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Tesla bulls are unlikely to remember 2022 with any fondness. After all, the stock ended the year with a loss of around 70 percent. In its heydays, Tesla was the fifth biggest component of the S&P 500 index. Now, after weeks of brutal selling, which saw the stock's daily RSI touch an all-time low of 17 in the last week of December, Tesla is ranked as the fourteenth largest component of the benchmark index, below the likes of Exxon Mobil.
Tesla (NASDAQ: TSLA) Delivers 405,278 Units in the Fourth Quarter of 2022
$TSLA 4Q delivs 405.3K vs my expectation of 420.0K and Bloomberg consensus of 420.8K (IR-compiled consensus 418.0K). 4Q production was 439.7K vs my expectation of 436.4K and WS consensus of 438.8K. FY’22 deliveries were +40.3%. pic.twitter.com/YSxv4jQbh3
— Gary Black (@garyblack00) January 2, 2023
Tesla has just disclosed that it delivered 405,278 units in Q4 2022, missing pared-down consensus expectations of 418,000 units. The EV giant managed to produce 439,701 units in the pertinent quarter. For the entire FY 2022, Tesla has recorded cumulative deliveries of 1,313,851 units. Bear in mind that Tesla has continued to maintain over the past few quarters that it will grow its annual deliveries by 50 percent for the foreseeable future. Based on these quarterly numbers, Tesla was only able to grow its annual deliveries by 40.3 percent in 2022, missing its stated guidance by a wide margin.
For comparison, BYD – the biggest EV producer in China – was able to deliver 111,939 EVs in December alone. When factoring in plug-in hybrids, BYD registered sales of 235,197 units in December 2022. In the fourth quarter, BYD delivered 329,011 battery-electric vehicles. For the entire FY 2022, BYD has recorded cumulative New Electric Vehicle (NEV) sales of 1.863 million units, up 208.64 percent on an annual basis.
Tesla Faces a Veritable Host of Challenges
As we noted in a post back in December, Tesla continues to face a number of headwinds. Since November 2021, Elon Musk has sold Tesla shares worth $39.3 billion, hammering the stock in the process. While Musk has provided an undertaking that he will not sell any additional Tesla shares until at least 2024, the market continues to discount this explicit guidance, especially as this is not the first time that the CEO of Tesla gave such an undertaking only to backtrack with nary a comment.
The Chinese market is of crucial importance for Tesla's finances. As per an estimate by Refinitiv, China accounted for around a quarter of Tesla's total sales in the first nine months of 2022. Moreover, according to Morgan Stanley, China accounts for around half of Tesla's profitability. In the last quarter of 2022, Tesla's performance in China was inarguably affected by the country's zero-COVID policies. To counter this macroeconomic drag, Tesla slashed the prices of its EVs by up to 9.4 percent in China back in October. At the time, this decision was justified as a shrewd attempt to capitalize on the soon-to-expire 12,000 Yuan subsidy that China offers on all EVs that retail for under 300,000 Yuan. The price cut allowed the Tesla Model Y Standard Range to qualify for this incentive by reducing the model's price to 288,900 Yuan. Tesla also started offering a discount of 10,000 Yuan for new orders in December. Of course, China has now partially relaxed its stringent zero-COVID policies. However, this relaxation is now feeding a vicious wave of infections that is currently acting as a sizable drag on the world's second-largest economy. Moreover, as the Chinese new year approaches, the EV giant reportedly intends to operate Giga Shanghai at a reduced level, with production halts penciled in from the 20th of January till the 31st of January.
Perhaps to neutralize this growing softness in China, Tesla offered a rare discount of $7,500 for new US buyers in December, as well as free access to its network of superchargers for 10,000 miles of charging.
During the pandemic, used Tesla EVs could be sold for a comfortable premium, creating an entire genre of additional demand. However, with the Federal Reserve adamant about cooling down the US economy, that premium has now evaporated. According to Reuters, the average price of used Tesla EVs was down 17 percent relative to a July high of $67,279. For reference, the overall used car market in the US is down just 4 percent over the same period. Clearly, the demand for Tesla EVs is weakening.
Tesla also continues to face heat on the safety scorecard of its bespoke Advanced Driver Assistance System (ADAS), dubbed the Autopilot. In August, California's DMV accused Tesla of misleading customers regarding the capability of its Autopilot system. The company was also sued by a customer in the same month for "deceptive marketing." Then, in October, reports emerged that the US Department of Justice, as well as the SEC, maintains ongoing investigations into Tesla's Autopilot-related claims. As per a tabulation by Taylor Ogan, CEO of Snow Bull Capital, the "miles per disengagement rate on FSD beta is actually getting *worse*, down -54% Y/Y." It remains to be seen how the new FSD Beta update – due in January 2023 – performs. According to InsideEVs, the new update will allow for turning off steering wheel nags.
Bear in mind that Tesla has now abandoned its current approach of relying solely on a vision-based Autopilot system, which consists of eight high-resolution cameras and a high-tech neural network to interpret the incoming visual cues, and is now working to re-incorporate an HD radar in its suite of sensors.
Finally, Elon Musk's preoccupation with Twitter is visibly hurting the Tesla brand. For instance, as per a recent German survey, 63 percent of respondents said that Elon Musk's behavior has negatively affected their perception of Tesla.
2023 Brings New Hope for Bulls
Tesla experienced a vicious wave of selling in the last week of December, with around 700 million shares, or around 25 percent of the entire float, changing hands over the course of just three trading days! Of course, tax loss harvesting was likely to blame for this phenomenal trading activity. In a critical piece of insight for Tesla bulls, investors can buy back the shares that they sold within 31 days and still book a loss for tax purposes. This phenomenon is likely to provide a substantial tailwind for Tesla shares in January 2023.
Global EV adoption will be roughly 10% for 2022, up from 6.4% in 2021. If we project EV adoption grows to 35% by 2026, that’s a +37% CGR, which is quite a tailwind for $TSLA. If TSLA can hold its EV share at 20% through Cytruck and a $25K-$30K compact, that’s 35-40% vol growth. https://t.co/v8adjWyLHi pic.twitter.com/pQUzFg8GCh
— Gary Black (@garyblack00) January 2, 2023
Tesla currently has a market capitalization of just $385.98 billion. Moreover, Wall Street expects the company to record sales of $113 billion in FY 2023. This equates to a forward Price-to-Sales ratio of just 3.41x. Not too long ago, Tesla used to trade at a P/S multiple of 80x! Clearly, this is the stuff from which generational bottoms are constructed.
$TSLA catalysts - 12/31
1/ TSLA 4Q delivs/EPS Jan
2/ $7,500 EV credit into effect Jan
3/ FSD V11 beta wide release Jan
4/ Megapack revs/profits 1Q
5/ TWTR CEO announcement 1Q
6/ New gigas 1Q
7/ TSLA $10B buyback 1Q
8/ Cytruck launch mid-FY’23
9/ $30K Compact FY’24
$400 PT 6-12 mo— Gary Black (@garyblack00) December 31, 2022
The tweet above from Future Fund's Gary Black highlights some of the notable catalysts for Tesla in 2023. In the short term, the Biden administration's Inflation Reduction Act can act as a sizable demand boost for Tesla. The law has reinstated a $7,500 tax credit on mature EV producers such as Tesla. However, the incentive comes with a host of sourcing requirements for key components, including batteries. Crucially, the Treasury Department will not make a final determination on these material sourcing requirements until March 2023, allowing US buyers the facility to avail of the full $7,500 credit until that time.
Do you think the EV giant's bulls can look at a sustained recovery through 2023? Let us know your thoughts in the comments section below.
