Tesla announced its financial results for the fourth quarter of 2022 as well as for the full year 2022. In terms of revenue, net profit, and other financial indicators, we have seen a good increase.
Under the good news, there are also some concerns that need to be addressed. At the end of 2022, Tesla had delivered 1.31 million units globally, which was below the company’s sales target of 1.5 million units; at the same time, Tesla’s car business gross margins continued to decline due to frequent price cuts throughout the year.
In 2022, Tesla’s stock price fell by nearly 70%, shrinking by more than $700 billion, according to the latest data from the company. The deep involvement of Tesla’s founder Elon Musk in the Twitter takeover case in the year 2022 has also been a source of disquiet among its shareholders, in addition to the stock price. There is no doubt that Tesla needs a full-time CEO if it is going to save the company.
The sales targets have not been met, and the gross margins on cars have continued to decline
In the year 2022, Tesla reported total revenue of $81.5 billion, up 51% year-over-year, and full-year GAAP net income of $12.6 billion, up 128% year-over-year, according to its earnings report for the year.
On the conference call, Tesla CEO Elon Musk referred to 2022 as his best year ever. In reality, Tesla isn’t quite as comfortable as he described it to be, and that’s a bit of a disappointment.
Tesla is expected to deliver 1.31 million units worldwide in 2022, an increase of 40 percent over 2021. The company, however, did not achieve the previously set target of 1.5 million sales, causing it to lose the first place in the global new energy vehicle sales of the first throne, which was displaced by BYD in 2022.
Having failed to meet its target of 50% annual growth in the number of cars it sells for two consecutive years, Tesla has lowered its expectations for the future, expecting to deliver just 1.8 million cars by the year 2023. In this calculation, it can be seen that this figure represents just about a 37% growth in comparison to the year 2022.
There is only one thing Tesla can do in the face of sluggish demand, and that is to cut prices.
For instance, on October 24, 2022, Tesla announced the official price reduction for the Tesla Model 3 in China. The adjusted price range for the Tesla Model 3 is 265,900-349,900 yuan, a maximum discount of 18,000 yuan; and for the Tesla Model Y, the adjusted price range is 288,900-397,900 yuan, an adjustment that has a maximum reduction of 37,00 yuan.
As a result of the price reduction, the Tesla Model Y now has an adjusted price range between $288,900 and $397,900, with a maximum reduction of $37,000. It was announced half a month after Tesla’s price reduction that Tesla’s current car insurance subsidy program has been made available for a limited time after it had already been announced half a month after the price reduction. A final payment can be reduced by $8,000 if you purchase the current car and cooperative insurance agencies’ car insurance portfolio between 8 November (inclusive) and November 30 (inclusive) and complete the car on schedule; the final payment can be reduced by $4000 if you purchase the current car and cooperative insurance agencies’ car insurance portfolio and complete the car on schedule.
During the month of January of this year, just one month into 2023, Tesla again launched a price war campaign. 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.
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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.
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.
