Profits fell for the first time in seven years, and Musk had to sleep in the factory again. The 2023 financial report showed that Tesla's annual profit fell for the first time since 2017, and its fourth-quarter profit dropped by 40%. Both revenue and earnings per share fell short of expectations, and the stock price fell 5% after the market closed. In 2023, Tesla's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was US$16.6 billion, a 13% decrease from US$19.2 billion in 2022.
Although Tesla's profits are slightly weak, its revenue and sales have hit a record high, with total revenue in 2023 of US$96.773 billion, a year-on-year increase of 19%. A total of 1.808 million new cars were delivered throughout the year, a year-on-year increase of 38%. Among them, Model Y sold more than 1.2 million units globally, becoming the best-selling model in the world.
However, Tesla did not give a delivery target for 2024, only stating that sales growth will slow down this year. Tesla has previously set the average annual delivery growth rate at 50%.
Several data were lower than expected
Let’s look directly at the specific data in the financial report.
Tesla's total annual revenue in 2023 will reach US$96.773 billion (approximately 692.2 billion yuan), a year-on-year increase of 18.79%. According to this growth rate, Tesla’s revenue this year will not surprisingly exceed 100 billion US dollars.
Tesla's core business, the automotive segment's revenue was US$82.419 billion, accounting for 85% of total revenue, a year-on-year increase of 15%.
Tesla’s energy division, which sells solar power generation and energy storage systems, saw revenue increase by 54% in 2023, contributing $6.04 billion in revenue, while service and other revenue increased by 37% year-on-year to $8.32 billion.
Financial report data shows that Tesla's total energy storage installed capacity reached 14.7 GWh in 2023, more than double that in 2022. Profits in the energy generation and storage business almost quadrupled in 2023, while gross profit in services and other businesses increased from negative $500 million in 2019 to $500 million in 2023.
Looking at a single quarter, Tesla's total revenue in the fourth quarter of 2023 was US$25.167 billion, a year-on-year increase of 3%, which was lower than analysts' expectations of US$25.87 billion. The revenue of the automotive business was US$21.563 billion, a slight increase of only 1% year-on-year, and growth was obviously weak.
In order to stimulate sales, Tesla launched a series of price cuts in the last quarter, which also caused the gross profit margin in the fourth quarter to be only 17.6%, the lowest level since 2019, which was also lower than analysts' expectations of 18.1%, a year-on-year decrease of 6.12 percentage points.
In the four quarters of 2023, Tesla's gross profit margin continued to decline, from 19.3% in the first quarter, 18.2% in the second quarter, and 17.9% in the third quarter, all the way to 17.6% at the end of the year. The biggest reason for the decrease in gross profit margin is the continuous price reduction and promotion volume last year. Tesla also said that it is related to the increase in operating expenses driven by other research and development projects.
However, Tesla's cash reserves are still very generous, with operating cash flow in 2023 of US$13.3 billion and free cash flow in 2023 of US$4.4 billion. Among them, operating cash flow in the fourth quarter was US$4.4 billion, and free cash flow in the fourth quarter was US$2.1 billion.
It is worth mentioning that in 2023, Tesla’s R&D expenses reached a historical high, with annual R&D expenses as high as US$3.969 billion (approximately RMB 28.39 billion). According to Tesla officials, RMB 28.4 billion exceeds the combined R&D expenses of many new car-making forces.
High R&D brings high output. In 2023, Tesla's total delivery volume will be 1.8 million vehicles, a year-on-year increase of 38%, of which a delivery record of 484,500 vehicles was set in the fourth quarter. The cost of a single vehicle continued to decline in the fourth quarter. The financial report shows that the average sales cost of each vehicle has now dropped to around US$36,000 (approximately RMB 250,000).
Model Y has also become the world's best-selling model regardless of category, power mode, or any attributive form, with a total of more than 1.2 million vehicles delivered throughout the year.
However, regarding sales expectations in 2024, Tesla stated in its financial report that the growth rate "may be significantly lower than in 2023". The reason given is that it is busy launching the next generation of models.
In addition, Tesla has not announced a specific delivery target for 2024. Some analysts predict that Tesla's sales this year may reach 2.2 million vehicles, a year-on-year increase of about 20%.
After the release of the financial report, Tesla's US stock price fell by more than 5%, with a quotation of less than US$200 per share and a market value of US$660.7 billion.
Growth point lies in next-generation models
After the lower-than-expected earnings report, Musk also revealed the release schedule for the next generation of cars, saying that Tesla "has made considerable progress" in developing a new low-cost car.
While no details were provided about the car or its timing, and Tesla said it would not discuss product launches during the earnings call, it did reveal a lot about the next-generation model.
Musk said Tesla's current goal is to launch the next generation of electric vehicles by the end of 2025, including a cheaper model. The selling price will be set at US$25,000 to further expand the market.
This car will use Tesla's original "Unboxed Assembly Process". According to Musk, this assembly system will be faster, more efficient, and reduce costs by 50%.
"I'm very excited about this car and its revolutionary manufacturing system that will be more advanced than anything else in its class."
This process has previously been mentioned by Tesla at Tesla's 2023 Investor Day, a new car manufacturing system - the "unboxing process", which it claims can usher in the third reform of the automobile manufacturing industry.
In addition, it may be difficult to increase production, and production will be carried out in yet-to-be-built factories in Austin and Mexico and a third factory outside North America. Musk said that "we are almost sleeping in the factory" for this product.
It is worth noting that Musk said that this time is not a product preview, which means that he still has reservations about the "late 2025" time node, and may also plan to put it into production in mid-2025.
Musk commented: "This will be a challenging production increase process." "Once put into production, this model will be far ahead of any other manufacturing technology in the world, and it represents a higher level."
Interestingly, just the day before Tesla held its earnings conference, Reuters revealed that Tesla’s next-generation car is codenamed “Redwood.” With production expected to begin in mid-2025, the model is described as a "compact crossover."
According to reports, Tesla issued a "request for quotation" or invitation to bid for the Redwood model to suppliers last year, and expected weekly production to reach 10,000 vehicles, with production expected to begin in June 2025.
Although Tesla China personnel responded that they had never heard of such news, it is not difficult to see that the lower-cost model Musk mentioned is most likely a compact crossover code-named "Redwood".
This model is also regarded as the key to Tesla's future growth. According to Musk's current public statements, the new car will focus more on "affordability", which means that more people can afford it.
Tesla also took a precaution in advance, because it is committed to launching the research and development of "next generation cars", and the growth of car sales in 2024 "may be significantly lower" than last year's growth rate. And in 2024, the deployment and revenue growth of the energy storage business should exceed that of the automotive business.
Tesla also explained the reason for this situation, saying it is "currently between two major growth waves." The first wave began with the global expansion of the Model 3/Y model, and the next growth wave will be initiated by the global expansion of the next-generation automotive platform.
The implication is that Tesla will be in a trough in 2024. However, Tesla has long set the average annual growth rate of annual deliveries at 50%.
So Seth Goldstein, an analyst from Morningstar Research, warned: "Tesla is sending a signal that 50% or even 30%-40% year-on-year growth will not happen in 2024."
FSD will be authorized externally
In this earnings call, Musk also talked about a series of topics such as AI, FSD, Cybertruck and Optimus robots.
Musk has previously said that if 25% of the voting rights cannot be guaranteed, he remains concerned about Tesla's technological development prospects in the fields of artificial intelligence (AI) and robotics.
Therefore, at this financial report meeting, he made it clear that he was seeking extra control over Tesla so that he could have greater influence in the company's handling of artificial intelligence and robotics. He also emphasized that he did not want to control the entire company, but that his current influence on the company is too small, which may lead to "being voted out by a random shareholder advisory company."
In other words, Musk is likely to repurchase some shares in the near future to maintain his decisive position in Tesla.
As for why, Musk said his desire for tighter controls is based on concerns about the dangers of artificial intelligence becoming too powerful, and the potential for activist investors to unduly influence decisions about potentially dangerous technologies.
Talking about FSD autonomous driving, Musk said Tesla is the company with the highest AI application efficiency in the world. He said the new car manufacturing system will be used on the next generation of models manufactured at the Austin Gigafactory and then rolled out to the new plant in Mexico and other Gigafactories.
Shortly before the release of the financial report, Tesla pushed the latest FSDBetaV12.1.2 to North American car owners. Although this version of FSD still failed to enable Tesla to achieve fully autonomous driving, judging from the released demonstration video, it can already handle most scenarios.
Musk also mentioned the possibility of external licensing of FSD. He believes that some car companies may still not believe that FSD will become a reality, but they are having "some exploratory conversations."
Musk also admitted that there are currently no obvious opportunities to cooperate with Chinese OEMs, although Tesla is willing to help with FSD licensing. This may mean that FSD still has to wait a little longer to enter China.
Regarding the Cybertruck, an electric pickup truck that will be delivered in Q4, Tesla said that considering the complexity of its manufacturing, it expects the Cybertruck's production ramp-up process to be "longer than other models."
It is reported that Cybertruck’s current production capacity can reach more than 125,000 vehicles per year. Musk said in October last year that Cybertruck may not be able to generate significant cash flow for one to one and a half years.
In addition, Musk also mentioned Chinese car companies and spoke highly of them. He said that Chinese car companies are the most competitive in the world, depending on what kind of tariff policies are adopted and whether there are trade barriers. If there are no trade barriers, Chinese car companies can kill most other car companies in the world.
He also thanked a wave of domestic suppliers, calling them very good partners, including CATL and BYD.
Finally, when asked about the production timetable of Tesla's humanoid robot Optimus, Tesla did not disclose any information, but Musk said that Optimus may eventually become the company's largest business, describing Optimus as "a product with the potential to far exceed the value of all Tesla's other products combined."
After all, in Musk's eyes, Tesla wants to become the most valuable company in the world.