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Tesla up over 7% in premarket as upbeat Musk reassures on 2023 outlook

Published 01/25/2023, 04:23 PM
Updated 01/26/2023, 05:33 AM
© Reuters.  Tesla (TSLA) delivers Q4 beat on 37% surge in revenue

By Geoffrey Smith -- Tesla (NASDAQ:TSLA) stock gained over 7% in premarket trading on Thursday after the electric vehicle maker insisted that there's no problem with demand for its cars, and forecast another year of solid - if slightly slower - growth.

Tesla reported underlying earnings per share of $1.19 in the fourth quarter, a little ahead of the $1.15 consensus, which had been revised down sharply at the end of last year as the company struggled with production and logistics disruptions at its plant in Shanghai. Such problems were partly responsible for the company's revenue falling slightly short of market estimates at only $24.32 billion.

More importantly, chief executive Elon Musk told in an analyst call after the release that the price cuts announced earlier this month have had a clear impact on demand, which he said is now running at double Tesla's current production capacity.

Tesla had cut prices for most of its cars by as much as 20% earlier in January, a move that reflects increased competition and problems with affordability, as consumers around the world struggle with the highest inflation in decades.

The price cuts were amplified by the fact that they brought some of its models below the price threshold required to qualify for federal subsidies introduced by the Biden administration last year. Lower prices increase the pressure on Tesla's operating margins, which fell to 16% in the fourth quarter. Musk nonetheless forecast that the operating margin in its core auto sales business would remain over 20% this year, well above industry averages.

"Given the heightened focus on the implications of recent price-cuts on demand and gross margins, management’s commentary will likely be met with some relief as it injects some much-needed visibility," said analysts at Citigroup, who raised their price target for the stock to $146 from $137 on the back of the news.

One negative takeaway from the conference call was Musk's forecast for the current year, which at 1.8 million cars was below analysts' forecasts of 1.9M and also represents a clear shortfall versus its target of 50% annual growth.

Musk didn't specify whether he was talking about production or deliveries.

By 05:26 ET (10:26 GMT), Tesla stock was up 7.1% in premarket trading, on course for its highest opening in over a month.

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