Elon Musk, the CEO of Tesla Inc. (TSLA.O), dismissed worries that a poor economy would stifle buyers’ enthusiasm on Wednesday by claiming that the company’s aggressive price reductions have sparked a desire for its electric automobiles.
Despite a dramatic decrease in car profit margins, the business slightly above Wall Street projections for fourth-quarter profits and revenue earlier on Wednesday, and it sought to persuade investors that it can cut expenses to deal with the recession and as rivalry heats up in the next year.
Tesla has established itself as the leader in a pricing battle thanks to significant price cuts this month, but its prediction of a 37% increase in car production for the year, to 1.8 million units, was below the rate of 2022.
Despite having fallen short of his own lofty sales goals for Tesla in recent times, Musk predicted that deliveries in 2023 may reach 2 million vehicles, barring any unfavourable external circumstances.
Investors are particularly interested in Tesla’s sales prospects as the company deals with a worse economy. The business stated that it continues to aim for a compounded yearly sales growth of 50%.
At the outset of a conference with investors and analysts, Musk addressed the problem.
He said these pricing changes have a significant impact on the regular consumer.
He also mentioned that in January, car orders were almost twice as high as production, which forced the automaker to slightly raise the price of the Model Y SUV.
He predicted a challenging recession for this year. And, also foresaw the demand for Tesla cars would remain strong despite what he saw to be a decline in the overall automobile industry.
In extended trade, shares increased by 5.3%.
The business relies on outdated products, and Musk stated that volume production of the company’s new Cybertruck electric pickup truck wouldn’t start until the following year.
A November report showed volume production of the eagerly awaited model wouldn’t begin until this year’s end.
At its investor day in March, Tesla will go into detail about its intentions for a platform for next-generation vehicles.
Jessica Caldwell, the executive director of insights at Edmunds, claimed all of Tesla’s vehicles urgently require changes beyond software.
Tesla will rely heavily on the less expensive model as well as the Model 3 & Model Y to make EVs accessible to the general public.
The Cybertruck is unlikely to try to reach mass-market numbers like its Detroit rivals.
Given the macroeconomic uncertainty, analysts deemed Tesla’s objective to be optimistic.
Edward Moya, a senior market analyst at the OANDA stated there might be serious demand destruction throughout consumer spending, and automobile sales will suffer significantly.
Since its Shanghai facility was operating at close to full capacity after recovering from manufacturing issues earlier this year, Tesla stated that it does not anticipate any appreciable near-term sales volume from China.
According to Sophie Lund-Yates, the analyst at Hargreaves Lansdown, even a slight decrease in demand will have a major impact on the bottom line.
Tesla predicted that its automotive profitability, which in the reported quarter fell to a two-year low of 25.9%, would be above 20% despite the increased costs associated with ramping up battery technology and opening new factories in Texas and Berlin as well as higher costs for raw materials, commodities, logistics, and warranties.
Its dramatic price cuts are anticipated to put additional pressure on margins in general.
Tesla reversed course and gave discounts in Dec. in the United States, backed by price reductions of up to 20% this month.
Tesla had been gradually raising its prices since the beginning of 2021.
Analysts had said that Tesla has room to lower prices and put pressure on competitors due to its profitability. In the most recent quarter, the company’s $9,000 net profit per vehicle was $7,000 more than Toyota Motor Corp (7203.)’s statistic.
However, it had decreased from about $9,700 in the third quarter.
