London
CNN
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Tesla’s stock plummeted by 11% after the market opened on Thursday, resulting in a $73 billion reduction in the company’s market value. This drastic decline came shortly after the company cautioned about slowing growth in the sales of electric cars and the looming competition from Chinese rivals.
During an earnings presentation on Wednesday, the world’s most valuable carmaker stated that its sales growth for the year “might be significantly lower” compared to the previous year, as it focused on developing the “next-generation” vehicle, likely to be a more affordable model.
Despite a substantial 38% increase in deliveries last year compared to 2022, Tesla had initially aimed for an average annual growth rate of 50% over several years.
Tesla’s (TSLA) financial results for the last quarter were also below expectations, with adjusted earnings per share dropping by 40% from the previous year. Additionally, the revenue, which surpassed $25 billion, fell short of market forecasts, showing just a 3% increase.
This is the second consecutive quarter where the company has failed to meet analysts’ earnings forecasts, following a series of results that exceeded expectations since the beginning of 2021.
Although the stock doubled in price over the course of 2023, the gains were mainly made in the first half of the year. However, Tesla shares experienced a poor start in 2024, plunging by 16% before Wednesday’s earnings report. Presently, the stock is trading at its lowest level since April of the previous year.
The intraday losses on Thursday were similar to the unusually large one-day drop of 11.4% in late December 2022. During that time, investors were concerned about the prospects for Tesla’s sales and profitability, as well as the state of the US economy.
Tesla’s earnings for the fourth quarter also indicated that profits are under pressure. The company’s operating margin dropped by nearly half to 8.2% from the same period in 2022, partly due to increased costs related to the production of the Cybertruck pickup, which commenced production at the end of 2023.
According to Dan Ives, an analyst at market research firm Wedbush, Tesla’s earnings call left investors with “scant answers” regarding the company’s shrinking margins.
“We were completely wrong to expect Musk and his team to address the ongoing price reductions, margin structure, and fluctuating demand with strategic and financial insights during the call,” he wrote in a note on Thursday.
In an effort to boost sales in the face of growing competition from Chinese rivals, Tesla has been slashing prices for more than a year.
China’s BYD outsold Tesla in the final three months of last year, surpassing Elon Musk’s company in car sales for the first time.
During the Wednesday call, Musk stated that Chinese carmakers are “the most competitive car companies in the world” and are likely to achieve significant success beyond China.
“Honestly, I believe that if there are no trade barriers in place, they will essentially outperform most other car companies in the world,” he said.
Increased competition from BYD and other Chinese automakers has prompted a European anti-dumping investigation, which could result in higher tariffs on car imports from China. “Dumping” refers to the practice of exporting goods to a country at prices that do not reflect their actual cost.
Despite the “disappointing and atypical” earnings, Garrett Nelson, a senior equity analyst at CFRA Research, anticipates that the introduction of Tesla’s lower-cost vehicle in the next few years will serve as “the catalyst the stock needs,” as he stated in a note on Wednesday.
Technology analyst Ben Barringer of Quilter Cheviot is also optimistic, believing that the broader economic conditions are beginning to favor Tesla.
“Interest rates are expected to start declining, which will be a significant positive for Tesla, as well as the broader automotive sector, since consumers typically finance their vehicle purchases,” he wrote in a note on Thursday.
Chris Isidore contributed to this report.
