Tesla Q4 2023 Earnings: The Plunge in Auto Margins Halts and a Tentative Recovery Begins

Veloz Lamma

Tesla Q4 2023 Earnings: The Plunge in Auto Margins Halts and a Tentative Recovery Begins

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Tesla has now announced its earnings for the fourth quarter of 2023, broadly missing consensus estimates for key financial metrics.

Tesla’s IR-Compiled Consensus Estimates for Q4 2024

Before delving straight into Tesla’s financial performance for Q4 2023, do go over Wall Street’s consensus expectations for key metrics summarized in the above chart.

Tesla (NASDAQ: TSLA) Q4 2023 Earnings

Tesla has reported $25.167 billion in revenue for the third quarter of 2023, missing consensus expectations of $25.722 billion (as per Tesla’s IR-compiled consensus estimate).

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Q4 2023 Consensus
Q4 2023 Actual

The following snippet summarizes the EV giant’s production activities during the quarter:

Typically, the fourth quarter is the strongest sales period for Tesla, and the just-concluded quarter did not deviate from this well-established norm. As we reported in a dedicated post earlier this month, Tesla delivered 484,507 units in the last quarter of 2023, bringing its total deliveries for the year to 1.808 million units.

Tesla began guiding in 2021 that it would grow its annual production by around 50 percent for the foreseeable future. However, in light of the demand-related headwinds that the company faced throughout the year, prompting the EV giant to resort to a series of margin-destroying price cuts in key markets to maintain sales, this guidance could not be met.

Tesla’s auto gross margin (ex-Regulatory Credits) was expected to print at 16.70 percent, as per Wall Street’s consensus estimates. Against these expectations, Tesla recorded an auto gross margin (ex-RC) of 17.19 percent.

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Q4 2023 Consensus
Q4 2023 Actual

Note the material increase in this metric from Q3 2023. This suggests that Tesla’s auto margin has likely bottomed out.

The EV giant has reported free cash flow of $4.4 billion for the entire 2023 and $2.1 billion for the fourth quarter.

Finally, Tesla has announced $0.71 in non-GAAP (adjusted) EPS, missing IR-compiled consensus expectations of $0.73.

Q4 2023 Consensus
Q4 2023 Actual

The following snippet summarizes Tesla’s latest guidance:

At the time of publication, the EV giant’s stock is down around 3 percent in after-hours trading. Do note that Tesla has stated that its growth rate in 2024 will be “notably lower” than what it achieved in 2023 as it prepares for “next-generation” vehicles in 2025.

Earnings Context

Tesla’s Cybertruck is expected to enter volume production sometime in 2025. Just a few hours back, Reuters reported that another Tesla model might enter volume production next year. As we noted in a dedicated post earlier today, Tesla has reportedly informed its suppliers that it wants to begin production of an entry-level $25,000 EV, dubbed “Redwood” internally, by June 2025. The company has already sent requests for price quotes to certain suppliers of key components based on a volume production level of 10,000 units per week, equating to around 520,000 units per year.

Elon Musk had announced at Tesla’s annual shareholders’ meeting (AGM) back in May 2023 that the EV giant would soon launch two new products, alluding to a robotaxi and an entry-level EV, entailing a cumulative increase in sales of around 5 million units per annum.

For its $25,000 model, Tesla is apparently relying on automation and its “unboxed” production process, where ultra-high pressure presses are used to die-cast almost the entire vehicle in one go, to try to preserve its already-under-pressure margins. Also, the EV giant will have to ramp up the production of its 4680 battery packs by orders of magnitude to meet the 2025 deadline for the new EV.

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