Tesla Inc. continues to navigate through fierce competition and market challenges as it reported record vehicle deliveries, particularly in China, during the fourth quarter of 2024. Despite the achievements, Tesla has recognized potential hurdles and is gearing up for significant product launches aimed at addressing the current automotive market dynamics.
According to CEO Elon Musk, Tesla's annual sales increased by 8.8 percent, reaching over 657,000 vehicles globally. Yet, the formidable presence of local competitors like BYD, coupled with the overall economic slow down impacting electric vehicle (EV) demand, poses serious challenges for the U.S electric vehicle giant. "China, which is a huge market, but it poses some challenges for us, because it doesn't allow us to transfer the training videos (for autonomous driving) out of the country," Musk shared during a recent financial results conference. He continued to highlight the difficulties with the rollout of its Fully Self-Driving (FSD) system, originally expected to debut in China by the end of 2024.
For the three months ending December, Tesla reported revenues of $25.7 billion, which marked only a modest 2 percent growth year-over-year. This result unfortunately fell short of analyst expectations. The net income for the quarter was reported at $2.6 billion, reflecting only a slight rise of 3 percent. Despite the growth, industry analysts remain cautious about the long-term viability of Tesla's pricing strategies and revenue generation as competition heats up.
Looking forward, Musk announced ambitious plans for Tesla to launch more affordable electric vehicles (EVs) by mid-2025. The market eagerly anticipates these budget-friendly models, particularly after the company faced pressure to produce lower-priced options due to declining sales figures. Musk stated, "Teslas will be in the wild, with no one in them, in June, in Austin," indicating the intent to begin testing paid autonomous car services by the summer of 2025. These developments have sparked renewed investor confidence, with shares of Tesla rising by 4 percent following the announcement.
Investors are hopeful as Tesla continues to focus on reducing production costs. The third and fourth quarters of 2024 saw the average production cost per vehicle hover below $35,000, down from nearly $39,000 two years ago. According to Thomas Martin, Senior Portfolio Manager at Globalt Investments, the reduction in costs is significant. "They’ve been able to execute on the cost side and get it down. Their ability to do it in the fourth quarter definitely cushioned the blow," he noted.
Adapting to the changing market, Tesla has shifted its strategy away from producing a cheaper mass-market vehicle, often referred to as the Model 2. Instead, the company aims to create more affordable versions within its current electric vehicle platform. Musk confirmed at the earnings call, "Our overall cost per car down below $35,000, driven primarily by material costs," reflecting the company’s intentions to streamline operations.
Tesla's challenging fiscal environment highlights how the company has experienced its first decline in overall vehicle deliveries since at least 2016. The automotive profit margin dropped to 13.59 percent, and analysts predict the company will face increasing operating expenses as it invests heavily for its growth initiatives. Analysts have expressed concerns, particularly amid rising competition from automakers like BYD and major European manufacturers such as BMW and Volkswagen who are increasingly successful with their lower-cost EV offerings.
Despite the downturn, not all indicators signal despair for Tesla’s future. The company remains optimistic about its vehicle business returning to growth by 2025, buoyed by its innovations and Musk’s distinct leadership style. "People are reading the results as FSD and robotaxi potentially on the cards in the next couple of years," said Will Rhind, CEO of GraniteShares, presenting hope for Tesla's vehicle improvements and its strategic advances.
Market analysts like Garrett Nelson from CFRA Research maintain their bullish outlook on Tesla, seeing promise in its autonomous driving initiatives. Nelson mentioned the potential growth from Tesla's energy sector, predicting deployment increase for its energy storage units as another bright prospect for investors.
Through price cuts and aggressive marketing incentives, Tesla aims to reclaim its share of the market and fend off competition. Historically, the company has pivoted quickly to address market pressures and it appears poised to do so once again. Investors see potential value as they await new launches and product enhancements over the upcoming year.
Elon Musk has historically adopted unorthodox strategies to steer Tesla to prominence, and many investors and analysts believe his vision could either lead to significant breakthroughs or result in heightened scrutiny. Continued competition and how effectively Tesla can enter new markets with innovative products will greatly influence its future performance. Despite current pressures, investor interest shows resilience as they remain eager for new developments.
With full attention on its upcoming endeavors, Tesla sets its pace for entering 2025 with bright aspirations tempered by the realities of the market it operates within.