Even Tesla (TSLA 2.60%) can't escape economic uncertainty and rising interest rates. The electric car company missed fourth-quarter delivery estimates on Monday, despite offering aggressive discounts to move inventory. Tesla delivered just over 405,000 vehicles in the fourth quarter while it produced nearly 440,000 vehicles. Analysts surveyed by Bloomberg had predicted just over 420,000 deliveries.
The delivery shortfall came despite a generous $7,500 discount Tesla offered U.S. customers to take delivery of a Model 3 or Model Y vehicle in the final 10 days of 2022. Customers opting for one of those vehicles also received free charging for 10,000 miles using the company's Supercharger network. As fellow Fool.com contributor Dan Caplinger pointed out, this move appeared to be a short-sighted attempt by Tesla to meet expectations.
In the end, Tesla still missed expectations, and the delivery number may have been meaningfully worse if the company hadn't offered aggressive discounts. It's getting harder to argue that Tesla doesn't have a demand problem.
NASDAQ: TSLA
Key Data Points
Tesla will be tested in 2023
There are a lot of things that will be working against Tesla in 2023. A global recession is a strong possibility, although the depth and duration are impossible to predict. Splurging on an expensive electric car probably won't be on the top of many peoples' lists.
Interest rates are also the highest they've been in years. Bankrate puts the average 60-month new car auto loan interest rate at 6.13% as of Dec. 21, 2022. That's a full percentage point higher compared to late September, and more than 2 percentage points higher compared to the end of 2021. Since car buyers often care much more about the monthly payment than the sticker price, higher interest rates can be a big problem for auto manufacturers.
On top of this generally challenging environment, Tesla is facing more competition than ever, particularly at lower price points. There are now 48 electric vehicle models available in the U.S., according to S&P Global Mobility, and that number is expected to rise to 159 by the end of 2025. EVs like Ford's F150 Lightning are getting plenty of positive press, and a new U.S. federal tax credit starting this year could make competing EVs more attractive. Price caps will limit which Tesla vehicles are eligible for the credit, a fact that prompted analysts at Guggenheim to lower estimates for 2023.
Tesla is reportedly planning to run its Shanghai plant on a reduced production schedule in January, a sign that the company may be seeing weakening demand in China as well. Add that to its list of problems.
Recessions are bad news for the auto industry
If you're in a capital-intensive industry with long lead times in getting new production capacity up and running -- not to mention expensive inventory that eats up capital and can become difficult to move when demand tumbles -- caution is the name of the game when there's even a whiff of a recession. Tesla is not known for being a cautious company.
When Tesla was ramping up the initial production of its Model 3 sedan in 2018, the company nearly failed, according to CEO Elon Musk. The types of risks necessary to bring a company like Tesla to where it is today are also the kinds of risks that can cause an implosion when too many things go wrong. Tesla has built up a huge amount of production capacity, with newer plants in Berlin and Texas churning out vehicles. If a recession does strike this year, the company could very well have way too much capacity.
The good news is that Tesla has a lot of cash on its balance sheet -- a bit more than $21 billion as of Sept. 30. The bad news is that an auto company going into a recession pretending that demand for its vehicles won't be affected by said recession isn't going to have a good time.
A double whammy of economic weakness and increasing competition is going to make it difficult, if not impossible, for Tesla to hit its goal of growing deliveries by 50% this year. The stock's valuation, still in the stratosphere after getting pummeled in 2022, requires a sky-high growth rate to make any sense at all.
2022 was a bad year for Tesla the stock. 2023 could be a bad year for the stock and the company if things don't go Tesla's way. We'll know more when the automaker reports its fourth-quarter results later this month.
