Tesla's (TSLA +3.29%) bold objective of achieving 20% to 30% growth in vehicle deliveries by 2025 took many investors by surprise. The ambitious target, which was laid out in the electric-car company's third-quarter earnings call last year, starkly contrasted with the 6% year-over-year growth in deliveries the company announced for its third quarter. Furthermore, even slower growth in the fourth quarter of 2024 made the forecast even more questionable.
Ahead of Tesla's earnings call later today, it's worth pondering how likely it is that the company will maintain its optimistic outlook for the full year.
NASDAQ: TSLA
Key Data Points
Reasons to be skeptical
While Elon Musk did provide an estimate for 2025 vehicle deliveries, it's worth noting that he also cited some reasons why he could be wrong. The forecast for a 20% to 30% year-over-year increase for deliveries in 2025 could be derailed by some external events, he explained in the company's third-quarter earnings call. Providing some examples of "force majeure events" that could affect sales negatively, he said a "big war" or interest rate increases could be headwinds. Considering potential external risks like these examples and how difficult forecasts are in general, Musk acknowledged that providing an outlook like this was "a bit of a risk." Nevertheless, he went out on a limb.
But some investors may worry that even without major external events, Tesla could be forced to lower its outlook for the year. Much of the CEO's optimism at the time of Tesla's third-quarter update was dependent on significant progress toward autonomous driving. The "advent of autonomy" will be a key driver for Tesla sales in 2025, he predicted. Known for his unrealistically aggressive timeline for autonomous driving technology development, Tesla could easily underdeliver on this front and the expected demand boost from this technology could fail to materialize.
Disappointing fourth-quarter deliveries
If Tesla's fourth-quarter deliveries provide any insight into how 2025 may pan out, the company will almost certainly need to lower its forecast for the year. Its fourth-quarter year-over-year growth rate slowed from the prior quarter. Deliveries of approximately 496,000 were up just 5% from the year-ago period, down from the 6% growth it posted in Q3. Surprising investors, that was about 9,000 units below the consensus analyst forecast for the period.
The company will need to pick up the pace of its growth significantly throughout 2025 to hit its target.
Potential catalysts
In one recent effort from the company to catalyze sales, Tesla overhauled its popular Model Y vehicle last week. The vehicle boasts a redesigned exterior with a significantly different look. In addition, the redesigned Modely Y boasts improved aerodynamics, enabling longer driving range, and a handful of interior and cabin technology upgrades. Estimated to account for more than half of Tesla's vehicle sales volume, the Model Y is important to the company's business. A freshly updated version, therefore, could move the needle for the company.
But even a Model Y refresh and progress on autonomous driving likely won't be enough to get the company to its sales target for the year. Tesla bulls are probably counting on the company to bring a lower-cost vehicle to market this year to really rev up sales.
"Preparations remain under way for our offering of new vehicles -- including more affordable models -- which we will begin launching in the first half of 2025," Tesla said in its third-quarter letter to shareholders. The development and eventual launch of this lower-cost vehicle is critical. Indeed, it will probably determine whether Tesla can hit its sales target this year.
Investors will get more clarity on Tesla's growth expectations for the year this afternoon, when the company is scheduled to release its fourth-quarter financial results and host a live conference call with analysts and investors.
