-Record Q4 sales and better-than-expected earnings reassure the market
-Gross margins lower as company starts price war
-Guidance reiterated
Shares in electric vehicle maker Tesla (TSLA:NASDAQ) surged 7% in aftermarket trading as the company beat analyst estimates for sales and profit, reassuring investors that Elon Musk remains focused on the business despite the distractions of Twitter.
Fourth quarter sales came in at a record $24.32 billion, slightly beating analysts’ forecasts of $24.07 billion, while adjusted earnings per share was 6.25% ahead of estimates at $1.19.
Despite the higher profit, automotive gross margins were pressured by rising commodity and freight costs and dropped to a two-year low of 25.9%.
PRICE CUTS
Margins are expected to remain under pressure after the company announced price cuts of up to 20% for certain models.
The actions upset some customers who had purchased new Tesla vehicles at higher prices. The actions also put downward pressure on the price of used Teslas.
On the investor call Elon Musk defended the move to lower prices saying, ‘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.’
For the year ahead the company is targeting a 37% increase in production volumes to 1.8 million vehicles, a slowdown from the 40% growth in 2022.
The company reiterated earnings guidance and maintained a long-term target to grow revenue at a compound annual rate of 50% a year.
WHAT ARE THE EXPERTS SAYING?
Investment director at AJ Bell Russ Mould commented: ‘Margins are going to be pressured by the price cuts Tesla has introduced to shore up sales - even if they are expected to remain industry leading.
‘The devil will be in the detail and the market will be watching closely to see just how much profitability Tesla is having to sacrifice to ensure demand holds up.
‘It’s good to see the appropriate focus on getting production levels up and seeking to control the costs which are within its compass to control.
‘The company’s hotly anticipated ‘cyber truck’ is on track to start production later this year - an important milestone for the group.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Tom Sieber) own shares in AJ Bell.
