Despite a substantial fall in vehicle profit margins, Tesla surpassed Wall Street expectations for fourth-quarter revenue and profit.

Elon Musk, the chief executive of Tesla Inc., downplayed worries that a poor economy would stifle consumers' interest on Wednesday by claiming that the company's aggressive price cuts have sparked demand for its electric vehicles.

In spite of a substantial decrease in vehicle profit margins, the company slightly surpassed Wall Street expectations for fourth-quarter revenue and profit earlier on Wednesday, and it sought to reassure investors that it can reduce costs to deal with the recession and as competition heats up in the coming year.

Tesla has established itself as the leader in a pricing battle thanks to significant price cuts this month, but its prediction of a 37% increase in car sales for the year, to 1.8 million vehicles, was below the rate of 2022.

Despite having fallen short of his own lofty sales goals for Tesla in recent years, Musk predicted that deliveries in 2023 may reach 2 million vehicles, barring any unfavourable external circumstances.

Investors are particularly interested in Tesla's sales prospects as the company deals with a worse economy. The business stated that it continues to aim for a compounded yearly sales growth of 50%.

Musk brought the subject up on a call with investors and analysts.

"These pricing adjustments actually make a difference for the regular customer," he said, adding that the carmaker had to raise the Model Y SUV's price since vehicle orders were nearly twice as high as production in January.

Although the demand for Tesla vehicles "will be good given possibly a reduction in the automobile business as a whole," he predicted a "very harsh recession this year."

CYBERTRUCK

The business is still dependent on its earlier models, and Musk stated that volume manufacturing of the company's new ‘Cybertruck’, an electric pickup truck, will not start until the next year. In November, Reuters reported that the much-awaited model would not be mass manufactured until late this year.

Tesla's investor day in March will include a description of its intentions for a "next-generation vehicle platform."

According to Jessica Caldwell, managing director of insights at Edmunds, all Tesla vehicles "are in severe need of improvements beyond software." She added that Tesla will rely heavily on the less expensive model as well as the Model 3 and Model Y to make EVs accessible to the general public.

Tesla claimed that it does not foresee any appreciable near-term volume increase from China because its Shanghai facility was operating at close to full capacity after recovering from manufacturing issues in 2017.

The expenses of stepping up battery manufacturing and opening additional plants in Texas and Berlin, as well as greater costs for raw materials, commodities, shipping, and warranties, squeezed Tesla's automotive gross margins, which fell to a two-year low of 25.9% in the reported quarter.

Tesla estimated that its car gross margin would stay over 20%.

Its dramatic price cuts are likely to put more pressure on margins in general. Tesla changed direction and gave discounts in December in the United States, followed by price reductions of as much as 20% this month. Tesla had been gradually raising its prices since the beginning of 2021.

Analysts have said that Tesla has the capacity to lower prices and put pressure on competitors due to its profitability. The company's $9,000 net profit per car for the most recent quarter was more than seven times greater than Toyota’s similar number for the same period. However, it had decreased from about $9,700 in the third quarter.

Due to concerns about demand and Musk's purchase of Twitter, which increased investor anxieties that he would be diverted from leading Tesla, the company's stock had its biggest decline last year.

According to IBES statistics from Refinitiv, revenue for the three months ended December 31 was $24.32 billion compared to analysts' average forecast of $24.16 billion.

Regulatory credits of $1.78 billion, up 21% from the previous year, helped Tesla's full-year earnings.

Adjusted earnings per share of $1.19 above the average estimate of $1.13 from Wall Street analysts.

More than four times as many automobiles as at the beginning of 2022 were in inventory by the end of the fourth quarter, with a record value of $12.8 billion.

(Investing.com, reuters.com, bloomberg.com)