After the US stock market closed on January 24th local time, Tesla released its performance reports for the fourth quarter and full year of 2023. Although the total revenue hit a new high, the profit margin continued to decline, leading to a pessimistic sentiment towards Tesla in the market. After the close of the day, Tesla's stock price fell by more than 7%.
The latest performance shows that Tesla's revenue for the fourth quarter of 2023 was $25.167 billion, a year-on-year increase of 3%, lower than analysts' expectations of $25.87 billion. Among them, the automotive business revenue was $21.563 billion, a slight increase of 1% year-on-year. Tesla's total revenue for the year 2023 was $96.773 billion, a year-on-year increase of 18.79%.
Specifically, Tesla's automotive business generated a total annual revenue of $82.419 billion, a year-on-year increase of 15%. Tesla produced approximately 495000 new cars in the fourth quarter of 2023, a year-on-year increase of 12.6%; The delivery volume during the same period was approximately 485000 vehicles, a year-on-year increase of 19.5%. In 2023, Tesla produced approximately 1.846 million electric vehicles worldwide, a year-on-year increase of 35%; Delivered approximately 1.809 million vehicles, a year-on-year increase of 38%, and achieved the established annual target of 1.8 million vehicles.
The growth rate of the automotive sector, which is a core business, has significantly slowed down, while the energy sector has become a highlight of Tesla's business, with energy production and storage revenue of $6.035 billion, a year-on-year increase of 54%. It is reported that Tesla's total installed energy storage capacity reached 14.7 gigawatt hours in 2023, a year-on-year increase of 125%, and the profits of its energy generation and storage business almost quadrupled during the same period. Tesla CEO Musk said in a earnings conference call, "The growth rate of energy storage business will be much faster than that of automotive business, and now we have achieved it."
Affected by one-time tax incentives, Tesla's GAAP net profit in the fourth quarter of 2023 was $7.928 billion, more than doubling year-on-year. In the fiscal year 2023, Tesla's GAAP net profit was $14.997 billion, a year-on-year increase of 19%; The net profit of non GAAP was 10.882 billion US dollars, a year-on-year decrease of 23%. In addition, Tesla stated that "the company's free cash flow is ideal," with a free cash flow of $2.064 billion in the fourth quarter of 2023, a year-on-year increase of 45%.
Price war leading to a decline in profit margins?
It is worth noting that although the total revenue remains at a record high, Tesla's profit margin continues to decline. In the fourth quarter of 2023, the gross profit margin was 17.6%, a decrease of 0.3 percentage points month on month and 612 basis points year-on-year, which is lower than market expectations and the lowest level since 2019; The operating profit margin for the same period was 8.2%, almost halving compared to the same period last year.
In 2023, Tesla's annual gross profit margin was only 18.2%, a significant drop of 735 basis points year-on-year, and the operating profit margin for the same period was 9.2%. Tesla stated that factors such as lower prices and combinations, lower average vehicle prices, and increased operating expenses driven by artificial intelligence and other research and development projects have affected Tesla's revenue and profits in 2023.
In January 2023, Tesla took the lead in raising the "price knife" in the Chinese market, firing the first shot in the "price war". In the following year, Tesla frequently boosted sales by adjusting prices. In the view of industry insiders, Tesla's price drop to the range of 250000 to 300000 yuan in the past year is one of the few car companies that can significantly stimulate the consumer market through price reductions. However, with the intensification of competition in the Chinese new energy vehicle market, the stimulating effect brought by price reductions will become smaller and smaller.
On January 12, 2024, Tesla China once again lowered prices, and after price adjustments, the updated Model 3 and Model Y once again ushered in the lowest prices in the history of the domestic market. Adjusting terminal prices as the main means of achieving sales targets, Tesla has once again adopted the same old trick. Industry insiders point out that this price reduction is due to Tesla's sluggish sales at the beginning of the year, a significant decrease in cost-effectiveness compared to the same period last year, and lower competitiveness compared to its peers.
In the view of automotive industry analyst Zhong Shi, Tesla still has pricing power. "Every time Tesla lowers prices, the pressure on peers is still very high. Last year was very strong, and this year is also the same, with obvious shock effects."
However, the price reduction action will once again affect Tesla's profit margin. According to a report released by Daiwa, according to the bank's market research, it is believed that Tesla is requesting upstream component suppliers to reduce prices by up to 10%, and believes that Tesla's price reduction action will have a negative impact on the overall atmosphere of the Chinese automotive industry. Due to the oversupply of new energy vehicles and intensified competition this year, the bank expects that Tesla and other new energy vehicle supply chains will face pressure on short-term profit margins.
Regarding this, analysts on Wall Street have expressed concerns about Tesla's future profitability, with a 43% decrease in Tesla's profit forecast for 2024.
For Tesla's automotive business gross profit margin in the 2024 fiscal year, Tesla CFO Vaibhav Taneja stated that Tesla's focus for 2024 is to reduce vehicle costs. Musk also said that reducing costs by 1% can save about $1 billion, and he believes that if interest rates drop rapidly, Tesla's profit margin will perform well.
2024 will face numerous challenges
At a time when the market was somewhat hesitant about Tesla's future trends, Tesla rarely disclosed its delivery target for 2024. Morgan Stanley analyst Adam Jonas predicts that Tesla's delivery growth in 2024 will decrease to 15%, less than half of the 38% growth achieved in 2023.
For a long time, Tesla has set its average annual sales growth rate at 50%, but during this earnings call, Vaibhav Taneja admitted that Tesla "will not grow at the same rate as before in some periods.". Wall Street analysts predict that Tesla will sell 2.2 million cars this year, an increase of about 20% from 2023.
On the one hand, Tesla's existing product line has a slow iteration speed, especially in the Chinese market, which contributes one-third of Tesla's sales, and its competitiveness is weakening. Gong Min, the research director of UBS China's automotive industry, said in an interview with 21st Century Business Herald reporters that at present, the gap between domestic new energy vehicles and Tesla has been unprecedentedly small. In some aspects, it has surpassed Tesla, such as the speed of product launch and iteration, and even some first tier domestic brands have surpassed Tesla in cost advantages. "However, in terms of AI, we have not seen any brands surpass Tesla yet."
During the financial report conference call, Musk also praised Chinese car companies for being the most competitive. "They are very impressive, so they may achieve a lot of success outside of China. If there were no trade barriers, Chinese car companies would dominate," he said
On the other hand, due to the fact that the electric pickup truck Cybertruck is still in the ramp up stage of production capacity, the annual production capacity can only reach 250000 units by 2025, which is far from the millions of orders. In addition, the price of Cybertruck is also $30000 higher than the pre-sale price, with a 52% increase in the starting price. These all mean that the actual conversion rate of orders is facing challenges. Regarding the contribution of Cybertruck to Tesla's financial report, Musk also admitted that it will take 12 to 18 months for this new car to generate "significant positive cash flow," which means Cybertruck will not make a profit for about a year and a half.
In addition to price cuts in the Chinese market, Tesla is also facing other challenges globally, including pressure from supply chain delays caused by the Red Sea crisis, rising labor costs in the United States, and declining demand from car rental companies. All of this means that Tesla will face the most challenging year of 2024.
However, Musk also pointed out that Tesla is currently between two major growth waves, and the next wave of growth will be initiated by the next generation of automotive platforms, with the next generation of models being "low-cost". It is reported that the production of Tesla's next-generation platform will begin around the end of 2025. Musk revealed that there will be many new technologies, including new manufacturing innovations. "This will be a challenging project, and once optimized, it may change the game rules of mass production of cars." At the same time, he stated that the manufacturing machines used for the next generation of cars are unique and therefore difficult to replicate.
It seems that the year after 2025 will be a crucial milestone for Tesla's growth to enter the next stage, but how to face the challenging year of 2024 is Tesla's top priority.