Tesla shares fell 7% in pre-market trading after Elon Musk announced a weaker 2024
Tesla reported a drop in gross margin for the fourth quarter compared to the previous year, as it reduces prices and offers incentives to boost demand for its electric vehicles.
The automaker warned of a sharp slowdown in volume growth in 2024 year-on-year.
“In 2024, our vehicle volume growth rate could be notably lower than the growth rate achieved in 2023 as our teams work on launching the next generation vehicle at Gigafactory Texas,” Tesla said in a statement.
The company’s shares fell 5% in after-market trading.
The company reported a gross margin of 17.6% in the three months ending in December, compared with 23.8% a year earlier, and analysts’ average estimate of 18.3%, according to LSEG data. In the third quarter, gross margin was 17.9%.
Record deliveries in the period also pressured margins as price cuts and costs associated with increased production of the new Cybertruck offset lower battery raw material costs.
Tesla has lowered its prices over the past year, such as that of the Model Y, its most popular vehicle, whose price was reduced by up to 26.5% in the US.
The company managed to reach its target of delivering 1.8 million cars for 2023, even as Elon Musk, Tesla’s chief executive, warned about the impact on demand due to high interest rates. However, Tesla lost its place as the largest electric vehicle manufacturer by sales to China’s BYD in the fourth quarter.
Tesla’s revenue rose 3% in the fourth quarter to $25.17 billion, marking its slowest growth pace in more than three years. Analysts on average expected $25.62 billion in revenue, according to LSEG data.
Tesla shares fell 7% in pre-market trading, after the company’s chief executive, Elon Musk, warned that sales growth will slow this year, despite price cuts that have already been made. They hurt margins and increased investor concerns about the world’s most valuable automaker.
Musk said growth will be “notably lower” as Tesla is focusing on a next-generation electric vehicle to be produced at its Texas factory in the second half of 2025, which is expected to trigger the next boom in deliveries. .
But his comments did not please investors, with Tesla set to lose around $50 billion in market value if pre-market losses hold. Its shares have already fallen 16.4% this month until the last close.
“Tesla’s headlines essentially went from bad to worse,” TD Cowen analysts said, noting that fourth-quarter revenue and profit also fell short of expectations.
Shares of other electric vehicle manufacturers such as Rivian, Grupo Lúcido and Fisker also fell.
The EV industry has been struggling with a slowdown in demand for more than a year and Tesla’s price cuts will likely worsen pressure on startups and automakers like Ford.
“The problem for Tesla is that any meaningful attempt to increase sales going forward will likely need to be achieved at the cost of further declines in operating margin, due to having to compete with BYD in China, as well as increased competition elsewhere,” said Michael Hewson, chief market analyst at CMC Markets.
The company’s shares trade at almost 60 times 12-month forward earnings estimates, according to LSEG data. This gives it a more premium valuation than other shares in the so-called “Magnificent Seven” group, formed by Apple, Microsoft, Alphabet, Amazon, Nvidia and Meta Platforms, in addition to Tesla.
Some analysts said the current valuation may be difficult to justify if Tesla’s sales growth and margin weaken further.
“Tesla increasingly looks like a traditional car company,” said Toni Sacconaghi, an analyst at Bernstein.
