Elon Musk says Tesla could deliver up to 2 million cars this year after the electric vehicle maker dramatically slashed prices in its portfolio to prioritize expanding its customer base at the expense of short-term profits. .
The company’s CEO on Wednesday sought to assuage investor worries that demand is waning as Tesla faces increasing competition from other major automakers and tougher economic conditions.
“The most common question we get from investors is about demand. . . so I want to put that concern to rest, musk said in an earnings call. “So far in January, we have seen the strongest year-to-date orders ever in our history. We are now seeing orders at nearly double the production rate.
He added: “We think demand will be good although the overall auto market may shrink. “I think there are a lot of people who want to buy a Tesla but can’t afford it. And so these price changes really make a difference to the average consumer.”
The company’s stock, which was battered in 2022 when it lost about $700 billion in market value, has now surged nearly 40% this month, a mark of confidence from shareholders for the bearish move. by Tesla in early January to stimulate demand. Shares rose more than 5 percent in after-hours trading.
“The smart thing to do, in the long run, is as many people adopt Tesla as possible,” said Ross Gerber, a longtime Tesla investor at Gerber Kawasaki, an asset management firm. “For investors, there is confidence that scaling will lower the average cost per vehicle, so margins should return, hopefully by the end of the year.”
The update comes as the electric vehicle company reported record sales of $24.3 billion for the December quarter, up 37% from last year. Analysts had expected $24.2 billion. Net income of $3.7 billion was slightly higher than forecast of $3.6 billion.
However, Tesla’s automotive gross margin, a closely watched metric, fell during the quarter to 25.9%, down nearly 5 percentage points from a year ago.
Tesla says its “average selling price” has been going down for years, and that improving affordability “is necessary to become a multimillion-dollar vehicle manufacturer.” It aims to increase profit margins by scaling up production, introducing lower-cost models and making its factories more efficient.
It is expected that it will produce about 1.8 million cars by 2023, up more than 30% from 1.3 million cars in 2022, but Musk told investors that without meeting any major supply problem, they can ship 2 million cars. “We’re not committed to it, but I’m just saying it’s potential,” Musk said.
Ben Bajarin, analyst at Creative Strategies, said: “The potential to sell 2 million units may also be more likely as prices drop, which will only further cement their market share leadership position in the market. with electric cars.”
Tesla posted its first full-year net profit in 2020, earning $721 million. Two years later, it made $12.6 billion, more than the $10.5 billion expected profit at General Motors or the $8 billion expected at Ford, according to S&P estimates. Global Market Intelligence.
That gave Tesla the opportunity to slash prices by up to 20%, a move Gerber likened to “slashing all his competitors in the face” as the race for electric-car dominance heats up. .
Tesla warned more broadly about the “uncertain macroeconomic environment,” citing “rising interest rates” as a specific challenge. It said it is trying to offset these challenges with cost control measures in its supply chain.
In early January, the company overwhelmed investors by reporting delivery 405,278 vehicles in the final quarter of 2022 — lower than the forecast of 420,000 to 430,000. It’s still up 11% from the record it hit last quarter.
However, Tesla beat analysts’ forecasts for net income in 13 of the past 14 quarters, according to Garrett Nelson, an analyst at CFRA Research.
He calls it a “big positive” that the future but long-delayed Cybertruck will put Tesla in a new segment of buyers, expected to begin production this summer. .
However, Musk said any effect on Tesla’s profits from the Cybertruck won’t be felt until 2024.
“The start of production is always very slow,” he said. “It grows exponentially, but it’s always very slow at first.”
Tesla’s market valuation of around $450 billion remains far below its peak of $1.2 trillion in 2021, reflecting concerns about its ability to keep up with rapid growth amid competition. severe and questionable demand due to economic headwinds.
Meanwhile, Musk’s $44 billion acquisition of Twitter last year has Tesla investors worried about whether he’s too distracted to steer the company through a challenging period. are not.