Despite being valued like a technology company, Tesla has run into an old-fashioned car-industry problem: the model cycle.
In its results for the fourth quarter, published after the bell on Wednesday, the electric-vehicle maker replaced its previous boilerplate guidance about growing “as quickly as possible” with an admission that it is “between two major growth waves.” The spurt provided by the Model 3 and Model Y has run its course. The next one will be “initiated by the global expansion of the next-generation vehicle platform.”
Tesla said its growth in vehicle volumes this year might be “notably lower” than last year’s—without specifying a number, as it has before in fourth-quarter results. That uncertainty helps explain why the shares were down roughly 8% in premarket trading on Thursday.
The benefit of vague guidance might be that Tesla won’t spend this year cutting prices to chase a target, as it did in 2023. With its profitability now in line with the wider car industry, the company can’t afford to repeat last year’s strategy. Its operating margin came in at 8.2% in the fourth quarter, not much higher than the 7.6% it reported for the previous three months, when it paused production to upgrade factories.
Tesla hasn’t released a prototype or image of the first vehicle it will produce on its next-generation platform, but it is expected to be a mass-market car. As for when the next wave will come, Chief Executive Officer Elon Musk said on a call to discuss the results Wednesday that the platform was due to launch in the second half of next year, while admitting that “I am often optimistic regarding time.”
Allowing for some slippage in the deadline, the company probably has at least two slow years ahead. The Cybertruck that was launched in November might once have been expected to fill this gap, but Tesla has done everything to reduce expectations of its financial impact.
That raises the question why the futuristic pickup was given priority over affordable EVs of the kind that have fueled the success of Chinese EV giant BYD. Tesla’s new guidance will bolster Wall Street suspicions that Musk made a mistake with its product road map. Such judgments are easier with hindsight, but they still chip away at the CEO’s reputation for making savvy bets—as his overpriced acquisition of Twitter in 2022 also did.
Investors have long paid attention to the model cycles created by the cadence of automakers’ product launches. New cars typically generate a wave of sales that eventually ebbs. Manufacturers have learnt to manage the risk of volatile cash flows by carefully spacing new products or product refreshes. But the simplicity of Tesla’s lineup, consisting of just five passenger vehicles including the low-volume Cybertruck, makes this harder.
The very familiarity of the problem might dim the company’s high-tech aura. “People think of Tesla as a car company when they should be thinking of Tesla as an AI/robotics company,” said Musk on the call. In fact, Tesla is valued as if it were a leader in artificial intelligence. Even after a 16% fall so far this year, its stock trades at 56 times forward earnings, compared with 29 times for its AI chip supplier Nvidia. Yet Tesla’s bets in the field still seem more like science projects than businesses.
It is in the process of rolling out a new version of its automated-driving software that uses AI to control the car rather than code—a novel approach. Yet the company still seems no closer to assuming legal responsibility for driving its customers’ vehicles, which would be a commercial game-changer. The use case for its humanoid robot, Optimus, isn’t clear. Musk himself said Wednesday that Tesla’s supercomputer for training AI, Dojo, was a “high-risk, high-payoff” project, implying a correspondingly “low probability of success.”
Tesla’s energy storage is growing fast, with a large commercial opportunity as renewable energy takes off. But it is still too small to move the needle much, accounting for 6% of revenue in the fourth quarter. And it is hardly the high-margin software business of investors’ dreams.
With the slowdown in Tesla’s core car business now beyond question, its other bets have their work cut out to justify its growth-company valuation.
Write to Stephen Wilmot at stephen.wilmot@wsj.com