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Tesla's price cuts in multiple markets lead to 35% earnings slump in 2023

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2024-01-25

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Tesla's price cuts in China, the US, and Europe resulted in a 35% earnings slump in 2023, reducing profits to $8.89 billion, and impacting the company's operating margins.

Despite this, total revenue for the year increased by 19% to over $96 billion, with auto revenues rising by 15% to more than $82 billion. Additionally, Tesla witnessed significant percentage increases in energy storage and batteries, up 54% to $6.05 billion, and services, up 37% to $8.32 billion.

However, the operating margin for the year dropped from 16.8% in 2022 to 9.2%, and the gross margin for the 12 months decreased by over 730 points to 18.2% from 25.6%.

The company attributed the lower earnings to "pricing and mix," but it still managed to sell more than 1.2 million Model Y vehicles worldwide, making it the top-selling car globally.

Tesla's caution about slower volume growth in 2024 led to a more than 2% drop in shares after hours. The company's shares had already fallen by approximately 16% since the beginning of the year, following a significant increase the previous year.

In its investor presentation, Tesla mentioned that vehicle volume growth in 2024 "may be notably lower" as it focuses on launching its "next-generation vehicle" in Texas, stating that it's "currently between two major growth waves."

There were reports on Wednesday that Tesla's long-anticipated affordable electric vehicle (priced around $25,000) would start production at its Austin plant in Texas next year. This project, known as 'Redwood,' has been a subject of discussion by Elon Musk for years.

The combination of price cuts and other factors led to a halving of the company's operating margin, with quarterly earnings for the last three months of December dropping by 47% to $2.047 billion from over $3.9 billion in the same period in 2022.

Elon Musk's electric vehicle giant announced that its operating margin for December 2023 dropped to 8.2% from 16% in the same period in 2022. Additionally, its EBITDA margin fell by 635 points to 15.7% from 22.2%, while the gross margin for the three months ending December decreased to 17.6% from 23.8% in 2022.

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