Bloomberg Market Specialist Nicholas Ng and Jeffrey Hernandez contributed to this article. The original version appeared first on the Bloomberg Terminal.
Background
Tesla Inc. started 2022 in command of the global electric vehicle market but faced increasing competition and supply chain challenges as the year went on. While fourth-quarter revenue increased to $24.3 billion and missed expectations, automotive gross margins declined to 25.9%, or nearly five percentage points lower than a year earlier. The stock price reflected these challenges, declining 65% for the 2022 year.
Tesla is taking steps to improve results and investor sentiment in 2023. CEO Elon Musk said the company will increase output for 2023, potentially to more than 2 million vehicles. Tesla also cut prices across its vehicle lineup, which initially sent shares down. Overall, the stock has responded of late, up 78% from its Jan. 6 low.
The issue
Analysts question whether Tesla’s price markdowns will sustain order growth. The Bloomberg Interactive Calculator suggests that a 20% decline in average selling prices will hurt Tesla’s profits and revenue.
“Demand, not margin, will be Tesla’s problem in 2023, even as the effect of price cuts begins to show in 1Q results,” wrote Kevin P. Tynan, Bloomberg Intelligence senior analyst. “The 20% reduction in starting prices will pull forward some sales, but is unlikely to draw buyers from competitors as much as has been hyped. That makes Tesla’s push to boost output as quickly as possible a potential harbinger of more price cuts.”
Even with the expected decline in Tesla’s top and bottom lines in 2023, the EV car maker has the industry’s highest margins to work with. That margin could be especially helpful if a price war emerges, with Ford already cutting prices on its Mustang Mach-E.
Meanwhile, analysts forecast Tesla’s inventory to scale new heights over the next two years, dwarfing stockpiles of Chinese rivals, including NIO and Xpeng, but may trail competitor BYD Co.
To check Tesla inventory forecasts versus peers:
- Go to MODL<GO>. Click the Peer KPI Comparison | KPIC >> link. The shortcut is TSLA US Equity KPIC <GO>.
- Scroll to the Inventory – Median section, then click Show All Peers at the bottom of it. Then click the chart icon next to Tesla Inc.
- Tick Li Auto Inc., NIO Inc., XPeng Inc., BAIC Motor Corp, and BYD Co.
For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.
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