Tesla Inc. faced a notable decline in its stock value after Elon Musk’s attempt to persuade investors to overlook slower sales growth didn’t resonate positively with the market.
The stock saw a considerable 9.2% decline in early trading on Thursday as Tesla narrowly missed its earnings estimates. Additionally, the company warned that its growth for the year would be “notably lower.” Throughout 2023, Tesla had been reducing prices to increase sales, but this approach impacted its profits.
The strategy of lowering prices to boost sales is losing its effectiveness, and Tesla executives are acknowledging that they can’t keep cutting costs on the existing lineup of vehicles.
Seth Goldstein, an analyst at Morningstar Research, explains, “Tesla is signaling that we shouldn’t anticipate a substantial 50% or even 30% to 40% growth in 2024. There’s a point where they can’t continue reducing prices.”
In a change from its usual approach, Tesla decided not to set specific goals for the upcoming year. Despite reducing prices throughout 2023, the company fell short of the earlier target of 50% annual growth. Vehicle deliveries increased by 38%, and analysts are anticipating a 20% increase for the current year.
Toni Sacconaghi, an analyst at Bernstein, believes that Tesla will face challenges in 2024, and there’s a rising concern that 2025 might not bring improvement. He suggests that both growth and profits will continue to be under pressure.
As of 8:53 a.m. in New York, Tesla’s shares had fallen by 9%. If this trend persists, it would be the largest drop in three months, resulting in a nearly $60 billion reduction in the company’s market value. The stock had already experienced a 16% decline in the first few weeks of 2024, marking its worst start to a year ever.
In the fourth quarter, Tesla disclosed earnings of 71 cents per share, slightly below the anticipated 73 cents per share. The company’s revenue was $25.2 billion, falling slightly short of Wall Street’s prediction of $25.9 billion.
Musk believes the challenges will be short-lived. Tesla is gearing up to produce its more affordable next-generation vehicle, possibly starting in the second half of next year, initially in Austin and later in Mexico. The company also plans to manufacture the model at an additional site in North America. This strategy aims to attract a wider range of buyers who may find Tesla’s current electric vehicles, starting at approximately $39,000 in the US, financially challenging.
Musk mentioned that initially, making the new advanced vehicle will be challenging, but once it’s up and running, it’ll outshine any other manufacturing technology worldwide.
At the moment, Tesla is focused on attracting more people to its existing cars. The Cybertruck, their latest model, is gradually being introduced since its launch in November. However, Tesla acknowledges that making the Cybertruck will take more time compared to their other cars, and they haven’t provided a sales forecast for it yet.
Tesla is eager for new products as its car options are limited. While the Model Y and Model 3 are popular, their prices are higher compared to China’s BYD Co., a leader in electric cars. Last year, Tesla had to drop prices significantly due to high interest rates and inflation affecting people’s spending.
However, these price reductions impacted Tesla’s profits. In the recent quarter, their profit margin for selling cars, excluding special credits, was 17.2%, a slight improvement but not great. Tesla attributes this to price cuts, increased spending on research and development, and other expenses, including the preparation of the Cybertruck.
Tesla is up against strong competition from Chinese electric car makers, and Elon Musk believes they are the “most competitive in the world.” Musk is concerned that unless there are trade barriers like tariffs, these Chinese brands could outperform other car companies globally. This concern is highlighted by BYD, which recently sold more electric cars than Tesla.
Additionally, Musk is seeking a 25% stake in Tesla to increase his influence. However, Tesla’s board won’t propose a new compensation plan for Musk until a Delaware judge decides on a shareholder lawsuit related to a significant stock award Musk received in 2018.