Elon Musk says Tesla could deliver up to 2 million cars this year after the electric vehicle maker dramatically cut prices across its portfolio to prioritize expanding its customer base at short-term costs.
The company’s chief executive on Wednesday sought to allay investor concerns that demand is slowing as Tesla faces increased competition from other big automakers and a tougher economic climate.
“The most common question we get from investors is about demand . . . so I want to address that concern,” Musk said on the earnings call. “Right now in January, we’ve seen the strongest orders to date than in our history. We’re now seeing orders almost twice the production level.
“We think demand will be good despite the contraction in the automotive market as a whole,” he said. “I think there are just a lot of people who want to buy a Tesla car but can’t afford it. So this price change really makes a difference for the average consumer.
The company’s shares, which were wiped out in 2022 due to a loss of $700 billion in market value, are now up nearly 40 percent this month, a stamp of confidence from shareholders in Tesla’s move to cut prices in early January to kick-start demand. Shares rose more than 5 percent in after-hours trading.
“The smart thing to do, long-term, is to get as much Tesla adoption as possible,” said Ross Gerber, a longtime Tesla bull at Gerber Kawasaki, a wealth management firm. “For investors, there is confidence that scale will reduce the average cost per vehicle, so margins will return, hopefully by the end of the year.”
The update comes as the electric vehicle company reported record profits of $24.3bn for the December quarter, up 37 per cent from last year. Analysts had expected $24.2bn. Net income of $3.7bn was slightly ahead of forecasts of $3.6bn.
However, Tesla’s automotive gross margin, a closely watched metric, shrank during the quarter to 25.9 percent, down nearly 5 percentage points from a year ago.
Tesla said its “average selling price” has been on a downward trajectory for several years and that increasing capabilities “needs to be a multimillion-dollar vehicle producer”. The goal is to boost margins by expanding production, introducing low-cost models and making factories more efficient.
It is projected to build about 1.8 million cars in 2023, up more than 30 percent from 1.3 million in 2022, but Musk told investors that barring major supply issues, it could deliver 2 million vehicles. “We’re not committed, but I’m just saying there’s potential,” Musk said.
Ben Bajarin, an analyst at Creative Strategies, said: “Two million potential sales could be even more due to lower prices, which will only continue to strengthen market share in EVs.”
Tesla made its first full-year net profit in 2020, earning $721 million. The next two years have earned $ 12.6bn, more than $ 10.5bn expected profit in General Motors or $ 8bn expected in Ford, according to S&P Global Market Intelligence estimates.
That has given Tesla room to cut prices up to 20 percent, a move Gerber compared to “putting a sword in the side of all the competition” as the race for EV dominance heats up.
Tesla warned more about an “uncertain macroeconomic environment”, citing “rising interest rates” as a particular challenge. He said he is trying to balance these challenges with cost control in the supply chain.
At the start of January, the company upset investors when it reported delivering 405,278 vehicles in the last quarter of 2022 – less than a forecast of between 420,000 and 430,000. This is still an 11 percent increase from the record set in the previous quarter.
Still, Tesla has beaten analysts’ forecasts for net income in 13 of the past 14 quarters, according to Garrett Nelson, an analyst at CFRA Research.
He called it a “big positive” that the futuristic but long-delayed Cybertruck, which would make Tesla enter a new buyer segment, is scheduled to start production this summer.
However, Musk said that any effect on Tesla’s bottom line from the Cybertruck won’t be felt until 2024.
“Starting production is always very slow,” he said. “It’s growing exponentially, but it’s always very slow at first.”
Tesla’s estimated market value of $450bn remains below its peak of $1.2tn in 2021, reflecting concerns about its ability to grow rapidly amid stiff competition and questionable demand due to economic woes.
Musk’s $44bn acquisition of Twitter last year has now worried Tesla investors whether he will be too distracted to steer the company through difficult challenges.