What happened
Tesla (TSLA 4.96%) investors have enjoyed a good start to 2023. The stock's upward momentum continued this week, spurred on by an earnings report that provided several reasons to be optimistic about the electric vehicle (EV) maker and its stock. As of early in Friday's session, Tesla shares were up about 23% for the week, according to data provided by S&P Global Market Intelligence.
So what
Half of those gains came after the company reported fourth-quarter and full-year 2022 earnings on Wednesday. But the balance of this week has also been good for Tesla shareholders, as investors are beginning to think that the EV price cuts it announced a couple of weeks ago are not a sign of trouble for the company after all.
The earnings report seemed to confirm that. In the fourth quarter, Tesla's total revenue grew by 37% year over year, and net income increased by 59%. The demand destruction some had feared the company was experiencing was nowhere to be seen. Indeed, CEO Elon Musk said on the quarterly earnings call that customer demand for its electric vehicles remained strong, with the highest order level ever year-to-date. He added that the order rate was twice the company's current rate of production. Its EV production rate is expected to increase by at least 40% in 2023.
Image source: Tesla.
Now what
Tesla announced record net income in the fourth quarter, and for the full year, net income more than doubled from its 2021 total to $12.6 billion. Those kinds of bottom-line figures helped make investors see that accepting a drop in profit margins to boost sales is the right strategy for Tesla to pursue.
Tesla's rate of growth may vary, and the company may not even achieve its 50% annual growth target for vehicle production volume. But investors now see that their fears of demand destruction may have been off base, and that the company's strategy to maintain leadership in the burgeoning EV sector is working.
