Last year, Tesla's profits dropped for the first time in 7 years. The fourth-quarter performance fell short of expectations, and the company warned that growth would slow down this year. After the market closed, the stock price dropped by 5%.

Source: Wall Street Journal

Tesla's fourth-quarter and full-year earnings report, released after the market closed on Wednesday, showed the company's first annual profit decline since 2017. The fourth-quarter profit dropped by a significant 40%, and both revenue and earnings per share fell short of expectations. Tesla also warned that the growth in production, deliveries, and shipments would slow down this year, without disclosing the delivery target for the year. As a result, the stock price plummeted by 5% after hours. Tesla stated that it is currently focusing on researching the next generation of vehicles, which will be "low-cost" and expected to start production in late 2025.

Disappointing Fourth-Quarter Performance with a Significant Profit Decline

According to the earnings report, Tesla's earnings per share for 2023 were $3.12, a 23% decrease from the record-breaking $4.07 in 2022. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $16.6 billion, a 13% decrease from $19.2 billion in 2022. Despite the weak profitability, Tesla achieved a historic high in revenue, with $96.8 billion in 2023, representing a 19% increase from the previous year.

Breaking down the business segments, Tesla's automotive revenue reached $82.42 billion for the full year, a 15% increase from 2022. The energy division, which sells solar power generation and energy storage systems, had a smaller scale compared to Tesla's core business but showed a remarkable revenue growth of 54%, reaching $6.04 billion, becoming a highlight of the earnings report. Tesla's "Services and Other" revenue grew by 37% compared to the same period last year, reaching $8.32 billion.

For the fourth quarter, Tesla reported revenue of $25.17 billion, a 3% increase year-on-year, and earnings per share of $0.71, a significant 40% decrease year-on-year. Both figures were lower than the analysts' expectations of $25.6 billion and $0.73, respectively, according to FactSet.

Tesla's operating income for the fourth quarter decreased year-on-year to $2.1 billion. The company attributed the decline in profit to the decrease in the average selling price of its vehicles and the increase in operating expenses driven by artificial intelligence and other research and development projects. The company's gross margin for the fourth quarter was only 17.6%, the lowest level since 2019, a decrease of over 600 basis points from the previous year and lower than the analysts' expected 18.1%. In addition, Tesla's free cash flow for the fourth quarter was $2.06 billion, higher than the analysts' expected $1.45 billion.

At the same time, Tesla delivered 1.8 million vehicles in 2023, with a record-breaking 484,500 deliveries in the fourth quarter, indicating an annualized delivery growth rate of 127% over the past five years. However, whether Tesla has the ability to translate the continuously growing deliveries into profit growth has raised doubts among some investors. As of the end of 2023, Tesla provided 54,892 Supercharger connectors at 5,952 sites worldwide for drivers.

After the release of the earnings report, Tesla's stock price fell by 5% to $207.83, and the company's stock price has declined by 16% so far this year.

Significant slowdown in growth this year, delivery targets not disclosed

The company stated on Wednesday, "Our company is currently in between two major growth waves," indicating that the growth rate of production, deliveries, and shipments in 2024 may be significantly lower than in 2023.

Tesla has not disclosed its delivery targets for this year, which is considered unusual. For a long time, Tesla has set its average annual growth rate at 50%. Analysts predict that Tesla will sell 2.2 million vehicles this year, an increase of about 20% compared to 2023. However, if the growth slows down to a certain extent, the room for price reduction will also disappear.

The production and delivery of the electric pickup truck, Cybertruck, will increase in 2024. The company stated that the production ramp-up process for the Cybertruck will be longer than other models. Currently, the production capacity can reach over 125,000 vehicles per year, but it did not disclose how many pickups have been sold. Tesla warned in October last year that the Cybertruck may not generate significant cash flow within one to 18 months. On Wednesday, it stated that the production of the Cybertruck is not limited by batteries, but by production capacity, not demand.

The company stated that it will continue to develop next-generation models, with multiple teams conducting research and development in Texas, USA, and launching next-generation platform products at the Texas Gigafactory. The new models will help update Tesla's product line and may attract a new wave of customers. Tesla stated that the next-generation models will be "low-cost" and are expected to start production in the late 2025.

Tesla also confirmed the release of a new version of its advanced driver-assistance software, which is promoted as its Full Self-Driving (FSD) beta or FSD beta option. However, this software does not enable Tesla's vehicles to achieve autonomous driving as they still require a focused driver behind the wheel.

Tesla stated that many automakers "should" seek (Tesla's) Full Self-Driving (FSD) technology license. The company has had some close contacts but has not reached any (authorized licensing) agreements. He said, "If I were the CEO of another company, I would definitely call Tesla and request an FSD technology license."

Weakening demand, intense competition, and cost pressures

Currently, Tesla is facing weakening demand, declining profit margins, and fierce competition from competitors. Previously, car rental giant Hertz disclosed that it is selling about one-third of its electric vehicle fleet due to high maintenance costs and low resale value of electric vehicles. In 2021, Hertz had promised to purchase 100,000 Tesla vehicles, which helped Tesla's market value surpass $1 trillion for the first time. Meanwhile, BYD surpassed Tesla in the fourth quarter and became the world's best-selling electric vehicle manufacturer for the first time.

In addition, Tesla implemented a new round of price cuts in China and Europe this month. The company also announced plans to temporarily suspend almost all production in Germany starting from the end of January due to component shortages caused by conflicts in the Red Sea region. Tesla produces the Model Y in the suburbs of Berlin.

At the same time, labor costs for Tesla in the United States are rising. In order to make its wages competitive compared to other automakers represented by the United Auto Workers, such as General Motors, Ford, and Stellantis, Tesla recently raised the wages of many of its hourly workers in the United States.

On Monday, Morgan Stanley lowered Tesla's stock price target from $380 to $345, citing factors such as expected growth slowdown and profit margin contraction. Analysts believe that there is increasing evidence that the global electric vehicle market is facing an unfavorable environment of supply growth and demand slowdown. The analysis suggests that the waning enthusiasm for electric vehicles among consumers is partly due to the high prices and concerns about charging convenience and range. These factors have made electric vehicle manufacturers more cautious about their expectations for consumer demand, and some manufacturers have postponed their investments.

However, Tesla reiterated on Wednesday that as the Federal Reserve starts cutting interest rates, consumers' ability to afford Tesla vehicles will increase. Tesla's CFO also stated that the company has been trying to reduce costs.

Tesla: Hoping to Increase Equity to Expand Influence and Support Dual-Class Structure

As previously reported by Wall Street News, Tesla had previously posted that if Tesla becomes a leading company in the field of artificial intelligence and robotics and he does not have about 25% of the voting control, he would feel uneasy. Otherwise, he would prefer to develop products outside of Tesla. He said that Tesla is not a startup, but more like a dozen startups, and expressed concerns about being sidelined.

Currently, Tesla owns about 13% of Tesla's shares, and if the Delaware court allows his 2018 compensation plan to remain unchanged, his ownership stake would increase to 20.6% when exercising options under the compensation plan.

Regarding this matter, Tesla reiterated on Wednesday that it hopes to acquire more Tesla shares to enhance its influence in the field of artificial intelligence and robotics. Tesla stated, "I see a path for Tesla to become a powerhouse in artificial intelligence and robotics, and that would be really powerful." He said, "I don't want to control it," and added that he doesn't want to be voted out by "some random shareholder advisory firm."

During Tesla's conference call on Wednesday, he stated, "I'm not looking for additional economic benefits" and raised the possibility of establishing a dual-class structure. He said, "I just want to effectively control very powerful technology." He said that having a 25% ownership stake would allow him to have control over the company, but still allow investors to kick him out when 'I go crazy.'

Tesla said, 'This is my goal...to have significant influence, but not control.' 'If there is a way to achieve this goal, that would be great.'