During Tesla’s earnings call on Wednesday, CEO Elon Musk warned that looming competition from automakers in China could make it increasingly difficult for the company to compete in the electric vehicle market. BYD has already emerged as one of Tesla’s biggest competitors worldwide, having surpassed Tesla as the world’s biggest seller of electric cars in the fourth quarter of 2023.
“I do see a path where Tesla could one day be the most valuable company in the world. I do emphasize that it is not an easy path and a very difficult one,” Musk said.
He predicted automakers in China could become dominant in the global EV market without tariffs or trade barriers in place.
“Well, our observation is generally that the Chinese car companies are the most competitive car companies in the world,” Musk said. “I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world.”
High interest rates could also make it more difficult to sell as more consumers grow concerned about costly monthly payments, Musk said.
“People are really stretching their wallets to be able to afford a Tesla,” Musk said. “If the interest rates come down quickly, I think margins will be good. And if they don't come down quickly, they won't be that good,” he said.
But an affordable mass-market car, which Musk confirmed is under development, could help Tesla remain a dominant player in the EV segment. Tesla’s next-generation platform might help the company boost sales and improve its finances, as the company has cut production costs as much as possible for vehicles like the Model Y and Model 3, Tesla CFO Vaibhav Taneja said during the company’s earnings call.
“Predicting auto gross margins is extremely challenging since there are many moving parts to this equation, some of which are out of our control like the change in tariffs or local incentives to name a few,” Taneja said. “While the teams are focused on cost reductions, we are approaching the limits within our current platforms.”
Tesla’s next-generation EV is expected to cost around $25,000 and will be built first at Tesla’s Giga Texas plant, with production starting sometime in 2025, Musk said.
However, Taneja warned that the company’s growth may stall in 2024.
“There will be periods where we won't be growing at the same rate as before,” Taneja said. “We are between two major growth waves. The first one began with the global expansion of Model 3 and Y and we believe the next one will be initiated with the next generation platform.”
Tesla’s finances took a hit last year, as the automaker slashed prices to boost sales in an increasingly competitive EV market.
On Wednesday, Tesla announced its Q4 earnings increased 3% year over year, rising from $24.3 billion in Q4 2022 to $25.2 billion in Q4 2023. However, its operating margin dropped from 16% in Q4 2022 to 8.2% in Q4 2023, a 7.8% YoY decline. Likewise, the company’s adjusted earnings before interest, taxes and amortization fell 27%, from $5.3 billion in Q4 2022 to less than $4 billion in 2023.
Those same trends were also reflected in the automaker’s yearly earnings. Tesla reported $96.8 billion in 2023 revenue, a 19% YoY increase. But the automaker’s operating margin fell from 16.8% in 2022 to 9.2% in 2023, a 7.6% YoY decline. Moreover, its adjusted EBITA fell 13% YoY, declining from $19.2 billion in 2022 to $16.6 billion last year.