chain challenges better than rivals.
Company’s net profit of $9,000 per vehicle last quarter
Analysts said Tesla’s profitability gives it room to cut prices and put pressure on rivals. The company’s net profit of $9,000 per vehicle last quarter was more than seven times higher than comparable Toyota Motor Corp in the third quarter. However, it fell from nearly $9,700 in the third quarter.
The company’s stock suffered its worst decline in the last year, hit by demand concerns and Musk’s acquisition of Twitter, which fueled investor fears that he would be ousted from running Tesla. Musk rejected the suggestion that his political commentary on Twitter had become divisive or a problem for Tesla.
Margins are generally expected to come under further pressure from aggressive price cuts. Tesla, which has made a series of price hikes since the start of 2021, reversed course and offered discounts in December in the United States, followed by price cuts of up to 20% this month.
The fourth quarter ended with a 13-day inventory of vehicles, more than four times higher than at the start of 2022, and a record $12.8 billion. The company said revenue for the three months ended Dec. 31 was $24.32 billion, compared with the average analyst estimate of $24.16 billion, according to data from Refinitiv’s IBES.
Tesla offered discounts in its core markets during the quarter after strong orders allowed the company to maintain and even raise prices in recent years. The electric car maker delivered a record 405,278 vehicles to customers in the fourth quarter, despite the company falling short of its 50% annual growth target.
Net income for the quarter was $3.69 billion, or $1.07 per share, compared with $2.32 billion, or 68 cents per share, a year earlier. Adjusted earnings per share of $1.19 beat Wall Street analysts’ average of $1.13. Tesla’s full-year profit was boosted by $1.78 billion in regulatory credits, up 21% from a year ago.
Written by : Vaishali Verma
