Tesla profit, revenue above Wall Street targets, but profit margin shrinking

Tesla profit, revenue above Wall Street targets, but profit margin shrinking

Jan 25 (Reuters) – Tesla Inc (TSLA.O) beat Wall Street’s targets for fourth-quarter revenue and profit on Wednesday despite a sharp fall in vehicle profit margins, seeking to reassure investors it could cut costs and continue to generate cash as competition moves into the year ahead became more intense.

Tesla predicted a 37% increase in car volume for the year to 1.8 million vehicles, slowing last year’s growth rate despite aggressive price cuts.

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Tesla’s sales prospects after a massive price cut early this year, in the face of a weak global economy, are a major focus for investors. The company has a long-term goal of a compound annual increase of 50%.

Tesla acknowledged its concerns about the uncertain economic climate and rising interest rates, saying it is “accelerating our cost reduction roadmap and aiming for higher production rates” in the near term.

“In any scenario, we are prepared for near-term uncertainty,” it added.

Tesla has outperformed the industry in recent years, driving sales and profits to all-time records, weathering the pandemic and global supply chain challenges better than rivals. But the recent sharp global price cuts mark a move towards boosting growth at the expense of profit margins, underscoring declining demand.

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“Tesla’s demand outlook is much more optimistic than that of virtually any other automaker,” said Garrett Nelson, an analyst at CFRA Research, calling the quarter “solid.”

“The margin was a bit disappointing. I think what we are seeing is an inflationary impact and higher raw material costs,” he added.

Tesla shares fell 0.5% in extended trading. The company’s stock took its worst fall last year, hit by demand concerns and CEO Elon Musk’s takeover of Twitter, fueling investor concerns that he would be distracted from running Tesla.

In general, margins are expected to be further squeezed by the aggressive price cuts. Tesla, which had made a series of price increases since early 2021, turned the tide and offered discounts in the United States in December, followed by price cuts of as much as 20% this month.

The company said revenue was $24.32 billion for the three months ended Dec. 31, compared to the median analyst estimate of $24.16 billion, according to IBES data from Refinitiv.

Tesla said fourth-quarter automotive margin was 25.9%, the lowest in two years.

Tesla offered discounts in its top markets during the quarter after strong orders helped the company maintain and even raise prices in recent years. CEO Elon Musk said in December that “radical interest rate changes” had affected the affordability of all cars.

The EV maker delivered a record 405,278 vehicles to customers in the fourth quarter, even as the company fell short of its 50% annual growth target.

Net income for the quarter was $3.69 billion, or $1.07 per share, compared to $2.32 billion, or 68 cents per share, a year earlier. Adjusted earnings per share of $1.19 beat the Wall Street analyst average of $1.13.

Tesla’s full-year earnings were supported by $1.78 billion in regulatory credits, up 21% from a year ago.

Its year-end cash balance of $22.2 billion and up to $7 billion in funds available in a new credit facility the company announced Wednesday give it ammunition to fight the price war it started earlier this month.

Tesla strengthened its balance sheet by accessing $7 billion through a new credit facility. Tesla ended 2022 with just over $22 billion in cash and cash equivalents.

“Tesla’s plans to rapidly scale production will only drive earnings growth if the demand is there to meet it. Even a small cooling in demand will have a significant impact on the company’s bottom line,” said Sophie Lund-Yates, an analyst. at Hargreaves Lansdown.

Reporting by Akash Sriram in Bengaluru, Hyunjoo Jin in San Francisco, Joe White in Detroit and Kevin Krolicki in Singapore Written by Peter Henderson Edited by Sriraj Kalluvila and Matthew Lewis

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