Expected Premium Tesla Earnings, Total Margin Rate Hits Lowest in 5 Quarters

[Asia Economy New York=Special Correspondent Joselgina] Electric vehicle manufacturer Tesla recorded quarterly earnings that exceeded market expectations. However, the total margin rate, which Wall Street has been paying attention to, fell to the lowest level in the past five quarters.

[Image source=AP Yonhap News]

According to Tesla on the 25th (local time), fourth-quarter sales last year reached $24.32 billion. This far exceeded Wall Street's forecast of $24.16 billion compiled by financial information firm Refinitiv. It also surged compared to $17.72 billion in the same period last year. The fourth-quarter earnings per share (EPS) last year also exceeded market expectations at $1.19, compared to the forecast of $1.13.

During this period, Tesla recorded $21.3 billion in revenue from automobile sales alone. This represents a 33% increase compared to the same period last year. It is analyzed that the revenue increase effect was due to the unusual price cuts implemented in the U.S., China, and other markets in the fourth quarter of last year.

However, the automobile total margin rate was sluggish. The total margin rate in the fourth quarter of last year was 25.9%, marking the lowest level in the past five quarters. Additionally, operating expenses increased by 64% compared to the same period last year, and free cash flow decreased by 49%.

Before Tesla's earnings announcement, investors had been focusing on the total margin rate rather than sales or earnings per share. This was because the total margin rate fell below the 30% range in the third quarter of last year, spreading disappointment in the market. Morgan Stanley analyst Adam Jonas had predicted Tesla's total margin rate would drop from 27.9% in Q3 last year to 26.2% in Q4, and to 23.3% for the entire year of 2023. The Q4 margin rate disclosed on this day is even lower than these forecasts.

This decline in margin rate appears to be the result of discounts Tesla implemented on some models in the U.S. and Chinese markets in the fourth quarter of last year. Recently, Tesla's margin rate has been gradually decreasing due to supply chain disruptions, global parts shortages, and rising raw material costs. Forbes mentioned Tesla's announcement of price cuts of up to 20% this month, evaluating that "the move to increase demand will sacrifice margins." CFRA analyst Garrett Nelson said, "Margins have decreased. What we are seeing is the impact of inflation and higher raw material prices."

Meanwhile, Tesla's stock price is currently up 2% in after-hours trading. Tesla closed the regular session up 0.38% on the day. Investors are awaiting Tesla's earnings conference call scheduled for 5:30 p.m. Eastern Time today.