Tesla shares drop after warning of slower volume growth in 2024

SCIENCE & TECH: Tesla shares drop after warning of slower volume growth in 2024

Tesla on Wednesday warned of “notably lower” vehicle sales growth this year and reported a fall in fourth-quarter gross margin as it cut prices and offered incentives to boost demand.

The company said it was in between two growth waves: one driven by the release of Models 3 and Y in 2017 and 2020, respectively, and a second wave that would start with the next-generation vehicle platform.

Earlier on Wednesday, Reuters reported that Tesla has told suppliers it wants to start production of a new mass-market electric vehicle, code-named “Redwood,” in mid-2025, likely a compact crossover.

“In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas,” Tesla said in a statement.

Wall Street expects Tesla to sell 2.2 million vehicles this year, according to Visible Alpha. That would be up about 21% from 2023 but well below the long-term target of 50% that CEO Elon Musk set about three years ago. Tesla, however, did not reiterate that target on Wednesday.

Elon Musk’s Tesla warned of a sharp slowdown in volume growth this year compared with the previous year. Beata Zawrzel/NurPhoto/Shutterstock

Shares of the Austin, Texas-based company were down 4.3% in after-hours trading.

After years of breakneck growth, Tesla, the world’s most valuable automaker, is bracing for slowing growth and margins as EV demand softens and competition intensifies from rivals including BYD whose model lineups are less expensive and more varied.

“If volume’s going to be lower, then my guess is, Musk will probably cut prices and take share. Margins may continue to struggle for a while,” said Gary Bradshaw, portfolio manager at shareholder Hodges Capital Management.

Tesla’s average revenue per vehicle delivered dropped to $45,585 in 2023, down 16% from the year before. In the fourth quarter, the EV maker’s average revenue per vehicle dropped more than $6,800 compared with a year earlier, as the company slashed prices in China, Europe and the United States.

Record deliveries in the quarter pushed margins lower. Getty Images

The company reported a gross margin of 17.6% for the three months ended December, compared with 23.8% a year earlier, and analysts’ average estimate of 18.3% according to LSEG data.

In the third quarter, Tesla posted gross margin of 17.9%.

Automotive gross margin, excluding regulatory credits – a closely watched figure – dropped to 17.2% from 24.3% a year earlier, although it improved from 16.3% in the third quarter.

“Today’s flat sales and substantially reduced margin results are further evidence that Tesla is losing its leadership advantage and its brand leadership has weakened,” said Greg Silverman, global director of brand economics at Interbrand.

More price cuts?

Tesla slashed prices of its cars throughout last year, igniting a price war that singed US rivals including Ford, who have all slowed EV production. Musk cautioned later in the year that high interest rates were hitting demand.

Its stock, which has enjoyed valuations of a technology company partly due to Musk’s promise of self-driving cars, has fallen 16% so far this year, after doubling in 2023. Tesla has been left out of the rally of major tech shares which has been driven by hopes of interest rate cuts.

“I don’t think the price cuts are over, mainly for the reason that demand for its electric vehicles is still weak,” said Jesse Cohen, senior analyst at Investing.com, who called the quarter underwhelming. “The big question is if this is just a blip, or signs of a bigger shift among consumers as higher interest rates and a weaker economic backdrop discourage consumers from making big-ticket purchases.”

Tesla slashed prices of its cars throughout last year, igniting a price war that singed US rivals including Ford, who have all slowed EV production.  Christopher Sadowski

Net income more than doubled from the previous year to $7.9 billion, including a $5.9 billion noncash gain related to deferred tax assets. Tesla said lower raw material costs and US government credits helped lower cost-per-vehicle, but Cybertruck production and AI and other research projects increased costs.

On an adjusted basis, Tesla earned 71 cents per share in the fourth quarter, missing an average analysts’ estimate of 74 cents, according to LSEG data.

Tesla slashed prices throughout last year. It reduced the price of the Model Y, its most popular vehicle, by as much as 26.5% in the past year in the US.

The company managed to achieve its 2023 deliveries target of 1.8 million cars, even as Musk warned of a hit to demand from high interest rates. However, Tesla lost its spot as the top EV maker by sales to China’s BYD in the fourth quarter.

Tesla’s fourth-quarter revenue rose 3% to $25.17 billion, which marked its slowest pace of growth in more than three years. Analysts on average expected $25.62 billion, according to LSEG data.

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