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Tesla begins the long road back to the top

EV maker Tesla did better than Wall Street had expected in the three months to December with revenue and sales up – which matter more than the full year figures which merely reflected the stronger growth and vehicle sales in 2022 compared with 2021 when the company’s EV sales were just starting to grow rapidly.

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The company posted $US24.3 billion in revenue in the three months to December, higher than the $US24.07 billion forecast by analysts and growth of 33% year-over-year which came despite acknowledged problems in China with a slowdown in sales which forced Tesla into price cuts last in the quarter which have been repeated in China again this year and in the US and Europe earlier this month.

The EV maker reported a profit of $US3.687 billion for the final three months of 2022. That was up 59% from the $US2.32 billion reported for the final quarter of 2021.

Analysts said the performance and comments by CEO Elon Musk that sales had quickened in January in the wake of the price cuts demonstrated that the EV maker may be doing a better job than anticipated of weathering concerns about slipping demand for its cars, logistical holdups, and ongoing legal dramas surrounding chief executive Musk, especially his wasteful $US44 billion takeover of Twitter.

Tesla has been slashing US prices on its electric cars by up to 30%, bringing the price of its best-selling Model Y vehicle down to $US52,990 – a drop of $US13,000. Similar big price cuts were made in December and early January in China in two separate moves.

Tesla acknowledged that China was its big worry last year with a combination of the mid-year Covid related shutdown in its huge Shanghai plant and then the Covid driven hits to sales late in the year that forced the two rounds of price cuts and subsidies on car insurance to buyers.

The price cuts saw demonstrations in China by recent buyers and in the US.

The US price cuts though had an ulterior motive – they will make more models eligible for tax incentives of $US7,500 under the US Inflation Reduction Act (IRA).

This act gives subsidies for EVs priced under$US55,000. Tesla’s cuts mean the Model 3 and Model Y in moth versions, will now cost much less than $US55,000.

The company addressed the recent price cuts in the earnings release, noting that average selling prices have been on a downward trajectory for “years.”

Tesla reported 405,278 vehicle deliveries globally and production of 439,701 vehicles in the three months to December 31, 2022.

Full year deliveries amounted to around 1.31 million, another expected record for Tesla, after the company started production at its new factories in Austin, Texas, and Brandenburg, Germany.

Tesla said it plans to grow its production volume “as quickly as possible” to align with its 50% compound annual growth rate (CAGR) target.

That goal dates back to early 2021. For 2023, Tesla said it expects to produce around 1.8 million vehicles, which would be an increase of 37% compared to 2022.

“We are planning to grow production as quickly as possible in alignment with the 50% compound annual growth rate target we began guiding to in early 2021,” Tesla said in its data release on Wednesday.

Tesla said that it had installed the capacity — across all of its factories — to make 100,000 Model S and X vehicles annually, and 1.8 million Model Y and Model 3 vehicles. That’s a total of 1.9 million units.

Musk participated in the post results release conference call with analysts and investors after spending another day in a court testifying in a class action brought against him for his 2018 tweet that he was ready to take the company private at $US420 a share.

The company also announced this week plans to expand its manufacturing facilities in Nevada at a cost of $US3.6 billion and hire 3,000 people as it ramps up production of its heavy-duty, fully electric truck, the Tesla Semi, as well as expanding battery production.

Services and other revenue for Tesla, which includes fees for out-of-warranty vehicle repairs, among other items, reached $US1.6 billion in the quarter.

Revenue from energy generation and storage was up sequentially and year-over-year, reaching $US1.31 billion. The cost of revenue for its energy division was high, though, at $US1.15 billion in the fourth quarter.

Tesla shares rose 2.2% in afterhours trading on Wednesday after the results were released. That was after they added 0.4% in regular trading after starting Wednesday down sharply at the open.

But the closely-watched automotive gross margin fell to 25.9% from 27.9% in the third quarter and 30.6% in the fourth quarter a year ago. It was the lowest margin in five quarters.

US analysts point out this margin is influenced by the hundreds of million dollars it gets each year selling the governmental credits it receives for selling only zero-emission cars.

Traditional automakers (such as Ford and GM), which still sell primarily petrol-powered cars, buy those credits from Tesla in order to avoid fines for not meeting strict emissions rules.

Many auto analysts strip out those credits when calculating the profit margins Tesla achieves on its automotive operations.

When those credits are excluded, Tesla’s automotive gross margin fell to 24.3% in the quarter, a couple percentage points below many estimates, and down from 26.8% in the third quarter and 29.2% in the fourth quarter of 2021. Still solid, but not quite as solid as in previous quarters.

Tesla’s full year performance was impressive – revenues of $US71.46 billion were 51% higher than 2021’s $US47.23 billion and net income of $US12.556 billion was 128% higher than the $US5.52 billion in 2021.

Those full year figures will become more important this time in 2024 as investors compare the performance this year with the solid 2022 effort.

Tesla had more than $US22 billion in cash on hand at the end of 2022 which should be more than enough to finance its growing car and other businesses in the US, China and Europe and pay for the revamp of its model line-up.

Tesla said it will reveal details of its next generation vehicle platform at an investors’ day on March 1 which will be streamed as well as in person in Texas. 

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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