Tesla Defends Price Cuts with Reports of Record Profit

Tesla on Wednesday reported a record net income of $3.69 billion and revenue of $24.3 billion for the fourth quarter – up 59% and 37%, respectively, from a year earlier – and sold 405,278 vehicles, which is up 31%.

That, however, came at a price since the company acknowledged that it must make cheaper vehicles to become a multi-million vehicle producer.

According to Evercore ISI, Tesla recently cut prices of its US vehicles by a weighted average of $10,000 which, according to Morgan Stanley’s estimates, means that Tesla prices in 2023 would average in the range of $45,000 to $48,000.

These cuts, however, were not reflected in the fourth-quarter earnings report. Morgan Stanley analyst Adam Jonas said in a research note ahead of the earnings report that the cuts were indeed in response to slowing incremental demand relative to incremental supply.

The price cut obviously paid out considering its best quarterly marks ever despite a continued slowdown in the critical Chinese market.

After the signs of a sales slowdown and a stock-price plunge of about two-thirds of its value in 2022 amid a broader industry pullback and its CEO Elon Musk’s controversial management of Twitter, Tesla was under pressure to regain momentum.

Although the company pledged during the earnings presentation Wednesday a relentless cost control and cost innovation to preserve profit margins, investors are way more interested if the company’s recent round of across-the-board price cuts will pay off.

However, the plans that the company announced on Wednesday to invest over $3.6 billion in a new semi-truck assembly plant and a battery cell factory – alongside its existing “gigafactory” near Reno, Nevada – show Tesla is confident enough in its future growth.

Part of its problem was – as competition heats up from the likes of General Motors, Ford, Volkswagen, Hyundai, Rivian, and Lucid – that Tesla hasn’t introduced a new consumer vehicle in years which made it look more and more like a traditional car company that, when demand slows, must do things like lower prices or increase incentives.

Although Tesla promised the long-ago-introduced-but-not-yet-produced Cybertruck is on track to begin production in Texas later this year, many say they’ll believe it when they see it.

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