Tesla Kicks Off the New Year With a 13 Percent Plunge and Disappointing Sales

January 3, 2023

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8:32 pm

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Tesla chart courtesy of StockCharts.Com annotations by Mish

Tesla delivered 405,278 vehicles in the fourth quarter. That was a new record but it was far short of analysts’ estimates of 431,117.

For the year, Tesla deliveries rose by 40%, missing Musk’s 50% annual target.

New year, Same Selloff

Reuters reports Tesla Shares Slump on Demand Worries, Logistical Issues

Tesla Inc shares started 2023 where they left off last year, plunging more than 14% on Tuesday on growing worries about weakening demand and logistical problems that have hampered deliveries for the world’s most valuable automaker.

“Demand overall is starting to crack a bit for Tesla and the company will need to adjust and cut prices more especially in China, which remains the key to the growth story,” Wedbush Securities analyst Dan Ives said.

Global automakers have in the past few months battled a demand downturn in China, the world’s top auto market where the spread of COVID-19 has hit economic growth and consumer spending.

Tesla is offering hefty discounts there as well as a subsidy for insurance costs.

Analysists Always React Late

At least four brokerages cut their price targets and earnings estimates on Tuesday, pointing to the deliveries miss and Tesla’s decision to offer more incentives to boost demand in China and the United States, the two largest global auto markets.

Top Automakers

Making Cars vs Making Profits

Nikkei Asia reports Tesla earns 8 times more profit than Toyota per car

Market cap is not about making cars but about making profits.

One could have bought TSLA at $11.80 in mid-2019. At that point sales and margins were low. The above chart shows Toyota made a bigger profit and made more cars in the fourth quarter of 2020.

Toyota did better even in the first quarter of 2021 but shares by then already soared to $300.

Now what?

The problem for Tesla is not where it’s at but where it’s headed.

Four Possible Takeaways From Market Reaction

Tesla cannot maintain its profit margin
Tesla cannot maintain its sales growth and might even lose some to other EV makers
Tesla has other issues such as Twitter which might necessitate Musk dumping more shares into a plunging market
The market is irrational

For the stock to be reacting how it is, at least one of those factors is in play.

At $415 per share, the market believed Tesla could maintain profit margins and sales would expand.

Shares are now plunging fast. If you think the market is irrational and Tesla will hold margins, you have a buying opportunity.

Carbon Credits

Please note Tesla’s Carbon Credit Sales Down 49% in 2022 Q2

Since 2017, Tesla has made ~$5.1 billion from the sale of regulatory carbon credits as shown above. The credits sold help other automakers meet their emissions regulations and bypass billions in fines.

Though it’s common practice for other automakers to buy carbon credits from Tesla to offset their emissions, it’s not a sustainable strategy. To meet stricter regulatory mandates worldwide, an industry-wide shift to EVs is crucial.

Where Are the Minerals?

There are so many reasons why the headlong rush to an electric-powered future seems to demand some powerful second thinking before it’s too late … the environmental costs of acquiring these metals being another one https://t.co/uj3fAv1clH

— Mike Mazarr (@MMazarr) December 29, 2022

A Mad Rush to Build More EV Factories, But Where are the Minerals?

Please note A Mad Rush to Build More EV Factories, But Where are the Minerals?

Questions of the Day

Is anyone in the administration seriously considering any of these issues?
How much CO2 and pollution is caused in the mining, processing, and transportation of these minerals vs natural gas?
How much inflation can we expect from this?

If the cost of minerals surge, there is more competition, demand slumps in a recession, and carbon credit revenue sinks, what does that do to Tesla’s profit margins?

This post originated on MishTalk.Com.

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32 Comments

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RonJ

1 year ago

When a cycle inverts, it goes all in on the opposite direction. Just think of what happened to tulips. In 1973, it was the Nifty Fifty.

vanderlyn

1 year ago

i like the chinese EV much better as a trade. their gov also giving huge tax credits to buy. like tesla. musk was smart to get the us gov to underwrite his scam. he’s a great grifter. trump like, but much better with the dough. thought he was a scammer years ago, and seems obvious now. i’d bet my wallet within a decade he’s gone and more honest outfit runs and owns his stuff. i did like going by his factory in bay area. really kewl. met a bunch of the space x guys who left to do their own VC deals. they ended up being scammers too. was a tech incubator across street from my loft in oakland where i met and invested in a bunch of their deals. total grifters. but entertaining. you wouldnt believe. degenerate druggies.

Doug78

1 year ago

One thing to point out is that the major car companies have enormous debt and with higher rates that will affect their profitability. There is no doubt about that. Tesla on the other hand is debt-free and since we are going into a recession that is a good place to be. Additionally it is unsure if the other car companies are actually making money making EVs or as many suspect they are still in the ramp up stage where you lose money on every car until you obtain production expertise and reach volume breakeven. There again that is not where you want to be going into a recession. For these companies not building EVs in not an option but the cost of building ones that don’t sell enough will push some companies into bankruptcy. That list interests me very much too.

Mouse

1 year ago

Reply to Doug78

What does it mean to be in a capital intensive industry (car manufacturing) and not have much capital?

If Tesla’s future was so bright, it would make sense to borrow and expand as fast as possible — before the long list of domestic competitors catch up. The only reason not to leverage up / take on debt, is if management thinks the growth prospects are not rosey enough to justify it.

A company with good growth prospects and lots of pending competition could borrow a responsible amount (less than Detroit, but more than zero).

Musk knows his future is SpaceX, and if he can turn it around Twitter. Tesla is a novelty item for the rich.

Doug78

1 year ago

Reply to Mouse

link to cdn.statcdn.com

Tesla is expanding fast and is doing it using its existing cashflow and still is able to generate considerable free cash flow so there is no need to borrow money that it doesn’t need. At the end of the third quarter 2022 Tesla had $21 billion in cash. Apple was also viewed as novelty item for the rich too and its market share has platformed at around 19% for years now but since their margins like Tesla’s are the best in the industry, Apple is able to capture over 80% of the profits for the whole market.

Mouse

1 year ago

Reply to Doug78

1) Musk disagrees with your growth projections, otherwise he would leverage Tesla’s business

2) You have conveniently neglected to mention that Tesla has massive debts in the form of deposits…. guessing you don’t grasp accounting very well

3) Musk is borrowing to grow SpaceX and Twitter… because they have growth prospects

4) No Apple product costs upwards of $50,000 each. Not even close. You are confused

Doug78

1 year ago

Reply to Mouse

1) I did not give a growth projection. I just said their growth is financed by their cash flow and why borrow if you don’t need kit for capex?

2) The deposits Tesla takes are called “restricted cash” and according to their 2021 annual report is defined as:

Restricted Cash

We maintain certain cash balances restricted as to withdrawal or use.

Our restricted cash is comprised primarily of cash as collateral for our sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities and certain operating leases.

In addition, restricted cash includes cash received from certain fund investors that have not been released for use by us and cash held to service certain payments under various secured debt facilities.

In this report restricted cash amounts to only $223 million which is hardly massive compared to the $22 billion of free cash they have.

3) SpaceX and Twitter are separate companies in different markets so they have no bring on Tesla’s sales and profitability.

4) This statement you made is the most ridiculous of all. Net profitability depends on the net margin per product times the number sold and it doesn’t matter if the product cost $1 or $10 million so your statement is a nonsense.

Frankly Mouse, I expected better analysis from you. All the points you made are so off the mark that it is evident that you have not looked into the company.

MarkraD

1 year ago

Reply to Mouse

Elon went to a wild Frat party, got wasted and took a few pills he didn’t recognize, woke up the next morning with no memory and Twitter lying in bed next to him.

KidHorn

1 year ago

Reply to Doug78

There are a lot of EV makers with little to no debt. Most are in China.

Doug78

1 year ago

Reply to KidHorn

Yes but they are not very profitable and they are not GM, Ford ect.

KidHorn

1 year ago

Reply to Doug78

They sell millions of cars every year and make a profit. They just haven’t sold much in the US. But that will change. China’s car makers are a lot like Japans in the 1970s.

Doug78

1 year ago

Reply to KidHorn

I meant that the Chinese companies are not in the position of GM, Ford ect when it comes to their bad financials and not if they will be serious competitors or not. BYD is the most serious one and they made only $450M in 2021 so they have a ways to go to match Tesla.

happypuppy888

1 year ago

Reply to Doug78

You meant, you meant, you meant, you.

8dots

1 year ago

shakeout day

Billy

1 year ago

How many of you heard of these stories about Tesla:

-Tesla’s new Mexico Gigafactory?

-Tesla has reportedly gained an exclusive lane at a remote US-Mexico border crossing after Elon Musk recently struck a deal with the “pro-business” state of Nuevo León.

-Tesla To Expand Its Original Factory In Fremont, Ca

-Tesla Expanding Its Own Battery Cell Development In Fremont

-Tesla reveals new battery design that could last 100 years

-Tesla Officially Enters The Mining Business

-Tesla Signs Deal with Minnesota-Based Nickel Mine

-Elon Musk reveals Tesla purchased the rights to lithium deposits in 10,000 acres in Nevada to reduce costs by 33%

Up until this weekend I didn’t hear about any of these stories either.

To be fair, I don’t really listen to much news outside of Legacy media like Fox, NBC, CNN, ABC, etc.

Not sure how much other manufactures that are growing at the rate of Tesla, are investing in future operations.

For the most part most of the innovation is coming from Elon. Most of the copying is done by everyone else.

MarkraD

1 year ago

Reply to Billy

If Elon would get the hell out of irrelevant businesses in sectors he doesn’t understand, TSLA would be a hell of a lot better off, and so would social media.

RonJ

1 year ago

Reply to MarkraD

Musk has been a great benefit to social media, considering what the Twitter Files have been exposing.

Mouse

1 year ago

Reply to Billy

@Billy — ask Elon about the massive battery factory Tesla “built” in Buffalo NY (with a lot of state subsidies and support from Panasonic).

HippyDippy

1 year ago

The administration doesn’t need to consider any of those consequences as they sprinkled fairy dust on the legislation.

Of course, I’m sure it’s just a coincidence that the inevitable failure of this policy will bring us that much closer to owning nothing and liking it. Pass the crickets please.

LM2022

1 year ago

A fifth possibility: the stock benefitted from the huge bubble in 2020-2021 and is now coming back earth.

Jan 3, 2020: Tesla priced at $29.53

I suspect we’ll see Tesla trading in the $30 range before the year is out.

El_Tedo

1 year ago

There’s a pretty stylish head and shoulders’ pattern on Tesla daily pattern, going back to 2020.

shamrock

1 year ago

Tesla has $15b in net cash balance, Toyota has $155b in net debt. The enterprise value of the 2 companies are essentially the same.

TexasTim65

1 year ago

Reply to shamrock

Other than the fact Toyota owns lots and lots of production factories and other tangible production assets even if it’s in debt to pay them off.

To ramp up to the same production world wide Tesla will have to take on similar debt.

KidHorn

1 year ago

I think the drop is mainly because Tesla is about to face a mountain of competition over the next few years. Every car maker is switching to electric. Many companies in China can compete head on in price and features. And they’ll be exporting cars. Plus they’ve put all their eggs in li-ion batteries. They aren’t the future. New cheaper technologies that don’t rely on expensive rare earths are starting to be production ready.

Maximus_Minimus

1 year ago

Reply to KidHorn

As far as I know, none of the minerals in Tesla batteries are technically rare earth.

Mouse

1 year ago

Reply to Maximus_Minimus

Here we go again. Well, its technically not a recession… according to the White House’s definition. Afghanistan wasn’t a humiliating retreat, according to the White House definition of humiliating. Now we get to hear another politically motivated definition “not technically rare earth”.

randocalrissian

1 year ago

Reply to KidHorn

Musk can keep diddling himself publicly on Twitter to test your theory. If TSLA proceeds straight toward zero, eventually it has to be his childish antics that cause TSLA to keep going down. Eventually it isn’t just the EV stuff.

TexasTim65

1 year ago

Reply to randocalrissian

Considering it was his antics that caused it to go to stratospheric heights it only makes sense it’s falling as people lose faith in Musk’s hyperbole.

Zardoz

1 year ago

Reply to randocalrissian

Maybe he’s secretly trying to market to nazis and incels. N-Dimensional chess!

TexasTim65

1 year ago

Tesla still remains a niche car maker for the luxury car segment. The model 3 was supposed to be a car for the middle class but at 48K new, it’s still remains in the luxury car segment. It’s almost impossible to grow past a certain point in that segment because you run out of people who can afford it.

Also, they haven’t updated the interior/look feel of the older models in almost 10 years. That’s an eternity in the car world where popular models regularly get updates.

QTPie

1 year ago

Reply to TexasTim65

Yeah, and that’s for the model 3 rear wheel drive which few folks get. The cheapest most common model Tesla sells starts in the mid-50s. That’s definitely in the luxury space.

Mouse

1 year ago

Reply to TexasTim65

Used gasoline Mercedes cars… oops, “pre-owned”… have a good market. Lots of people want them — both wealthy and not so wealthy. Like all cars, they lose value but they don’t go to zero.

A used Tesla is a $20,000 liability. That’s how much it costs to dispose of the batteries. The rest of the car is mostly plastic — to get the weight down low enough to have even the limited range.

If the battery has been exposed to cold conditions (see for example last week) — the battery life shrinks. As many trust fund babies learned the hard way, the battery does not hold its charge as long (even shorter range). Charging time in cold weather is longer. But also, battery life (number of recharges before the battery is unusable) is often effected by cold weather use. Tesla’s aren’t very useful in places where it gets cold — cross off the northern half of the USA.

Aspiring high school chemists may remember what happens when you expose lithium to water — or humid air. Cross off the southeast.

Tesla’s only work in the southwest — dry desert regions — and only if they don’t get a cold snap.

Mercedes hold their value — the rich like that. Tesla turns from a limited use novelty car for southern california — into a $20K environmental liability. Wait until the trust fund babies figure this out!

Tesla Kicks Off the New Year With a 13 Percent Plunge and Disappointing Sales

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