Elon Musk Had A Great Year. Tesla Sales? Not So Much

The strange thing about Tesla Inc.'s latest results, released Thursday morning, is that a company touting leadership in artificial intelligence and self-driving cars struggles to predict where its own sales will be in a couple of months.

In late October, Tesla surprised markets by announcing it expected a “slight increase” in annual vehicle sales in 2024, implying the company would move around 515,000 in the fourth quarter. Wall Street analysts, who had been slashing their forecasts for fourth-quarter sales for the best part of a year, duly reversed course and the consensus estimate jumped to almost that number. As it turns out, sales came in at about 496,000. Companies do miss guidance, of course. But in this case, Tesla had pointedly challenged the prevailing view on the street about one of the easiest figures for any enterprise to predict, let alone one that has rebranded itself as an AI giant.

Tesla's esetting of expectations in October, with Chief Executive Elon Musk doubling down by also teasing 20%-30% growth in vehicle sales in 2025, came at a helpful time. Tesla's robotaxi unveiling earlier that month was a flop, continuing a long-running tradition of overpromising and under-delivering when it comes to autonomous driving. The suddenly buoyant outlook for EVs reanimated animal spirits: Tesla's stock jumped by 22% the next day, more than erasing the losses after the robotaxi disappointment. Given the company's unanticipated optimism didn't pan out, I guess Tesla's computing chops, formidable as they doubtlessly are, still need some honing.

Tesla's stock has, of course, soared to even greater heights since then, hitting an all-time peak valuation of $1.54 trillion last month. That owes more to the election of Musk's newest pal, President-elect Donald Trump, and a sense that proximity to power will somehow boost Tesla's fortunes. The likelihood that Trump's antipathy to electric vehicles would suppress Tesla's sales in its home market didn't register with investors, who also seemed to disregard that Musk's increasingly strident support for Trump and various right-wing causes might also present a headwind for sales of vehicles that are geared toward addressing climate change and have, hitherto, hewed toward blue states. A visceral reminder of that strange juxtaposition was delivered on New Year's Day with the explosion of a Tesla Cybertruck outside a Trump-branded hotel in Las Vegas, even if the underlying details of what occurred are yet to be uncovered.

The latest sales figures are less open to interpretation. Tesla, a company whose profits are overwhelmingly tied to sales of EVs and is priced for incredible growth, recorded a drop in annual vehicle sales for the first time in more than a decade.

Beneath the headline numbers, Tesla sold about 36,000 more vehicles than it produced in the fourth quarter. On one hand, that is helpful in clearing some of the big build-up of unsold vehicles that has marked the past two years, and should offer a cash-flow tailwind from working capital when full results are released later this month. On the other hand, slower production raises unit costs and clearing inventory means discounting, squeezing margins. When Tesla sold a similar number of vehicles over and above production in the second quarter, underlying gross margin dropped 13% compared with the prior quarter to less than $6,000 per vehicle, the lowest in at least six years. There was also a notable jump in the proportion of deliveries made under leases.

Returning to the Cybertruck, it is also remarkable that sales of Tesla's premium-priced models increased by only 3% in the fourth quarter, year over year. In other words, despite Tesla's premium lineup having expanded from two models — the Models S and X — to three at the end of 2023, overall sales in that segment are essentially flat. The Cybertruck has cannibalized rather than added to sales of Tesla's higher-priced EVs.

Tesla's stock duly fell a little on Thursday morning and it is now down by almost a fifth from its post-election peak. It still sports a forward earnings multiple that is, at about 120 times, more than three times that of Nvidia Corp., to pick a useful benchmark. Tesla may have trouble seeing the future, even just months out, but remains priced to own it nonetheless.