Tesla (TSLA) sees slowdown ahead amid softening demand and rising competition

Tesla Inc. (NASDAQ: TSLA) ended fiscal 2023 on a mixed note, reporting higher sales and a decline in adjusted profit as margins remained under pressure. The EV giant’s stock is currently on one of the longest losing streaks, with recent price cuts and the muted outlook weighing on investor sentiment.

In the fourth quarter, Tesla produced a record 495,000 vehicles and delivered 485,000 units. However, the company cautioned that vehicle volume growth would be notably slower in 2024, after reporting weaker-than-expected earnings and revenues for Q4. Interestingly, the management did not provide any specific numbers for this year’s delivery, while the current market trend points to a general slowdown in electric vehicle sales across the world.

Stock Falls

The market responded negatively to the announcement and Tesla’s stock slipped soon after the announcement this week, hitting the lowest level in about eight months. TSLA had a rather weak start to 2024 and has lost about 27% since the beginning of the year.

The automaker said it achieved production and delivery goals in 2023, with the annualized production run rate rising to 2 million cars in the fourth quarter. The company ended the year with a record free cash flow of $4.4 billion, even after making significant investments in future projects. The healthy cash position puts it on track to meet expansion goals this year, including the ambitious self-driving project. A key priority would be to ramp up production and delivery of the sci-fi-inspired Cybertruck, the battery-powered full-size pickup truck that was launched recently.

Margin Squeeze

With margins coming under pressure from recent price cuts, Tesla is likely to shift focus to tackling competition and safeguarding market share since more price cuts would be unsustainable as far as profitability is concerned. It is worth noting that BYD Co., which has emerged as the top-selling EV brand in China, recently beat Tesla to become the world’s largest electric vehicle maker. Against this backdrop, CEO Elon Musk’s initiatives to make Tesla a market leader in AI and robotics assume significance.

“There’s a lot to look forward to in 2024. Tesla is currently between two major growth waves. We’re focused on making sure that our next growth wave driven by next-gen vehicles, energy storage, full self-driving, and other projects is executed as well as possible. For full self-driving, we’ve released version 12, which is a complete architectural rewrite compared to prior versions. This is end-to-end artificial intelligence,” Musk said in his post-earnings interaction with analysts.

Q4 Numbers Miss

In the final months of fiscal 2023, earnings per share, excluding special items, declined a dismal 40% annually to $0.71. The bottom line was hurt by a 27% increase in operating expenses. Sales in the core automotive division rose modestly in Q4 while services revenue jumped 27%, resulting in a 3% increase in total revenues to $25.17 billion. On the other hand, unadjusted earnings more than doubled to $2.27 per share. Earnings and revenues missed estimates for the second consecutive quarter. Meanwhile, gross auto margins came in above consensus estimates.

Recovering modestly from the post-earnings selloff, shares of Tesla traded slightly higher on Friday afternoon. The stock is almost where it was a year earlier.