Tesla posted solid numbers in a quarter for the electric vehicle giant. But current earnings are less important than guidance. And while much remains in flux,
expects to generate the best margins in the automotive industry while developing its next-generation vehicle platform.
In short, Tesla (ticker: TSLA) wants to keep the pressure on peers even as the global economy weakens.
Tesla rocked the global auto industry earlier this year by slashing prices by up to 20% to boost slowing sales. It was able to do this because it has a cost advantage over other EV manufacturers. The low-cost platform could be Tesla’s next leap as it tries to expand its position as the world’s largest electric vehicle maker.
“Price really matters,” CEO Elon Musk said during the earnings call. “These changes make a difference for the average consumer.”
Tesla reported fourth-quarter earnings per share of $1.19 on sales of $24.3 billion. Operating profit was a record $3.9 billion, up from the previous record: $3.7 billion in the third quarter.
Wall Street was looking for earnings per share of about $1.13 and operating profit of $4.2 billion on $24.7 billion in sales. Free cash flow for the quarter was $1.4 billion. Analysts had expected $2.7 billion. Looking ahead, Tesla said it plans to produce 1.8 million units in 2023. The Street is looking for about 1.9 million units.
All the numbers look good. The headline numbers are slightly behind Street estimates, but Tesla stock has already fallen about 35% over the past three months. Expectations were not that high at the show.
Shares rose 3.8% shortly after the results were released, trading at nearly $150 apiece. Shares retreated, rising about 1.5% to $146.50. Tesla shares closed up 0.4% at $144.43 on Wednesday. The S&P 500 and Dow Jones Industrial Average were flat on the day.
It’s a relatively muted reaction given the importance of the winning call. Shares will move higher on Thursday as investors digest all the details from the company’s conference call
Before the call, Tesla offered some information for investors.
Tesla’s new factories in Austin, Texas, and Berlin, Germany produced about 3,000 cars a week at the end of 2022. For Berlin, that’s up from about 2,000 cars a week at the end of the third quarter. Tesla did not have a weekly production number for Austin when it last reported earnings.
Tesla also said the next generation of its vehicle platform is under development. This is a lower priced EV, which is what investors are looking for. It will expand Tesla’s potential market.
CFO Zachary Kirkhorn said “customer interest remains high,” a sign that demand is holding steady after the price cuts. He added that the cuts would affect profit margins without giving too many details. He said margins “will remain healthy and the industry leading.”
There have been many significant earnings reports in the company’s history. The fourth quarter of 2022 may be the most important.
In 2010, Tesla reported its first full quarter as a publicly traded company, in which it generated about $31 million in sales from the original Roadster. There were the quarters when the EV pioneer began delivering the Model S — its first mass-produced car — in 2012 and the lower-priced Model 3 in 2017. There was also the third quarter of 2019, when Tesla posted a profit surprise .
As for this quarter,
it is now the most traded stock in the US market and faces a tougher economic environment, with rising interest rates, increased inflation and recession fears. In addition, EV competition continues to grow, and investors are also wary of Musk’s new role as owner of social media platform Twitter.
Uncertainty around profit margins looms large for investors. For 2022, Tesla has generated gross margins of about 26% from its car business. For the full year 2023, after the price cuts, forecasts for the automaker’s gross profit margins should fall from 17% to 22%.
Investors should be prepared for trading volatility on Thursday. Options markets suggest the stock will move about 10%, up or down, after the earnings report. Shares have moved an average of about 8%, up or down, after the past four quarterly reports. Shares rose twice and fell twice during that time.
Through Wednesday’s trading, Tesla stock is up about 17% year-to-date. The
is about 8%.
Write to Al Root at [email protected]