Tesla experienced a notable contraction in its annual profitability, with net income falling 46% year-over-year to $3.8 billion, representing the lowest earnings since five years ago before the pandemic. This marked the second consecutive year of significant profits decline for the electric vehicle manufacturer, which has recently lost its standing as the globe's top electric car producer to a Chinese competitor. Adverse impacts on sales from boycott campaigns further compounded these financial results.
Despite these challenges, Tesla has continued to broaden its product portfolio with more affordable vehicle offerings. CEO Elon Musk has reaffirmed his commitment to the company amid external distractions, including his involvement in U.S. politics. Investor confidence appears resilient, with Tesla’s stock appreciating by 9% over the past year.
On the company’s earnings call, Musk emphasized a strategic pivot, instructing the cessation of production for Tesla's older S and X models by the second quarter. This transformation will repurpose a Fremont, California manufacturing facility towards the creation of Optimus robots, signaling a deeper investment into robotics and artificial intelligence technologies.
This change aligns with Tesla's broader vision of an AI-centric operational future, prioritizing innovations such as robotaxi fleets capable of transporting passengers without drivers or even steering wheels, and robots designed for domestic and caregiving tasks like plant watering and elder care. Executing these initiatives entails substantial financial commitments; Tesla announced plans to double capital expenditures this year, targeting $20 billion, amplified by a $2 billion investment in Musk's artificial intelligence venture, xAI — a move that raises potential conflicts of interest given Musk's significant holdings in both companies.
xAI has attracted controversy over issues including controversial content reflecting Musk's personal views and recent incidents involving nonconsensual deepfake images. These factors add a layer of reputational and regulatory risk to Tesla's AI ambitions.
Examining quarterly performance, Tesla's fourth-quarter profit experienced a 61% drop to $840 million, equivalent to earnings of 24 cents per share. When excluding one-time charges, adjusted net income measured 50 cents per share, narrowly surpassing analyst expectations of 45 cents.
Critics point to several headwinds facing Tesla. Industry analyst Sam Abuelsamid described Tesla's product lineup as aging and increasingly uncompetitive amid new model introductions from other manufacturers, compounded by deteriorating brand perception possibly linked to Musk's political involvement, which may have alienated some consumers.
However, growth opportunities remain in areas such as Tesla’s energy storage segment. Although small relative to automotive revenues, energy storage generated $3.8 billion last quarter, a 25% increase spurred by demand from new data centers nationwide. Tesla also recorded gross profit margins ascent to 20%, up from 16% the prior year, signaling improved operational efficiency.
Morningstar analyst Seth Goldstein highlighted these profitability improvements as unexpected positives. Additionally, Tesla disclosed plans to launch robotaxi services in Houston, Miami, and five other metropolitan areas within the first half of the year. The company also announced intent to produce the Cybercab, a smaller, two-seat vehicle without traditional controls, in the same timeframe. While ambitious, Musk's history of missing deadlines tempers expectations.
Regulatory and commercial delays have hindered prospects. Tesla initially forecast European approval of its partial self-driving software in the first quarter of the previous year, a milestone yet to be attained. Promised surges in sales mid-year did not materialize as anticipated. Development progress of the robotaxi program has been gradual, a pace Musk attributes to Tesla’s cautious approach to prevent operational failures. Initially, Tesla’s robotaxi vehicles retained onboard human supervisors to intervene if necessary. Recently, Tesla removed these safety drivers in Austin, where the service began operating in June.
Market sentiment among some investors remains optimistic. Wedbush Securities analyst Dan Ives, a noted Tesla bull, projects robotaxi availability in more than 30 cities by year-end, with Tesla capturing a 70% share of the self-driving car market globally within a decade.
Ives and others commend Musk’s return to focusing on Tesla after a hiatus leading a federal cost-cutting initiative. However, concerns persist regarding the potential distraction of Musk’s ambitions to take his rocket company SpaceX public, potentially slated for a mid-year initial public offering. Such an event could divert Musk’s attention from Tesla during a critical phase of its transition.