Tesla’s Gross Margin Slumps by 7 Percent QoQ as the EV Giant Announces Its Earnings for the Fourth Quarter of 2022

Rohail Saleem
Tesla Earnings

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

With Tesla aggressively cutting the retail price of its EVs in recent weeks to ward off a sustained slump in demand, analysts are gearing up to scrutinize the impact of these discounts on the EV giant’s gross margin metric – the highest in the industry.

Tesla (NASDAQ: TSLA) Q4 2022 Earnings

Tesla has reported $24.32 billion in revenue for the fourth quarter of 2022, beating consensus expectations of $23.7 billion.

Revenue Comparison
Q4 2021
Q3 2022
Q4 2022 Consensus
Q4 2022 Actual
0
5
10
15
20
25
30
0
5
10
15
20
25
30
Automotive Revenue
16
18.7
20.7
21.3
Total Revenue
17.7
21.5
23.7
24.3

(All figures are in billions of dollars)

Tesla identified FX impact of $1.4 billion as a major challenge to its top-line metric during the quarter.

The following snippet summarizes the EV giant’s production activities during the period:

In early January 2023, Tesla disclosed that it delivered 405,278 EVs in Q4 2022, missing pared-down consensus expectations of 418,000 units. Moreover, the EV giant managed to produce 439,701 units in the pertinent quarter. For the entire FY 2022, Tesla has recorded cumulative deliveries of 1,313,851 units.

Tesla has continued to maintain over the past few quarters that it would grow its annual deliveries by 50 percent for the foreseeable future. Based on these quarterly numbers, Tesla was only able to grow its annual deliveries by 40.3 percent in 2022, thereby missing its stated guidance.

Coming back, Tesla has reported an automotive gross margin of 25.9 percent for Q4 2022, missing consensus expectations of 26.4 percent. On a sequential basis, this corresponds to a slump of around 7 percent.

Gross Margin Comparison
Gross Margin
0
6
12
18
24
30
36
0
6
12
18
24
30
36
Q4 2021
30.6
Q3 2021
27.9
Q4 2022 Consensus
26.4
Q4 2022 Actual
25.9

(All figures are in percents)

Finally, Tesla has reported $1.19 in non-GAAP (adjusted) EPS, beating consensus expectations of $1.10 per share. Bear in mind that Bloomberg has compiled a higher consensus non-GAAP EPS estimate of $1.12.

EPS Comparison
EPS
0
1
2
3
0
1
2
3
Q4 2021
2.5
Q3 2022
1.1
Q4 2022 Consensus
1.1
Q4 2022 Actual
1.2

(All figures are in dollars)

The company has identified higher cost of raw materials and logistics, production ramp-up cost of 4680 cells, and negative FX impact as major challenges to its bottom-line metric during the quarter.

The following snippet summarizes Tesla’s latest guidance:

The company expects to produce 1.8 million EVs in 2023.

At the time of writing, Tesla shares are up 0.5 percent in after-hours trading.

Also, Tesla has entered into a $5 billion revolving credit agreement with Citibank.

Earnings Context:

While Tesla did start introducing material discounts for buyers in China in Q4 2022, the start of the new year has witnessed a veritable galore of price cuts. For instance, in the first two weeks of January, Tesla slashed the price of its EVs by as much as 20 percent in the US to allow the Model Y variants to qualify for the $7,500 federal tax credit. Similarly, the EU has witnessed a discount of up to 17 percent on some variants, while China has received another price cut of up to 14 percent.

Although these discounts are a major headwind for Tesla’s Q1 2023 financials, the company still maintains a healthy margin of 10 percent, or roughly $3,000, on every vehicle sold in China at these post-discount prices.

Meanwhile, there are indications that the recent price cuts are re-energizing demand, as illustrated by a marked reduction in Tesla’s inventory levels in the US.

The EV giant recently announced that it was investing $3.6 billion to build a new plant in Nevada geared toward batteries and the production of the Tesla Semi.

However, Tesla’s Autopilot continues to struggle to make headway. As an illustration, Consumer Reports has now ranked the Autopilot at an unenviable seventh place out of the twelve different Advanced Driver Assistance Systems (ADAS) that they tested.

Elon Musk also continues to face scrutiny on liquidating Tesla shares worth billions of dollars just ahead of material price cuts.

We will continue to update this article with any new material guidance provided in Tesla’s earnings call. Stay tuned.

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