Tesla Growth Slows, Margins Fall As Elon Musk Talks Too Much Twitter
SAN FRANCISCO, CALIFORNIA – JANUARY 24: Tesla CEO Elon Musk leaves the Phillip Burton Federal … [+] Building on January 24, 2023 in San Francisco, California. Musk testified at a trial regarding a lawsuit that has investors suing Tesla and Musk over his August 2018 tweets saying he was taking Tesla private with funding that he had secured. The tweet was found to be false and cost shareholders billions of dollars when Tesla’s stock price began to fluctuate wildly allegedly based on the tweet. (Photo by Justin Sullivan/Getty Images)
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If you set expectations low enough, it becomes easier to beat them. Do that, and investors will buy your stock in a relief rally.
That seems to be what happened with Tesla’s fourth quarter results that fell short of expectations on Wednesday after the market closed.
Since then, the stock is up nearly 10% on January 26 — and over 45% so far in 2023. Still it has seen better days — since peaking in November 2021, Tesla stock has lost 62% of its value.
Tesla’s Lowered Expectations
Before announcing earnings, Tesla lowered expectations for its fourth quarter revenue growth while offering solid profit guidance. According to the Wall Street Journal, the electric-vehicle maker was expected to post a nearly 40% increase in sales to $24.7 billion with fourth quarter profit expected to rise 62% to $3.8 billion, according to analysts surveyed by FactSet.
Prior to Tesla’s fourth quarter earnings announcement, analysts expected vehicle deliveries to grow more slowly than Tesla’s long-term aspirations. That amounts to a 46% increase in vehicle deliveries — to 1.91 million — in 2023. By 2033, Tesla aims to sell 20 million vehicles per year and grow at a 50% annual rate.
Tesla’s Mixed Q4 Results
Tesla’s fourth quarter results were mixed — falling short of expectations in may areas and beating on adjusted earnings per share. According to CNBC, here are some of the highlights:
Revenue of $24.32 billion — about $280 million short of expectations from FactSet Net profit up 59% to $3.7 billion — $100 million short of the FactSet consensus Earnings (adjusted): $1.19 — six cents more than expected, per Refinitiv Automotive gross margins at 25.9% — the lowest figure in the last five quarters. Operating cash flow down 29% from last year — 36% from last quarter — at $3.28 billion
Tesla’s Uncertain Forecast
Tesla offered tepid guidance for 2023 vehicle production below that pre-earnings estimate. Specifically, Tesla forecast production of 1.8 million vehicles in 2023 — 300,000 short of what analysts had anticipated — representing 37% growth this year.
CEO Elon Musk told analysts that he had issued the lower guidance because he could not predict whether a major force would upend the industry. As CNBC reported, Musk said, “We’re saying 1.8 because there always seems to be some friggin’ force majeure thing that happens somewhere on Earth. We don’t control if there’s earthquakes, tsunamis, wars, pandemics, etc. If it’s a smooth year, without some big supply chain interruption or massive problem we have the potential to do 2 million cars this year.”
The price cuts announced in December 2022 seem to have sparked demand. As Musk told investors, “Thus far in January we’ve seen the strongest orders year-to-date than ever in our history. We’re currently seeing orders of almost twice the rate of production.”
Elon Musk’s Tesla Distractions
Although Musk — rather than Tesla — owns Twitter, Tesla shareholders asked him how he would safeguard Tesla’s “brand and reputation from any backlash resulting from his political statements,” noted CNBC.
He sidestepped the question, bragging about how many Twitter followers he has. “I’ve got 127 million followers. And it continues to grow rapidly. That suggests that I’m reasonably popular. I might not be popular with some people. But for the vast majority of people, like the follower count speaks for itself,” Musk said,
He went on to argue that Twitter helps Tesla — giving a sales pitch to advertisers, arguing that Twitter “is actually an incredibly powerful tool for driving demand for Tesla. And I really encourage companies out there of all kinds automotive or otherwise to make more use of Twitter and to to use their Twitter accounts in ways that are interesting and informative, entertaining, and it will help drive sales just as it has with Tesla.”
With all due respect, his comments ignore the loss of Tesla customers and Twitter advertisers resulting from Musk’s decision to restore Twitter as a home to hate speech about which I wrote earlier this month.
Why Tesla Stock Popped
Given Tesla’s disappointing financial results and forecast, why did its stock rise? According to Yahoo!Finance, the answer may be that Musk and his did just enough to assuage fears of a worst-case scenario for Tesla — that the stock goes back down to its 52-week low of $101. After yesterday’s earnings call, “investors are betting that Tesla’s stock bottomed weeks ago,” wrote Yahoo!Finance.
While some analysts are troubled by the drop in Tesla’s margins, others think higher volumes will make up for it.
How so? Wells Fargo WFC analysts Colin Langan and Kosta Tasoulis forecast a 19.3% margin, below Tesla’s target of 20%. As they told the Wall Street Journal, “We are forecasting only a [720,000] increase in deliveries and therefore expect 2023 auto gross profits to fall [year over year].”
Wedbush analysts Dan Ives and John Katsingris are happy Tesla is offering price discounts. “While in the near-term Tesla is sacrificing margins for higher volumes, we view this as the right strategic poker move to put an iron fence around its customer base and fend off growing EV competition coming from Detroit, Europe, and China,” wrote the Journal.
