Musk bullish on Tesla sales as price cuts boost demand

Jan 25 (Reuters) – Tesla Inc’s (TSLA.O) aggressive price cuts have boosted demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, downplaying fears a weak economy could strangle the buyer interest.

The company slightly beat Wall Street’s fourth-quarter revenue and profit targets earlier on Wednesday despite a sharp decline in vehicle profit margins, and it sought to reassure investors that it can cut costs to weather the recession and increased competition in the coming year.

Sharp price drops this month have positioned Tesla as the initiator of a price war, but its forecast for a 37% increase in car volume for the year, to 1.8 million vehicles, were down from the 2022 pace.

However, Musk, who has missed his own ambitious sales targets for Tesla in recent years, said 2023 deliveries could reach 2 million vehicles, absent external disruption.

Tesla’s sales prospects, in the face of a weaker economy, are front and center for investors. The company said it maintains a long-term goal of a 50% compound annual increase in sales.

Musk addressed the issue at the start of a call with investors and analysts.

“These price changes really make a difference to the average consumer,” he said, adding that vehicle orders roughly doubled production in January, leading the automaker to make slight adjustments. price increases for the Model Y SUV.

He said he expected a “pretty tough recession this year,” but that demand for Tesla vehicles “will be good despite likely a contraction in the overall auto market.”

The shares rose 5.3% in extended trading.


The company is relying on older products, and Musk said his Cybertruck, his next new electric pickup truck, won’t begin volume production until next year. Reuters reported in November that the highly anticipated model would not go into volume production until the end of this year.

Tesla will detail plans for a “next-generation vehicle platform” at its Investor Day in March.

Tesla’s vehicles “are all in desperate need of updates beyond software,” said Jessica Caldwell, Edmunds’ executive knowledge manager. She said Tesla will largely depend on the cheapest unit as well as the Model 3 and Model Y to bring electric vehicles to the masses.

“The Cybertruck is unlikely to attempt to achieve mass market volumes like Detroit’s competitors.”

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Reuters Charts

Analysts said Tesla’s target was bullish given the macroeconomic uncertainties.

“I think you’re going to see a lot of demand destruction in consumer spending and I think cars are going to be hit hard,” said Edward Moya, senior market analyst at OANDA.

Tesla said it did not expect significant near-term volume growth from China, as its Shanghai factory was running near capacity, rebounding from production issues last year.

“Even a small cooling in demand will have significant implications for the bottom line,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown.

Tesla said its automotive gross margins, which fell to a two-year low of 25.9% in the quarter under review, were pressured by the costs of increased battery production and new factories in Berlin and Texas, as well as higher raw materials, commodity, logistics and warranty costs.

Tesla expected its automotive gross margin to remain above 20%.

Margins are generally expected to come under additional pressure due to its aggressive price cuts. Tesla, which had made a series of price increases since early 2021, reversed course and offered discounts in December in the United States, followed by price cuts of up to 20% this month.

Analysts had said Tesla’s profitability allowed it to cut prices and put pressure on rivals. The company’s net income of $9,000 per vehicle in the last quarter was more than seven times higher than Toyota Motor Corp’s (7203.T) comparable figure in the third quarter. But it was down from nearly $9,700 in the third quarter.

“In severe recessions, cash is king, very important,” Musk said, adding that Tesla is well positioned to weather an economic downturn thanks to its $20 billion in cash.

The company’s stock posted its worst decline last year, hit by demand concerns and Musk’s acquisition of Twitter, fueling investor fears that he would be distracted from running the company. You’re here.

Musk has dismissed polls that suggest his political comments on Twitter are hurting the Tesla brand. “I may not be popular” with some, he said, “but for the vast majority of people, my follower count speaks for itself.” He has 127 million followers.

Revenue was $24.32 billion for the three months ended Dec. 21. 31, versus an average analyst estimate of $24.16 billion, according to IBES data from Refinitiv.

Tesla’s annual profits were bolstered by $1.78 billion in regulatory credits, up 21% from a year earlier.

Adjusted earnings per share of $1.19 topped the Wall Street analyst average of $1.13.

It ended the fourth quarter with 13 days of vehicles in inventory, more than four times more than at the start of 2022, and a record value of $12.8 billion.

Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru, Additional reporting by Joe White and Ben Klayman in Detroit and Kevin Krolicki in Singapore Writing by Peter Henderson Editing by Sriraj Kalluvila, Matthew Lewis, Sam Holmes and David Goodman

Our standards: The Thomson Reuters Trust Principles.


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