Tesla is at a turning point in its profit growth, with the company’s recent earnings report revealing a potential slowdown in sales growth. Despite delivering a record 1.8 million electric vehicles in 2023, Tesla’s profits and revenue have not seen the same level of growth. According to the company, this is due to a combination of price cuts to boost sales and the expenses of bringing its highly-anticipated Cybertruck into production.
Tesla also warns that it is currently in between two major growth waves, with the launch of the Model Y and Model 3 leading to great success in recent years. However, this growth may slow down significantly in 2024 as the company prepares to debut a new vehicle platform that will allow for the production of a smaller, lower-cost EV priced at around $25,000.
“There’s a tremendous amount of new revolutionary manufacturing technology wrapped up in the new platform,” said Tesla CEO Elon Musk during a call discussing the earnings report.
The new platform will be utilized for the production of Tesla’s new vehicle, which is set to begin manufacturing in late 2024 at the company’s factory in Texas. Musk also mentioned plans to build the lower-cost car in another location overseas, but will not proceed with construction of a new factory in Mexico until after the launch of the new vehicle.
As a result of the earnings report, Tesla’s shares fell 3.6% in after-market trading as investors reacted to the company’s potential profit slowdown.
Despite a reported net income of $7.9 billion in the fourth quarter, Tesla clarified that this included a one-time non-cash tax benefit of $5.9 billion. When looking at the company’s operating income and earnings on an adjusted basis, a clearer picture of its financial performance emerges.
Tesla’s operating income of $2.06 billion in the fourth quarter saw a 47% decrease from the previous year, due in part to higher operating expenses related to R&D projects and the costs of Cybertruck production. However, the company did report a benefit from lower per vehicle costs and growth in deliveries, which helped to narrow the profit gap.
On the positive side, Tesla saw an increase in its automotive gross margins, which stood at 17.2% (excluding regulatory credits) in the fourth quarter. This is the first quarterly increase since the company began implementing price cuts last year. However, Tesla also admits that it has reached the “natural limit” for cost reduction on its current vehicles and is now looking towards software and AI advancements to drive future profits.
Although revenue continued to grow, it did so at a slower pace than Tesla has experienced in the past. The company reported $25.17 billion in revenue for the quarter, a 3% increase from the previous year but slightly below analysts’ expectations.
One area of growth that remains strong for Tesla is its energy storage business. Despite a slower fourth quarter, storage deployments were up 125% from the previous year. The company’s Senior Vice President of Powertrain and Energy, Drew Baglino, even stated that deployment figures will now be included in Tesla’s quarterly production and delivery reports.
“I said for many years that the storage business would grow much faster than the car business, and it is doing that,” Musk remarked during the earnings call.
This marks a new phase for Tesla as it looks to balance its growth in the electric vehicle market with advancements in software and technology. As the company prepares to launch its highly-anticipated new vehicle platform, it remains to be seen how this will impact its sales and profits in the coming years.
This story is developing…
