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Tesla warns of slower volume growth in 2024 after margin falls

In Business
January 25, 2024

(Reuters) – Tesla on Wednesday warned of a notable slowdown in its vehicle sales growth this year, and reported a fall in fourth-quarter gross margin as it cut prices and offered incentives to boost demand.

“In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas,” it said in a statement.

Shares of the Austin, Texas-based company were down 2.4% in after-hours trading.

The company said it was in between two growth waves: one driven by the release of Models 3 and Y, and a second wave that would start with the next-generation vehicle platform. The EV maker did not reiterate its previously stated goal to achieve an average annual growth rate of 50% over multiple years.

After years of breakneck growth, Tesla, the world’s most valuable automaker, is bracing for slowing growth and margins as EV demand softens and competition intensifies from rivals including BYD whose model lineups are less expensive and more varied.

Reuters earlier reported that Tesla has told suppliers it wants to start production of a new mass-market electric vehicle, code-named “Redwood,” in mid-2025, likely a compact crossover.

“If volume’s going to be lower, then my guess is, (CEO Elon) Musk will probably cut prices and take share. Margins may continue to struggle for a while,” said Gary Bradshaw, portfolio manager at shareholder Hodges Capital Management.

The company reported a gross margin of 17.6% for the three months ended December, compared with 23.8% a year earlier, and analysts’ average estimate of 18.3% according to LSEG data.

In the third quarter, Tesla posted gross margin of 17.9%.

Automotive gross margin, excluding regulatory credits – a closely watched figure – dropped to 17.2% from 24.3% a year earlier, although it improved from 16.3% in the third quarter.

Tesla said lower raw material costs and U.S. government credits helped lower cost-per-vehicle, but Cybertruck production and AI and other research projects increased costs.

On an adjusted basis, Tesla earned 71 cents per share in the fourth quarter, missing an average analysts’ estimate of 74 cents, according to LSEG data.

Tesla slashed prices throughout last year. It reduced the price of the Model Y, its most popular vehicle, by as much as 26.5% in the past year in the U.S.

The company managed to hit its 2023 deliveries target of 1.8 million cars, even as Musk warned of a hit to demand from high interest rates. However, Tesla lost its spot as the top EV maker by sales to China’s BYD in the fourth quarter.

Tesla’s fourth-quarter revenue rose 3% to $25.17 billion, which marked its slowest pace of growth in more than three years. Analysts on average expected $25.62 billion, according to LSEG data.

(Reporting by Akash Sriram in Bengaluru and Hyun Joo Jin and Abhirup Roy in San Francisco; Editing by Sriraj Kalluvila, Sayantani Ghosh and Matthew Lewis)

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