Tesla is gearing up for the production of its next-generation electric vehicle, with plans to commence manufacturing at its Texas factory in the latter half of 2025, as announced by CEO Elon Musk.
However, this revelation came on the heels of a warning about a significant slowdown in sales growth for the current year.
Despite the anticipation surrounding Tesla’s new vehicle, Tesla’s stock took a hit, dropping by 6% in after-hours trading.
Musk acknowledged the challenges in ramping up production for this innovative vehicle, stating that it would necessitate a substantial infusion of “revolutionary manufacturing technology.”
This declaration implies that any resurgence in Tesla’s declining growth trajectory would require time and resources.
Earlier in the day, a Reuters report had indicated that Tesla had informed its suppliers to prepare for a potential startup date in June 2025 for a smaller crossover vehicle.
This smaller vehicle is crucial for Tesla, as it grapples with competition from more affordable electric vehicles, particularly those produced by China’s BYD.
Musk shared his schedule during a post-earnings call, revealing that production for the new vehicle is slated to begin towards the end of 2025, primarily at the Texas factory.
Subsequently, production will expand to Mexico, and another factory outside North America will be decided upon later in the year.
Tesla also cautioned about “notably lower” sales growth for the current year as it shifts its focus towards the new vehicle. This comes after the company reported a decrease in fourth-quarter gross margin.
Tesla explained that it is transitioning between two growth phases: one initiated by the launch of Models 3 and Y in 2017 and 2020, respectively, and the upcoming phase with the next-generation vehicle platform.
Wall Street’s expectations for Tesla’s sales in the current year stand at 2.2 million vehicles, representing a 21% increase over 2023 but falling short of Musk’s earlier long-term target of 50%.
Tesla did not reiterate this target during the recent announcement.
Tesla is currently preparing for a future with slower growth and margins due to softening EV demand and heightened competition.
Musk also acknowledged the potential success of Chinese automakers on the global stage, provided there are no trade barriers.
In terms of financials, Tesla reported a gross margin of 17.6% for the fourth quarter of the previous year, down from 23.8% a year earlier.
The automotive gross margin, excluding regulatory credits, dropped to 17.2% from 24.3% year-on-year but showed an improvement from the third quarter.
These figures, along with lower sales and reduced margins, raise questions about Tesla’s competitive position and brand strength.
Tesla initiated price cuts in late 2022, sparking a price war that impacted U.S. rivals such as Ford, who subsequently slowed down their EV production efforts.
Musk indicated that Tesla’s margins would depend on interest rate fluctuations.
Tesla’s shares, previously benefiting from technology company valuations, have faced a 16% decline this year after doubling in value in 2023.
Experts suggest that price cuts may continue due to persistently weak demand for electric vehicles.
The company reported a more than doubled net income of $7.9 billion for the fourth quarter of the previous year, partly attributed to a non-cash gain related to deferred tax assets.
Despite lower raw material costs and U.S. government credits helping to reduce cost-per-vehicle, increased costs related to Cybertruck production and research projects, including AI, affected the adjusted earnings, which fell short of analyst estimates.
Lastly, Tesla’s fourth-quarter revenue, at $25.17 billion, marked its slowest growth rate in over three years, failing to meet average analyst expectations.