Tesla’s ugly Q4 deliveries miss is the first hard proof that Elon Musk has a growing demand problem

In January 2022, Tesla announced a final quarter crescendo during which vehicle sales grew at a staggering 87%, helping launch the company’s shares into the upper stratosphere.   

This time around, however, Elon Musk’s Tesla limped into the new year with Q4 sales growth that far worse than anticipated. It wasn’t just that the 405,000 cars Tesla handed over to customers during the final three months of last year fell short of the 420,000 consensus Wall Street estimate—the miss was downright awful.

The reaction was immediate: an already battered and beaten share price shed more than a tenth of its value to lows unseen since August 2020. Over the past 52 weeks, the stock has cratered 74%, losing more in market cap than the next 10 largest carmakers are currently worth combined.

Make no mistake about it, Tesla’s quarterly delivery figures offered the first hard proof the carmaker has a demand problem on its hands. Previously, all evidence suggested its growth was merely constrained by the number of cars it could produce. 

According to FactSet estimates, Musk fell short of even the most bearish forecast in the range. This was despite Tesla piling on price cuts in China and the U.S., and extending other incentives like lower insurance premiums and free supercharging miles. Making matters even worse, Wall Street analysts had already revised their estimates lower after already anticipating an impending miss.

Musk promised an ‘epic end of year’

One of those analysts, Mark Delaney of Goldman Sachs, reiterated his ‘buy’ rating on the stock on Monday, but slashed his 2023 earnings estimates and stock price target for Tesla based on the poor results.

“While we had reduced our estimates in our [December 13th] report reflecting weaker supply/demand, despite the incentives Tesla put in place in 4Q22, deliveries were still below our reduced estimate,” Delaney wrote, cutting his target to $205 from a previous $235.

Tesla bear Toni Sacconaghi, an analyst with Bernstein, told clients that consumer demand for Tesla vehicles could flag even with this year’s scheduled arrival of the highly anticipated Cybertruck. 

He thinks Tesla will only be able to turn things around after it launches its Gen3 model, believed to be a more economical hatchback, that is supposed to start at around $25,000 and was first teased in September 2020. “We see demand problems remaining until Tesla is able to introduce a lower priced offering in volume, which may only be in 2025,” warned Sacconaghi on Monday.

The ultimately sobering quarter started out with far more ambitious promises from management. During a third-quarter earnings call in October, Musk had predicted an “epic end of year”. Indeed he dismissed any concerns he was running low on customers, perpetuating the belief that Tesla was only constrained by its supply of cars.

“I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far into the future as we can see,” crowed the CEO, who predicted Tesla would one day be worth more than Apple and Saudi Aramco combined. “The factories are running at full speed and we’re delivering every car we make.” 

His finance chief, Zach Kirkhorn, forecast annual deliveries would achieve “just under 50% growth”. In reality Tesla managed only 40%, and while that is an impressive result for any other carmaker, Musk made it clear it would be more. Unlike normal automakers that sell a car to a dealer, Tesla has no dealers and instead only fully recognizes revenue after delivering a car directly into its customers’ hands.

How will Tesla sell 2 million cars this year?

Adding to fears is the question of how Tesla can achieve the 2 million vehicle deliveries Wall Street has been anticipating for 2023 for several months.  

While Musk has said the company would enter the new year with the capacity to produce the necessary 40,000 cars per week, it’s unclear how he’ll find enough buyers at a time when an entire third of the planet may tumble in recession. 

Tesla’s competition from other manufacturers is also heating up with a bevy of new battery-powered SUVs, sedans and sports cars. Some vehicles like the Rivian R1T pickup truck have not only beaten Musk to market in their respective segments, they have won accolades as well. 

Normally Tesla stock would be rebounding after the shellacking it endured in December, when it lost nearly half its value. It is widely speculated many U.S. retail investors used the opportunity to harvest tax-deductible losses to offset capital gains elsewhere in their portfolios before the year ended. 

But this year has gotten off to more bad news— even after Musk recently pledged to shareholders that he would not sell more of his Tesla stake this year.

In a surprise, Tesla on Monday announced an investor day in March. The previous explicitly labelled investor event was in September 2020, with subsequent public events deemed by Musk as primarily for recruiting for his growing AI and robotics teams

The planned investor event suggests Tesla’s board is concerned. Critics have recently complained that its members failed to exercise any oversight over Musk, who now is mainly focused on running Twitter after acquiring it in October for $44 billion.

Perhaps in response to growing concerns Musk is too distracted, news leaked to Reuters that the U.S.-educated boss of Tesla in China, Tom Zhu, would now lead all vehicle assembly and distribution in North America.

Either way, Tesla has a lot of work to do to regain the confidence of investors and prop up the company’s sagging stock price. At press time, its shares had dropped 14% in mid-day trading to $106 after reaching as high as $402.67 last year.

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