Tesla, the leading electric vehicle (EV) manufacturer, has reported disappointing fourth-quarter earnings, highlighting the intense pressures of a price war and persistent high costs. Despite increasing vehicle sales, Tesla's financials tell a story of declining profitability and shrinking margins.
Squeezed on All Sides
In its latest earnings report, Tesla missed Wall Street's expectations, with its financial struggles exacerbated by reliance on greenhouse gas credit sales and an accounting change related to Bitcoin holdings, which contributed significantly to its earnings. These "other income" sources accounted for half of Tesla's earnings for the quarter, masking the underlying weaknesses in its core operations. Tesla boasted a record quarter for vehicle and battery sales, yet this success did not translate into financial strength. The automotive margin, excluding emissions credit sales, dropped to its lowest level since at least 2018, at 13.6%. The average revenue per vehicle sold also fell below $40,000 for the first time, with gross margins plunging accordingly.The Core Issues
Tesla's cost of vehicle production has indeed reached a record low, now under $35,000 per vehicle, showing some efficiency gains. However, these cost reductions are minimal and insufficient to offset the effects of aggressive pricing strategies by competitors in the U.S. and China. This scenario has left Tesla grappling with falling prices and "stubborn costs," leading to significantly reduced margins.
Musk's Optimistic Outlook
Despite these challenges, CEO Elon Musk remains optimistic, focusing on future growth areas like autonomous driving and robotaxi services. On the latest earnings call, Musk highlighted plans to launch a geofenced robotaxi service in Austin by June and expressed confidence in expanding unsupervised full self-driving capabilities. Musk's rhetoric on the call was bold, projecting significant growth and even suggesting that Tesla could become more valuable than the next five largest companies combined. However, his ambitious visions contrast sharply with the current financial realities facing the company.