EVs to hit snag, sales, growth may be significantly lower in 2024, believes Tesla

Tesla’s aggressive strategy of slashing prices to boost sales, coupled with the expenses associated with bringing the Cybertruck into production and other research and development (R&D) costs, has reportedly strained profits in the fourth quarter, according to the latest earnings report released on Wednesday.

Despite achieving a remarkable milestone by delivering a record 1.8 million electric vehicles (EVs) in 2023, Tesla’s financial growth did not mirror its sales success. The widening gap in profits can be attributed to the company’s deliberate price cuts aimed at stimulating sales and increased expenditures related to upcoming products.

In the Q4 and annual earnings release, Tesla issued a cautionary note, stating that it is currently “between two major growth waves.” While the Model Y and Model 3 have contributed significantly to the company’s success in recent years, Tesla anticipates a potentially lower growth in vehicle sales in 2024 as it gears up to launch a new vehicle platform, intending to introduce a smaller EV with an estimated cost of $25,000.

Following the earnings report, Tesla’s shares experienced a 5.8 per cent decline, settling at $195.60 in after-market trading.

A budget Tesla EV in the making?
Elon Musk, Tesla’s CEO, revealed that the company’s smaller and more affordable EV is set to begin production in late 2025 at its Texas factory. Musk emphasized the importance of having engineers on-site during the production process, making Texas the most suitable location for the initial phase. Production of the smaller EV is expected to expand to a new factory in Mexico, with construction possibly commencing in 2026.

Tesla plans to identify a third factory location outside of North America for further expansion after the Mexico facility. Musk highlighted the incorporation of “revolutionary manufacturing technology” in the new platform.

Operating Income goes down
While Tesla reported a net income of $7.9 billion in Q4, including a one-time non-cash tax benefit of $5.9 billion, the company’s operating income on a GAAP basis fell by 47 per cent to $2.06 billion. Factors contributing to this decline included increased operating expenses, driven by AI and other R&D projects, Cybertruck production costs, and reduced revenue from Full Self-Driving software.

Despite the challenges, Tesla managed to improve automotive gross margins, excluding regulatory credits, to 17.2 per cent. The company acknowledged reaching the “natural limit” for cost reduction on existing vehicles but expressed optimism about future profits from AI, software, and fleet-based ventures.

On an adjusted basis, Tesla earned $3.9 billion, marking a 27 per cent drop from the same period last year.

Tesla refocusing efforts
Tesla reported a revenue of $25.17 billion in Q4, reflecting a modest 3 per cent increase from the previous year. Although slightly below analysts’ expectations, the company continued to experience revenue growth, albeit at a slower pace.

While cautious about vehicle growth in 2024, Tesla remains optimistic about its energy storage business. Despite a slower fourth quarter, storage deployments increased by 125 per cent year-over-year. Elon Musk emphasized the accelerated growth of the energy storage sector compared to the automotive business, and the company plans to include storage deployment figures in its quarterly reports.

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