Shares of Tesla fell by more than 9% at the start of trading on Wall Street on Thursday — wiping out $50 billion in market cap — a day after the world’s most valuable electric carmaker reported flat fourth-quarter earnings and warned that growth in 2024 “may be notably lower.”
CEO Elon Musk, who owns a 13% stake in the EV maker and has demanded an increase to 25%, pointed to a price war with a Chinese-made rival for hurting the bottom line.
On Wednesday, Tesla reported a gross margin of 17.6% for the three months ended December, compared with 23.8% a year earlier — falling short of analysts’ average estimate of 18.3%, according to LSEG data.
Automotive gross margin, excluding regulatory credits — a closely watched figure — dropped to 17.2% from 24.3% a year earlier, although it improved from 16.3% in the third quarter.
Musk announced an initiative to start production of a new mass market electric vehicle code-named “Redwood” in mid-2025, according to four people familiar with the matter, with two of them describing the model as a compact crossover.
“We’ll be sleeping on the line practically,” Musk said, referring to Tesla’s factory in Texas, where the new model will be first produced.
That will be followed by Mexico and another factory outside North America to be decided later this year, he said.
Musk has long whetted fans’ and investors’ appetites for affordable electric vehicles and self-driving robotaxis that are expected to be made on next-generation, cheaper electric car platforms.
Those models, including an entry-level $25,000 car, would allow it to compete with cheaper gasoline-powered cars and a growing number of inexpensive EVs, such as those made by China’s BYD.
During Wednesday’s earnings call with Tesla investors, Musk praised BYD and other Chinese EV makers as among “the most competitive car companies in the world” and that those firms will see “significant” success globally — unless Western governments erect trade barriers.
“I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established,” Musk said.
“Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world.”
The EV industry has been grappling with a slowdown in demand for more than a year and the price cuts by Tesla will likely worsen the pressure on the startups and automakers such as Ford.
At least nine brokerages downgraded the stock, while seven raised their ratings.
The company, on average, has a “hold” rating with a median price target of $225, nearly 9% higher than the share’s last closing price.
Tesla short sellers have made $3.45 billion so far this year, making it the most profitable US short trade, according to data and analytics firm Ortex.
The company’s stock trades at nearly 60 times its 12-month forward earnings estimates, according to LSEG data.
That gives it a more premium valuation than the other “Magnificent Seven” stocks — a group that includes Apple, Microsoft and Nvidia.
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