Tesla announced its fourth-quarter and full-year financial results for 2022. Revenue, net profit, and other financial indicators have achieved good growth.
But under the good news, there are also worries. In 2022, Tesla’s total global deliveries were 1.31 million units, missing the sales target of 1.5 million units; at the same time, frequent price cuts have also made Tesla’s car business gross margins continue to decline.
Data show that Tesla’s stock price fell nearly 70% in 2022, shrinking by more than $700 billion. In addition to the stock price, Musk’s deep involvement in the Twitter takeover case in 2022 has also made Tesla’s shareholders unhappy. As they say, Tesla now needs a full-time CEO to save the day.
Sales targets not met, car gross margins continue to decline
In 2022, Tesla reported total revenue of $81.5 billion, up 51% year-over-year, and full-year 2022 GAAP net income of $12.6 billion, up 128% year-over-year, according to the earnings report.
Tesla CEO Musk called 2022 the best year ever on the conference call. But in reality, Tesla isn’t quite as comfortable as he described.
In 2022, Tesla will deliver 1.31 million units worldwide, up 40 percent from 2021. But unfortunately, did not complete the previously set 1.5 million sales target, which also led to the loss of its 2022 global new energy vehicle sales of the first throne, pulled down by BYD.
After failing to meet its target of 50% annual growth in car sales for two consecutive years, Tesla began to lower its expectations, expecting to deliver about 1.8 million vehicles in 2023. According to this calculation, this figure is only about 37% growth than in 2022.
In the face of sluggish demand, Tesla’s solution is to cut prices.
In the Chinese market, for example, on October 24, 2022, Tesla officially announced a price cut in China, with the adjusted price range of Tesla Model 3 at 265,900-349,900 yuan, a maximum reduction of 18,000 yuan; and the adjusted price range of Tesla Model Y at 288,900-397,900 yuan, a maximum reduction of 37,000 yuan.
The Tesla Model Y has an adjusted price range of $288,900-397,900, with a maximum reduction of $37,000. Half a month after the price reduction, on November 8, 2022, Tesla officially announced again that the Tesla current car insurance subsidy program has been put online for a limited time. 8 November (inclusive) to November 30 (inclusive), the purchase of the current car and cooperative insurance agencies car insurance portfolio and complete the car on schedule, the final payment can be reduced by $8,000; December 1 (inclusive) to December 31 (inclusive), the final payment can be reduced by $4,000.
And in January this year, just into 2023, Tesla again opened the price war mode. Tesla China announced on its official website that the prices of the Model 3 and Model Y will be adjusted, with the starting price of the Model 3 dropping by 36,000 yuan and the starting price of the Model Y dropping by 29,000 yuan, while the price reductions of the remaining versions of the two models range from 20,000 to 48,000 yuan, setting a new historical low for Tesla China.
The price cut has stimulated sales so much that some media reports say that Tesla China received 30,000 car orders in three days after the price cut was announced in January this year.
The bottom line of Tesla’s price cuts comes from the profitability of individual cars, but frequent price cuts have already had an impact on the gross margin of Tesla’s car business. in the fourth quarter of 2022, Tesla’s car gross margin fell to 25.9% from 27.9% in the third quarter, compared to 30.6% in the same period in 2021, and has been below 30% for three consecutive quarters. The price cut in January will also be visible in Tesla’s gross margin in the first quarter of this year.
At the same time, the frequent price cuts have rebounded among users who have already purchased the car. After the price cut was announced in January this year, many Tesla owners formed a rights group and gathered in the Tesla experience stores in many places, asking Tesla to compensate the owners who had recently purchased the car. Some owners said that they had just bought a car and lost tens of thousands of yuan, which was very unhappy.
However, Musk seems to have his own considerations about the price reduction.
Musk stressed that to become a maker of electric vehicles in the millions of units class, improving the affordability of the product is the way to go. “Price changes have a significant impact on the average consumer, and affordability is very important — Tesla’s goal has always been to make it affordable for as many people as possible.”
Financial data show that Tesla’s average electric vehicle selling price has generally trended downward for several years, and that the average Tesla electric vehicle selling price has been cut in half between 2017 and 2022.
Falling stock prices, lawsuits… Musk has more troubles
With sales falling short of expectations, Tesla’s stock price for 2022 is not going well.
In December 2022, Musk also reassured employees in an internal letter that he would do his best to boost deliveries and not be troubled by the stock market’s craziness, as long as we keep up our excellent performance.
But it’s not just car sales that are affecting Tesla’s stock price, it’s Musk himself.
A few days ago, the class action lawsuit against Musk for alleged securities fraud, which focuses on the tweets Musk had posted in 2018 to take Tesla private triggered a dramatic shakeup in Tesla’s stock price, was officially heard in California. The trial is continuing, and if found guilty, Musk could have to pay billions of dollars for the incident.
In addition, Musk’s personal reputation has taken a sharp turn for the worse with his performance in the Twitter takeover case.
In April 2022, Musk reached a final agreement with Twitter’s board of directors to buy it for $54.20 per share in a deal worth about $44 billion (about 288.6 billion yuan). But soon after taking over Twitter, Musk started a major layoff. Some foreign media reports said that since Musk managed Twitter, the company has fired about 80% of its employees, and now only about 1,300 employees remain.
Due to the loss of employees, it has become more difficult for Twitter to develop new features and even default on rent for the company’s offices. Some of the laid-off Twitter employees have also filed a class action lawsuit in court.
According to YouGov, a British market research firm, a month after Musk took over Twitter, for the first time in its six years of tracking Tesla, the U.S. market has seen more negative than positive views of the company. At the same time, 38 percent of respondents had a positive view of Tesla at the same time last year, down from 43 percent at the start of the year, according to U.S. consulting firm Morning Consult.
With Tesla’s sales challenges on one side and the messy acquisition of Twitter on the other, Musk appears to be a bit split in 2022. This has also sparked dissatisfaction among some Tesla investors, with some believing that Tesla’s falling stock price is the result of not having a CEO. Some Tesla shareholders even said that Tesla needs a CEO who can work full time.
In December 2022, news broke that Musk had appointed Zhu Xiaotong, former president of Tesla Greater China, as Tesla’s global CEO, but until now there has been no official and clear news. According to foreign media reports, Zhu has been promoted to global management, responsible for Tesla’s manufacturing operations in the United States as well as sales, delivery and after-sales in North America and Europe.
Asked during the fourth quarter earnings call who would be a strong competitor to Tesla in the next five years, Musk said, “We still don’t know who will be a distant second, you can’t even see the second one with a telescope.” But he also admitted that Chinese car companies are the most competitive in the world, “They work the hardest, they work the smartest, and there are probably some companies in China that are most likely to be second only to Tesla.”
As Musk said, Chinese traditional car companies are accelerating their transition to new energy vehicles, and a host of new energy car brands are accelerating their entry into overseas markets while battling Tesla in the Chinese market. Although Tesla has a first-mover advantage in the global market, Musk, who is in trouble, will have to take his competitors seriously.