Jan 25 (Reuters) – Tesla Inc’s ( TSLA.O ) aggressive price cuts have fueled demand for its electric cars, Chief Executive Elon Musk said on Wednesday, allaying concerns that a weak economy would dampen buyer interest.
The company slightly beat Wall Street targets for fourth-quarter revenue and profit on Wednesday despite a sharp decline in auto profit margins, trying to reassure investors that it can cut costs to weather the recession and intensifying competition in the year ahead.
A sharp price cut this month positioned Tesla as the frontrunner in a price war, but its forecast for a 37% year-over-year increase in vehicle volume to 1.8 million vehicles was below the 2022 pace.
However, Musk, who has missed ambitious sales targets for Tesla in recent years, said deliveries could hit 2 million vehicles in 2023, barring external disruptions.
As it faces a weaker economy, Tesla’s sales prospects are a key focus for investors. The company said it maintains its long-term target of 50% compound annual growth in sales.
Musk addressed the issue at the start of talks with investors and analysts.
“These price changes really make a difference to the average consumer,” he said, adding that car orders nearly doubled in January, prompting small price increases for the automaker’s Model Y SUV.
He said he expected a “pretty tough recession this year” but demand for Tesla cars “will probably be good despite the contraction in the overall auto market.”
Shares rose 5.3% in extended trading.
The company relies on older products, and Musk said the next new electric pickup, the Cybertruck, won’t go into volume production until next year. In November, Reuters reported that the highly anticipated model would not enter volume production until later this year.
Tesla will detail plans for its “next-generation vehicle platform” at its investor day in March.
Jessica Caldwell, executive director of insights at Edmunds, said Tesla vehicles “really need updates beyond software.” He said Tesla will depend on a cheaper model, as well as the Model 3 and Model Y, to bring electric cars to the masses.
“It’s unlikely Cybertruck Detroit will try to achieve mass market volume like its competitors.”
Analysts said Tesla’s target is bullish given the macroeconomic uncertainties.
“I think you’re going to see some serious demand destruction with consumer spending, and I think cars are going to take a big hit,” said Edward Moya, chief market analyst at OANDA.
Tesla said it doesn’t expect meaningful near-term volume growth from China as its Shanghai factory bounces back from production problems earlier this year, operating at full capacity.
“Even a small cooling in demand will have a significant impact on the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
Tesla said its auto profit margin, which fell to a two-year low of 25.9% in the reported quarter, will be above 20% under pressure from ramping up battery production and new factories in Berlin and Texas. raw material, commodity, logistics and warranty costs.
Margins are generally expected to come under further pressure from aggressive price cuts. Tesla, which has made a series of price increases since the start of 2021, reversed course and offered discounts in the US in December, followed by price cuts of up to 20% this month.
Analysts said Tesla’s profitability allowed it to lower prices and put pressure on rivals. Last quarter, the company’s net profit of $9,000 per vehicle was seven times higher than that of Toyota Motor Corp ( 7203.T ) in the third quarter. But it was almost below $9,700 in the third quarter.
The company’s shares posted their worst decline in the past year, as demand concerns and Musk’s purchase of Twitter fueled investor concerns that he would be distracted from running Tesla.
Musk has dismissed inquiries suggesting his political comments on Twitter have hurt Tesla’s brand. “I may not be popular among some,” he said, “but for the vast majority of people, my number of followers speaks for itself.” He has 127 million followers.
Revenue for the three months ended Dec. 31 was $24.32 billion, compared with the $24.16 billion analysts had expected, according to data from IBES from Refinitiv.
Tesla’s full-year earnings rose to $1.78 billion in regulatory credits, up 21% from a year ago.
Adjusted earnings per share of $1.19 beat the Wall Street analyst average of $1.13.
It ended the fourth quarter with 13 days of vehicles in inventory, more than four times higher than at the start of 2022 and a record $12.8 billion.
Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru Additinoal reporting by Joe White and Ben Klayman in Detroit and Kevin Krolicki in Singapore Writing by Peter Henderson Editing by Sriraj Kalluvila, Matthew Lewis and Sam Holmes
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