Tesla says it will start making new EV model in second half of 2025

TESLA expects to start production of its next-generation electric vehicle at its Texas factory in the second half of 2025, Chief Executive Elon Musk said on Wednesday.

His projection followed a Reuters story earlier in the day saying Tesla had told suppliers to prepare for a June 2025 startup of a smaller crossover vehicle aimed at a mass market.

“We’re currently expecting to start production in the second half of next year,” Musk told analysts on a post-earnings call, adding that the model was very far along in product development.

The new model would be first produced in Texas, followed by Mexico, he said, noting that ramping up production of the new vehicle will be challenging.

The EV maker on Wednesday warned of “notably lower” sales growth this year as it focuses on launching the long-anticipated next-generation vehicle.

The company also reported a fall in fourth-quarter gross margin as it cut prices and offered incentives to boost demand, sending its shares down 4.7% in after-hours trading.

Tesla said it was in between two growth waves: one driven by the release of Models 3 and Y in 2017 and 2020, respectively, and a second wave that would start with the next-generation vehicle platform.

“In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas,” Tesla said in a statement.

Wall Street expects Tesla to sell 2.2 million vehicles this year, according to Visible Alpha. That would be up about 21% from 2023 but well below the long-term target of 50% that Musk set about three years ago. Tesla, however, did not reiterate that target on Wednesday.

After years of breakneck growth, Tesla is bracing for slowing growth and margins as EV demand softens and competition intensifies from rivals including BYD whose model lineups are less expensive and more varied.

“If volume’s going to be lower, then my guess is, Musk will probably cut prices and take share. Margins may continue to struggle for a while,” said Gary Bradshaw, portfolio manager at shareholder Hodges Capital Management.

Cost of goods sold per vehicle declined sequentially but Tesla cautioned it was approaching “the natural limit of cost down of our existing vehicle lineup,” underscoring the pressure on the company to launch its new lower-cost vehicles as China’s BYD gains ground in China and other markets. BYD sold more EVs globally than Tesla in the fourth quarter.

Tesla reported a gross margin of 17.6% for the three months ended December, compared with 23.8% a year earlier, and analysts’ average estimate of 18.3% according to LSEG data.

In the third quarter, Tesla posted gross margin of 17.9%.

Automotive gross margin, excluding regulatory credits – a closely watched figure – dropped to 17.2% from 24.3% a year earlier, although it improved from 16.3% in the third quarter.

“Today’s flat sales and substantially reduced margin results are further evidence that Tesla is losing its leadership advantage and its brand leadership has weakened,” said Greg Silverman, global director of brand economics at Interbrand.

MORE PRICE CUTS?

Tesla slashed prices of its cars throughout last year, igniting a price war that singed U.S. rivals including Ford , who have all slowed EV production. Musk cautioned later in the year that high interest rates were hitting demand.

Its stock, which has enjoyed valuations of a technology company partly due to Musk’s promise of self-driving cars, has fallen 16% so far this year, after doubling in 2023. Tesla has been left out of the rally of major tech shares which has been driven by hopes of interest rate cuts.

“I don’t think the price cuts are over, mainly for the reason that demand for its electric vehicles is still weak,” said Jesse Cohen, senior analyst at Investing.com, who called the quarter underwhelming.

Net income more than doubled from the previous year to $7.9 billion, including a $5.9 billion noncash gain related to deferred tax assets. Tesla said lower raw material costs and U.S. government credits helped lower cost-per-vehicle, but Cybertruck production and AI and other research projects increased costs.

On an adjusted basis, Tesla earned 71 cents per share in the fourth quarter, missing an average analysts’ estimate of 74 cents, according to LSEG data.

Tesla’s fourth-quarter revenue rose 3% to $25.17 billion, which marked its slowest pace of growth in more than three years. Analysts on average expected $25.62 billion, according to LSEG data. – Reuters