January 26, 2023
TSLA Increases on Positive Demand Outlook
After Elon Musk, CEO of EV major Tesla, gave an optimistic outlook on sales and production for the company’s Q4 earnings call, Tesla ( NASDAQ TSLA), ticked up more than 9% on Thursday morning trading
Although the company had mixed results in Q4, Musk remains optimistic about Tesla’s future demand. Musk stated that January has seen the most orders in a year, pointing out that this was the best month in recent history. Orders are currently being placed at nearly twice the production rate.
Musk said that the company was trying to make its cars more affordable by reducing the 20% price of its cars in the U.S.A and Europe. Tesla anticipates selling 1.8 million EVs in 2018, which is 37% more than the previous year. Musk said that Tesla could sell as many as 2 million EVs if there are no external shocks.
Management of the company provided an update about its long-awaited Cybertruck pickup. They stated that although production is expected to start in Texas later this year, it will not be mass-produced until next year.
The CEO also spoke out on the subject of recession, commenting, “My guess, if the recession’s serious, which I believe it most likely will be, but I hope not, that would lead us to a significant decrease in almost all our input costs.” We expect to see a deflation of our input costs which will likely lead to, yes., better margins.
TSLA is looking to scale up its production in order to increase production at its Berlin, Texas Gigafactories, and also ramp up its battery production in-house.
The CFO of Tesla Zachary Kirkhorn stated that the company would “attack every other area cost and unwind cost increases created for multiple decades of COVID-related instability.” He also said that this year’s cost of lithium in EV batteries will be higher than last year.
Kirkhorn stated that the company’s operating profit will be affected in the short term. Kirkhorn maintained his confidence that TSLA’s auto gross margin (excluding rent credits and leases) would remain at 20%, while its average selling price (ASP), across all models, will remain at $47,000.
The Q4 automotive gross margin of the company was 25.9%, compared to more than 30% last year. This quarter’s gross margin was the lowest it had been in five years.
The top-rated Wedbush analyst Daniel Ives, who has been bullish on TSLA for years, commented on the Q4 results: “While Tesla is sacrificing margins in the short-term, we see this as the right strategic move to put an iron barrier around its customer base, and fend against growing EV competition from Detroit, Europe and China.”
While retaining a Buy rating on the stock, the analyst raised the price target from $175 to $200 by raising the price target. At current levels, Ives’ price target suggests an upside potential of 38.5%
TSLA reiterated its long-term outlook during its Q4 earnings call, stating that it expects a 50% compounded annual increase in vehicle deliveries. Analyst Ives reiterated a Buy rating for TSLA stock with a price target of $175 prior to its earnings.