Tesla's profits from electric car sales plunged in the final three months of last year due to price cuts aimed at thwarting intensifying competition, the company said Wednesday, warning of a tough year ahead.
Profits in the fourth quarter nearly doubled to $7.9 billion, up from $3.7 billion a year earlier. But $5.9 billion of those gains came from a tax benefit. Without that one-time accounting effect, profits would have fallen.
Tesla has cut prices on the two cars that make up the bulk of its sales (the Model 3 sedan and the Model Y sport utility vehicle) as automakers such as BYD, in China, and General Motors, Hyundai, Ford Motor and Volkswagen, in the United States and Europe, have begun to sell more electric vehicles.
The price cuts have helped Tesla sell more cars and forced other manufacturers to respond, helping to make electric vehicles more affordable. But the cuts have hit Tesla's profits. In 2022, Tesla was one of the most profitable automakers in the world, but its margins have nearly halved in the past year and are now comparable to other major rivals.
Due to price cuts, auto sales revenue in the latest quarter rose just 1 percent from a year earlier, to $21.6 billion, even though Tesla sold 1.8 million cars in 2023, a 35 percent increase over 2022. Tesla made up some of the difference by reducing manufacturing costs.
Tesla shares plunged in after-hours trading after the company said it expected sales growth to be “noticeably slower” in 2024 as it developed a supposedly budget-friendly vehicle. Tesla said Wednesday that the new vehicle would lead to an increase in sales, but has not yet shown a prototype or said when the car will go on sale.
At Wednesday's close, Tesla shares were down 17 percent from where they began the year and down more than 25 percent from their 12-month high in July.
The automaker faces a number of challenges this year, including economic uncertainty in all of its major markets and questions about the future role of CEO Elon Musk. Musk surprised investors this month when he said on X, the social media site he owns, that he wanted Tesla's board to increase his stake in the company to 25 percent, from 13 percent, effectively giving him more than 80 billion dollars. .
If he doesn't get his wish, Musk said, he will develop new artificial intelligence products “outside of Tesla.” Tesla's board of directors has not responded publicly.
The automaker controls more than half of the electric vehicle market in the United States and has more models than any other manufacturer that qualify for $7,500 tax credits under rules that took effect Jan. 1. Falling prices for lithium, cobalt and other materials essential for battery production should help reduce manufacturing costs.
Tesla has started selling the Cybertruck, a pickup truck that is the company's first new model since the Model Y in 2020. But Tesla still relies on the Model 3 and Model Y for sales. BYD and Volkswagen, along with their Audi, Porsche and Skoda brands, offer broader selections of vehicles.
Tesla said Wednesday that the cost of ramping up production of the Cybertruck had weighed on profits and that it would take longer than usual to produce the vehicle in large volumes due to a complex manufacturing process. The truck body is made of stainless steel, which resists rust and is more durable than the steel used in most cars, but it is also more difficult to shape and weld.
Slowing EV sales growth is another challenge. Surveys show that many people are interested in electric vehicles but are hesitant to purchase them due to high prices and concerns about finding enough places to charge them.
In a setback, Hertz said this month it would sell part of its fleet of Teslas because they were less profitable than expected and because some customers had problems with the unknown technology.
Election year politics adds another element of uncertainty for all electric vehicle manufacturers. Former President Donald J. Trump, the front-runner for the Republican nomination, has called electric vehicles a hoax, and his supporters have vowed to roll back Biden administration policies aimed at promoting automobiles and encouraging domestic manufacturing.
Sen. John Barrasso, a Wyoming Republican who has endorsed Trump, recently described electric vehicles as a subsidy for wealthy liberals at the expense of “working families in my home state.”
The Inflation Reduction Act, legislation passed by Democrats that provides financial support to companies building battery factories and vehicle assembly plants in North America, “is a shakedown,” Barrasso said during a hearing this month .
Such comments bode poorly for Tesla and other automakers that have increased their investments in the United States due to government incentives that could disappear if Republicans regain control of the White House and Congress.
