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Musk bullish on Tesla sales as price cuts boost demand

Stock Markets Jan 26, 2023 03:01AM ET
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© Reuters. FILE PHOTO: A view shows the Tesla logo on the hood of a car in Oslo, Norway Nov. 10, 2022. REUTERS/Victoria Klesty
 
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By Hyunjoo Jin and Akash Sriram

(Reuters) - Tesla (NASDAQ:TSLA) Inc's aggressive price cuts have ignited demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, playing down concerns that a weak economy would throttle buyers' interest.

The company slightly beat Wall Street targets for fourth-quarter revenue and profit earlier on Wednesday despite a sharp decline in vehicle profit margins, and it sought to reassure investors that it can cut costs to cope with recession and as competition intensifies in the year ahead.

Deep price cuts this month have positioned Tesla as the initiator of a price war, but its forecast of a 37% rise in car volume for the year, to 1.8 million vehicles, was down from 2022's pace.

However, Musk, who has missed his own ambitious sales targets for Tesla in recent years, said 2023 deliveries could hit 2 million vehicles, absent external disruption.

Tesla's sales prospects, as it confronts a weaker economy, are a key focus for investors. The company said it maintains a long-term target of a compounded 50% annual rise in sales.

Musk addressed the issue at the start 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 roughly double production in January, leading the automaker to make small price increases 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 rose 5.3% in extended trading.

CYBERTRUCK

The company is relying on older products and Musk said its Cybertruck, its next new electric pickup truck, would not begin volume production until next year. Reuters in November reported that the highly anticipated model would not be produced in volume until late this year.

Tesla will detail 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 largely depend on the cheaper unit as well as Model 3 and Model Y to bring EVs to the masses.

"It's unlikely that the Cybertruck will attempt to achieve mass-market volumes like the Detroit competitors."

GRAPHIC - Tesla expects to deliver 1.8 million vehicles this year

https://www.reuters.com/graphics/TESLA-RESULTS/jnpwywnbrpw/chart.png

GRAPHIC - Tesla's profit growth fell in the fourth quarter

https://www.reuters.com/graphics/TESLA-RESULTS/gkvlwxoqlpb/chart_eikon.jpg

Analysts said Tesla's goal 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 meaningful near-term volume growth from China, since its Shanghai factory was running near full capacity, rebounding from production challenges last year.

"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 gross margins, which dropped to a two-year low of 25.9% in the reported quarter, were pressured by the costs of ramping up battery production and new factories in Berlin and Texas, as well as higher raw material, commodity, logistics and warranty costs.

Tesla expected its automotive gross margin to remain above 20%.

Margins generally are expected to be under further pressure from its aggressive price cuts. Tesla, which had made a series of price increases since early 2021, reversed course and offered discounts in December in the United States, followed by price cuts of as much as 20% this month.

Analysts had said Tesla's profitability gave it room to cut prices and pressure rivals. The company's $9,000 in net profit per vehicle in the past quarter was more than seven times the comparable figure for Toyota Motor (NYSE:TM) Corp in the third quarter. But it was down from almost $9,700 in the third quarter.

"In severe recessions, cash is king, big time," Musk said, adding that Tesla is well positioned to cope with an economic downturn because of its $20 billion of cash.

The company's stock posted its worst drop last year, hit by demand worries and Musk's acquisition of Twitter, which fueled investor concerns he would be distracted from running Tesla.

Musk dismissed surveys that suggest his political comments on Twitter are damaging 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 three months ended Dec. 31, compared with analysts' average estimate of $24.16 billion, according to IBES data from Refinitiv.

Tesla's full-year earnings were bolstered by $1.78 billion in regulatory credits, up 21% from a year earlier.

Adjusted earnings per share of $1.19 topped the Wall Street analyst average of $1.13.

It ended the fourth quarter with 13 days' worth of vehicles in inventory, more than four times higher than the start of 2022, and a record $12.8 billion in value.

Musk bullish on Tesla sales as price cuts boost demand
 

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Comments (10)
Dave Jones
Dave Jones Jan 26, 2023 5:00AM ET
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Clever man.
John Berry
John Berry Jan 25, 2023 9:36PM ET
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Wow. 2 million vehicles sold forecast..And Tesla will take over the energy sector next. You heard it here first..
SB Gohner
No3putts Jan 25, 2023 9:07PM ET
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I'll bet themost negative comments are from people that can't afford or never driven a Tesla.  Jealosy :)
SB Gohner
No3putts Jan 25, 2023 8:53PM ET
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Strange article...let's make everything about TSLA negative ;( When was the last "price war" in EV or high end?
Bill Riley
Bill Riley Jan 25, 2023 6:36PM ET
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New EV companies are going bankrupt. Tesla will be the winner.
João Moreira
João Moreira Jan 25, 2023 5:22PM ET
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A little more than one year ago they promised 50% sales increase every year for the next 5 years or so. The targets were therefore 1M cars in 2021, 1,5M in 2022, 2.25M in 23, 3,375M in 24 and 5M in 2025. That growth was what was justifying the huge P/E and the heavy investments on new plants. They almost got it in 2021 but they missed the target by a large margin in 2022 and are already lowering 2023 target (after a significant price cut). 4 gigafactories that have more than 3M combined capacity but will run at 69% that number. Who can believe this management?
Dave Jones
Dave Jones Jan 25, 2023 5:22PM ET
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Me! Despite everything tsla is doing amazingly well.
Jason Moreira
Rolln Jan 25, 2023 5:02PM ET
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Can’t believe anything from that guy
Jason Park
Jason Park Jan 25, 2023 5:02PM ET
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A con artist
Marcus LL
Marcus LL Jan 25, 2023 5:02PM ET
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True.  He said the Model 3 would be $35k.  He said Fully Autonomous Driving would be available 2 years ago.  He said years ago that the truck would begin production in 2021.
Victor Cuello
Victor Cuello Jan 25, 2023 4:36PM ET
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Today was last call. Tomorrow Tesla bulls bank!!
Victor Cuello
Victor Cuello Jan 25, 2023 4:36PM ET
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BOOM BABY!! Another record braking year! Many more to go. How blind do you have to be by dislike of a man. Just imagine missing out on an OBVIOUSLY cheap company with the potential to become the world’s most valuable company in the far future, excellent moat, best of industry infrastructure: financial and otherwise… I’m looking at $1,500/share by 2025. …Please DO keep shorting, if that sort of things makes you happy… what can I say 🤷‍♂️?
Rafael Gonçalo
Rafael Gonçalo Jan 25, 2023 4:24PM ET
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Congrats Elon !!
João Moreira
João Moreira Jan 25, 2023 4:24PM ET
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For what? Not achieving 2022 targets or already lowering 2023 ones? Or for deceiving investors, never accomplishing the plans?
Prabhat Negi
Prabhat Negi Jan 25, 2023 4:22PM ET
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good reason for market to dump ... let's go .. lol
Brandon Kwon
Brandon Kwon Jan 25, 2023 4:22PM ET
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You’re so dumb lol
 
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