Tesla CEO Elon Musk recently announced that the company may experience lower sales growth in 2024. This update came alongside Tesla’s earnings release on Wednesday, which highlighted the automaker’s current profitability crossroads.
In the fourth quarter, Tesla faced pressures on profits due to a strategy of cutting prices in order to drive sales, as well as the costs associated with bringing their highly anticipated Cybertruck into production.
Despite setting a new record for EV deliveries in 2023 at 1.8 million vehicles, this increase in sales did not translate into equivalent growth in profits or revenue. The company attributes this to their focus on driving sales through price cuts, as well as the expenses related to future products.
Tesla’s earnings report cautioned that the company is currently “between two major growth waves.” While the successful launches of the Model Y and Model 3 have contributed to Tesla’s recent success, they anticipate that their growth in vehicle sales “may be notably lower” in 2024 as they prepare to release a new platform for a smaller, more affordable EV with a target price of $25,000.
Following the release of these earnings, Tesla’s shares fell by 3.6% to $201.70 in after-market trading.
When reporting their fourth quarter net income (GAAP basis), Tesla reported an unusually high figure of $7.9 billion. This included a one-time non-cash tax benefit of $5.9 billion due to the release of a valuation allowance on certain deferred tax assets.
In order to provide a more accurate depiction of their financial performance, the company also reported their operating income and adjusted earnings. This showed a 47% decrease in operating income to $2.06 billion compared to the same period last year. The decrease was primarily due to increased operating expenses related to AI and other research and development projects, as well as the production ramp up for the Cybertruck and lower revenue from their Full Self-Driving software. In the fourth quarter alone, Tesla spent $1.1 billion on research and development, a 35% increase from the same period in the previous year.
On a positive note, Tesla noted that they have benefited from lower costs per vehicle, including raw materials and the Inflation Reduction Act credit, as well as growth in vehicle deliveries. These factors have helped to lessen the profit gap.
On an adjusted basis, the company earned $3.9 billion in the fourth quarter, a 27% drop from the same period last year.
Tesla has been working to reduce costs in order to increase their margins in the automotive industry. In the fourth quarter, their automotive gross margins (excluding regulatory credits) increased to 17.2%, which is the first quarterly increase since they began heavily reducing prices last year. However, the company also shared that they are approaching the “natural limit” in terms of how much they can reduce costs for their existing vehicles. They anticipate that as they continue to progress, their profits will be driven by advancements in AI, software, and fleet-based revenue.
While Tesla’s revenue continued to grow, it was at a slower pace than they have previously experienced. The company generated $25.17 billion in revenue during the fourth quarter, a 3% increase from the same period in the previous year. This falls just below analysts’ predictions, with expectations of $25.62 billion in revenue according to Yahoo Finance data.
This is a developing story. Stay tuned for updates.
