The likelihood that Trump’s antipathy to electric vehicles would suppress Tesla’s sales in its home market didn’t register with investors, who also seemed to disregard that Musk’s increasingly strident support for Trump and various right-wing causes might also present a headwind for sales of vehicles that are geared toward addressing climate change and have, hitherto, hewed toward blue states.
A visceral reminder of that strange juxtaposition was delivered on New Year’s Day with the explosion of a Tesla Cybertruck outside a Trump-branded hotel in Las Vegas, even if the underlying details of what occurred are yet to be uncovered.
The latest sales figures are less open to interpretation. Tesla, a company whose profits are overwhelmingly tied to sales of EVs and is priced for incredible growth, recorded a drop in annual vehicle sales for the first time in more than a decade.
Beneath the headline numbers, Tesla sold about 36,000 more vehicles than it produced in the fourth quarter. On one hand, that is helpful in clearing some of the big build-up of unsold vehicles that has marked the past two years, and should offer a cash-flow tailwind from working capital when full results are released later this month.
On the other hand, slower production raises unit costs and clearing inventory means discounting, squeezing margins.
When Tesla sold a similar number of vehicles over and above production in the second quarter, underlying gross margin dropped 13 per cent compared with the prior quarter to less than $6,000 per vehicle, the lowest in at least six years. There was also a notable jump in the proportion of deliveries made under leases.
A Tesla Cybertruck on display in Beijing.Credit: Bloomberg
Returning to the Cybertruck, it is also remarkable that sales of Tesla’s premium-priced models increased by only 3 per cent in the fourth quarter, year over year. In other words, despite Tesla’s premium line-up having expanded from two models — the Models S and X — to three at the end of 2023, overall sales in that segment are essentially flat. The Cybertruck has cannibalised rather than added to sales of Tesla’s higher-priced EVs.
Tesla’s stock duly fell a little on Thursday morning, and it is now down by almost a fifth from its post-election peak. It still sports a forward earnings multiple that is, at about 120 times, more than three times that of Nvidia, to pick a useful benchmark. Tesla may have trouble seeing the future, even just months out, but remains priced to own it nonetheless.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.
Bloomberg L.P.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
