Tesla, the pioneering force in the electric vehicle (EV) industry, has recently made known its anticipation of a potential deceleration in its path of growth. The company’s financial report for the fourth quarter revealed that, despite achieving an unprecedented feat by delivering 1.8 million EVs in the year 2023, its profits have encountered significant strain. Tesla attributes this predicament to a twofold challenge – a strategically bold reduction in prices aimed at bolstering sales, and the mounting costs associated with the initiation of production for the Cybertruck, alongside other expenses connected to research and development (R&D).
Despite the company’s efforts to expand its sales, it has been facing challenges in terms of profitability. In their Q4 earnings report, Tesla cautions that they are currently in a state of flux, caught between two significant waves of growth. Although the Model Y and Model 3 have played a crucial role in driving the company’s achievements thus far, Tesla expects a possible deceleration in the growth of vehicle sales by 2024. This forecast corresponds with their strategic intention to introduce a smaller and more economical electric vehicle with an estimated price tag of $25,000.
However, following the news, the price of Tesla’s stock fell 5.8% in after-market trade, as investors became concerned that the company’s growth may slow down. Elon Musk, the CEO, explained that the new, smaller EV is expected to go into production in the Texas plant in late 2025 and then expand to a new plant in Mexico, which is expected to start building in 2026.
Tesla recorded an astounding $7.9 billion in net profits in Q4, partially attributable to a one-time non-cash tax gain, despite the company’s struggles with profitability. However, operating income fell 47% from the same period previous year when this benefit was taken out. Contributing factors were the Cybertruck production ramp, more R&D costs (especially in AI and other initiatives), and decreased revenue from Full Self-Driving software.
Tesla remains optimistic about the future, emphasizing a lower cost per vehicle and growing vehicle deliveries as contributing factors. The company’s automotive gross margins, excluding regulatory credits, saw a quarterly increase for the first time since the previous year’s price cuts. However, Tesla acknowledged reaching the “natural limit” of cost reduction for existing vehicles.
While revenue continued to grow, albeit at a slower pace, Tesla sees potential in its energy storage business. Despite caution about vehicle growth in 2024, the company remains bullish on the expansion of its energy storage segment, with storage deployments showing a remarkable 125% year-over-year increase. This highlights Tesla’s diversified strategy beyond vehicle sales, underscoring its commitment to sustainability and innovation.