Tesla shares had a stellar 2023, in large part because they had such a dismal end to 2022. By the same logic, this year could be tough for the world’s most traded stock. The company delivered roughly 485,000 electric vehicles last quarter—a bit better than expected, but worse than its Chinese rival BYD, which sold about 526,000.
It is the first time the EV pioneer has been outsold on a quarterly basis. With the Chinese company offering cheaper vehicles in a larger home market, it won’t be the last. Tesla competes with BYD in China, albeit mostly at different price points, and their rivalry will soon head to Europe.
But this is just part of a bigger problem: the increasing cost of Tesla’s rapid growth. Last year’s increase in deliveries of 495,000, or 38%—which compares to the company’s target of 50% production growth over a multiyear period—came after price cuts of about 16%, according to brokerage Bernstein. Some variable costs fell, cushioning the blow, but Tesla still had to sacrifice profitability.
Its closely watched gross automotive margin excluding regulatory credits is expected to be 17.1% for the fourth quarter, according to a FactSet consensus, and even this seems ambitious after 16.3% in the three months through September. It will report the actual number on Jan. 24.
Two years ago, the company was reporting margins approaching 30%. For this year, FactSet’s consensus points to slower growth of roughly 300,000 units, or 17%, to 2.1 million deliveries, together with a rebound in vehicle margins back toward 19%. It isn’t obvious what change will bring about this relatively benign scenario of lower-cost growth.
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