Tesla’s margins slid despite selling a record 405,000 electric vehicles in its fourth quarter, as rising battery costs and an ongoing price reduction campaign continue to pressure the US automaker. And yet, chief executive Elon Musk remains bullish on the company’s prospects and is predicting more than 50% full-year growth for 2023.

Why it matters: The results come as Tesla faces major challenges in China from local car manufacturers, and growth in the world’s biggest EV market shows signs of a downward trend amid economic headwinds.

READ MORE: China EV price war: Xpeng, Huawei-backed Aito join Tesla in cutting prices

Details: Tesla posted record fiscal fourth-quarter revenue of $24.3 billion, up 37% over a year ago and beating Wall Street’s forecasts of nearly $24.2 billion. Earnings per share also increased sequentially to $1.19 from $1.05 in the third quarter and beat analysts’ average estimate of $1.13.

  • However, Tesla’s automotive margin dropped to 25.9% from 30.6% a year earlier and 27.9% in the previous quarter despite a 16% decline in operating expenses. The company cited price reductions and Covid restrictions in China among the factors resulting in the quarterly decline in margin.
  • Musk added the company had seen strong demand recovery in 2023 due to significant price reductions over the past few months, as order volumes increased to the highest level in its history in January. The automaker expects to deliver 2 million EVs this year, a 53% year-on-year growth in a best-case scenario.
  • For the calendar year of 2022, Tesla reported $81.5 billion in revenue on delivery of 1.31 million vehicles, marking a year-on-year increase of 51% and 40% respectively. The company fell short of meeting its 2022 delivery target of more than 1.4 million vehicles by around 90,000 units.

Context: On Jan. 6, Tesla launched one of its biggest ever price cut campaigns in China, with some of its Model Y and Model 3 vehicles seeing overnight price cuts of up to RMB 48,000 and RMB 36,000 ($7,088 and $5,316), respectively.

  • The big promotion reportedly drove an increase of 300,000 placements in order volume in just three days. The automaker had previously offered various discounts across its vehicle lineups, such as an RMB 4,000 rebate and reduced prices by RMB 20,000 during the last few months of 2022.
  • The automaker has scaled back a plan to nearly double the annual capacity of its Shanghai facility to 2 million EVs, due to softening demand and failure to secure approval from the Chinese government, according to a Jan. 13 report by the South China Morning Post.

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: [email protected] or Twitter: @yushan_shen More by Jill Shen

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