Tesla dials back expectations as Elon Musk sees storm ahead

Years of rapid expansion at Tesla are colliding with rising interest rates and more cost-conscious consumers

Thu, 19 Oct, 2023 - 17:24

Dana Hull and Sean O'Kane

Elon Musk is dialling back expectations for Tesla as years of rapid expansion collide with rising interest rates and more cost-conscious consumers.

After months of persistent price cuts, Tesla’s margins have fallen well below the floor once set by its recently departed chief financial officer. The company is “ruthlessly” cutting costs to keep up, according to vehicle engineering chief Lars Moravy.

An unpredictable economic environment has Mr Musk feeling “paranoid” and, as a result, Tesla is slow-walking its newest factory in Mexico.

“Tesla will likely need to lower delivery expectations and face lower margins” next year, Toni Sacconaghi, an analyst at Bernstein wrote in a research note, with an ‘underperform’ rating on the shares.

Tesla is increasingly looking like a regular auto company.

Tesla shares fell almost 6% at one stage in the latest session in New York trade, but are still up about 86% this year.

Mr Musk repeatedly lamented the toll that high interest rates and multiple wars are taking on consumer sentiment and purchasing power on a conference call on late Wednesday after reporting earnings that missed estimates.

He also described ramping up production of Tesla’s new Cybertruck as a challenge on par with the “production hell” the company endured in the past.

“Tesla is an incredibly capable ship,” the chief executive officer told analysts.

We’re not going to sink, but, even a great ship in a storm has challenges.

The first Cybertrucks will be handed over to customers at the end of November, Tesla said, about two years behind schedule. Musk warned it may be another 18 months until the company reaches volume production and is generating significant cash flow from the pickup.

“We dug our own grave with Cybertruck,” Mr Musk told analysts, referring to the level of complexity of the vehicle. “Special products that come along only once in a long while are just incredibly difficult to bring to market, to reach volume, to be prosperous.”

The company missed both earnings and sales expectations for the quarter.

While revenue rose to $23.4bn (€22.2bn), analysts were expecting $24.06bn. Tesla has repeatedly slashed the prices of its cars this year, with Mr Musk saying he’s willing to sacrifice profits to increase sales. The markdowns are only going so far in lowering would-be customers’ monthly payments, Mr Musk said, due to how much borrowing costs have risen.

Automotive gross margin excluding regulatory credits — a figure closely watched by investors — slumped to 16.3% in the quarter, the lowest in over four years. Analysts were expecting 17.7%.

The company delivered 435,059 vehicles globally in the period, its first quarterly decline in a year, after planned factory downtime slowed production. Tesla recently launched a refreshed Model 3 car in China and Europe.