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Tesla warned that sales growth for its electric vehicles would be “notably lower” in 2024 than last year as it braced for flagging consumer demand, intensifying competition and ongoing high interest rates that damped the effect of a series of price cuts.
Tesla told investors in an earnings report on Wednesday that it was “between two major growth waves”. Chief executive Elon Musk said the company was preparing to start production of a new lower-cost car in the second half of 2025, five years after it first mooted plans to do so, which would use “revolutionary manufacturing technology” that would reduce the cost of the model.
The electric-car maker warned in its shareholder letter that “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 its factory in Texas.
After years of rapid growth, Tesla’s latest earnings reflect concerns about stalling global demand for electric vehicles and that the world’s most valuable carmaker has entered a new era of lower sales growth and margins. Its shares fell more than 5 per cent in after-market trading.
“We don’t have a crystal ball so it’s difficult to predict with precision,” said Musk in a call with investors and analysts. “If interest rates come down quickly margins will be good and if they don’t, they won’t be that good.”
Tesla reported slower revenue growth and a shrinking gross margin for the three months to the end of December. Revenue was up 3 per cent to $25.2bn, marking its slowest pace of growth in more than three years and coming in below analyst expectations of $25.6bn, according to the earnings report on Wednesday.
Tesla said it had hit its target of delivering 1.8mn cars in 2023, but unusually did not offer a specific delivery target for 2024. Wall Street has predicted Tesla will sell about 2.2mn vehicles in 2024, which would mark an increase of about 20 per cent — far lower than the 50 per cent annual growth rate it pledged three years ago.
EV sales have continued to rise to record levels globally, but at slower rates than expected as mass market customers have balked at higher prices compared with petrol alternatives. A number of EV makers have recently scaled back expansion plans, including Ford and General Motors, while rental group Hertz is selling one-third of its electric fleet to buy more petrol vehicles.
At the same time competition is heating up. China’s BYD overtook Tesla as the world’s top electric-vehicle manufacturer in the fourth quarter of 2023, delivering 1.58mn fully electric cars. Last year Tesla was forced to reverse price rises it made in 2022, instead cutting the prices of its most expensive models.
A record 1.2mn EVs were sold in the US in 2023, according to data from Kelley Blue Book, a research company. EVs made up 7.6 per cent of the domestic car market, up from 5.9 per cent in 2022.
Tesla reported a gross margin of 17.6 per cent for the quarter, below Wall Street predictions of 18.3 per cent and down from 23.8 per cent a year earlier. Excluding the effects of regulatory credits, the gross margin from Tesla’s automotive unit — a closely watched measure of its core operations — increased to 17.2 per cent for the quarter, slightly ahead of consensus estimates. This marked an improvement from last quarter’s 16.3 per cent, which was the lowest level in more than four years.
Margins were pushed lower due to price cuts, higher research and development spending and costs associated with increasing production of its new pick-up Cybertruck. Tesla said capital expenditure, including on future projects, was at record levels and would exceed $10bn in 2024.
Tesla is the worst-performing stock of the Magnificent Seven big tech companies, which also include Apple, Microsoft, Alphabet, Amazon, Nvidia and Meta. It has stumbled in recent months even as its counterparts have soared to record highs, and the stock has fallen 16.3 per cent year to date.
Price cuts and rising costs, as well as headwinds such as oversupply and weakening demand, have added to the gloomy sentiment. The carmaker has also failed to receive an artificial intelligence-fuelled boost to its share price that its peers have, even though Morgan Stanley analysts called it the “only truly AI-enabling stock” that it covers.
Musk said in the earnings call that he “sees a path to create an AI and robotics juggernaut of truly immense capability” and “where Tesla could one day be the most valuable company in the world”.
Musk had demanded a bigger stake in Tesla in a post on social media platform X earlier this month, in exchange for developing AI products at the electric car manufacturer. He said he needed to own 25 per cent of the company, suggesting if his demands were not met, he would pursue ventures outside of Tesla. As well as self-driving technology, Tesla has been developing a humanoid robot called Optimus.
When questioned about the post by investors, Musk said he was concerned he could be “voted out by some random shareholder advisory firm”.
“I want to be an effective steward of very powerful technology,” he said. “Twenty-five per cent is not so much I could control the company even if I went bonkers, but it’s enough that I have a strong influence.”
Musk’s stake in Tesla has dropped to about 13 per cent after he sold a significant portion to finance his $44bn acquisition of Twitter, which he renamed X.