Despite a minor bounce that Tesla (NASDAQ:TSLA) stock staged in the closing days of 2022, shares are back to trading lower after the soft fourth-quarter deliveries report issued on Monday.
The electric vehicle (EV) delivered 405,278 vehicles in the fourth quarter, while the total number of produced vehicles stood at 439, 701. On an annual basis, Tesla delivered and produced 1.31 million and 1.37 million vehicles in 2022, respectively.
The carmaker reported deliveries of its entry-level Model 3 and Model Y vehicles totaled 388,131, while deliveries of higher-end Model S and Model X cars stood at 17,147.
Q3 2022 hedge fund letters, conferences and more
The Q4 deliveries report shows Tesla’s deliveries grew 40% year-over-year, marking a new record for the world’s biggest electric carmaker. But despite the new record high, the numbers still trailed sell-side consensus estimates.
Consensus estimates compiled by FactSet showed analysts were expecting the automaker to deliver about 427,000 in the last quarter of 2022 as of Dec. 31, 2022. The projections, which were updated last month, were in the range of 409,000 to 433,000 vehicles. It seems that Tesla also missed the buy-side consensus, which is likely to fuel concerns over the company’s stock performance in 2023.
The EV maker began production at two new plants in Austin, Texas, and Brandenburg, Germany. In addition, the company increased production in Fremont, California, and in Shanghai, China, though it did not provide the production and delivery numbers by region.
“Over a multi-year horizon we expect to achieve 50% average annual growth in vehicle deliveries. The rate of growth will depend on our equipment capacity, factory uptime, operational efficiency and the capacity and stability of the supply chain,” Tesla said in a Q3 shareholder presentation.
Demand Problem in 2023?
Tesla stock faced several headwinds in the several final months of 2022, such as new Covid outbreaks in China, which resulted in a temporary suspension and reduced output at its Shanghai plant. In a bid to encourage demand, Tesla offered significant price discounts and other promotions in the U.S., China, and other markets, risking additional pressure on the company’s margins.
Tesla’s boss Elon Musk asked employees in an email to “volunteer” to deliver as many vehicles as possible before the end of 2022 and encouraged them not to be distracted by the ongoing stock market chaos.
The recent price cuts in the U.S. and China suggest that Tesla may be facing a demand issue, which could persist this year and weigh on the company’s margins, Bernstein analyst Tony Sacconaghi said last month.
The analyst noted Tesla is facing demand headwinds due to intensifying competition in the EV market, its “narrow” and expensive car lineup, as well as the deteriorating global economy.
Sacconaghi, a well-known Tesla skeptic, expects the price cuts to reduce average selling prices on a global level by roughly 2.6%, or $1,400 per vehicle. He believes that average prices could drop from $53,500 in Q3 to $50,000 in 2023.
“More importantly, we believe that Tesla may need to take additional price cuts in 2023 in China to stimulate demand,” and will have to permanently trim prices in the US to become eligible for rebates associated with the Inflation Reduction Act (IRA).
On the flip side, Sacconaghi thinks that certain offsets could emerge to lift Tesla’s margins, particularly in the company’s Texas and Germany plants. These include manufacturing improvements in the form of reduced input and logistics costs, and tax credits on battery cells.
“On net, we believe TSLA has the potential to offset $2,000-3,600/car in price cuts next year, though much of it could be in op-ex & tax credits,” Sacconaghi added.
In the latest notes to clients, Bernstein analysts led by Sacconaghi believe the EV business might experience severe demand problems in 2023. Given the sharp decline in Tesla stock, the risk/reward is more balanced at current levels, but still leaning negative due to the company’s still-high valuation, added Sacconaghi.
Hence, potential demand challenges mean that risks are tilted to the downside for Tesla stock, which experienced a massive selloff since Musk acquired Twitter in October 2022. The billionaire has been fiercely criticized by Tesla investors over his focus on the social media company.
Tesla shares dropped over 65% in the past year, compared to the 19%+ loss in the broader S&P 500 index.
Summary
Tesla shares have continued to move lower in 2023 after a massive selloff in 2022 on the back of CEO Musk’s take-private deal for Twitter, supply headwinds, as well as a challenging macro environment. Wall Street analysts are now pointing toward a challenging outlook for 2023 as far as the EV maker is concerned as Tesla may find itself having a demand problem for the first time in its history.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.
