Tesla on Wednesday posted record net income in the fourth quarter of last year, and the company predicted that additional software-related profits will keep its margins higher than any other automaker.
The Austin, Texas, maker of electric vehicles and solar panels said it made $3.69 billion from October through December, or an adjusted $1.19 per share. That beat estimates of $1.13 that had been reduced by analysts, according to FactSet. The company’s profit was 59% more than the same period a year ago.
Revenue for the quarter was $24.32 billion, which fell short of the $24.67 billion that analysts expected.
But the company’s automotive gross profit margin, which is revenue minus cost of goods sold, fell from 30.6% in the fourth quarter of 2021 to 25.9% in the same period in 2022.
CEO Elon Musk told analysts on a webcast that the results came during a challenging year with “massive difficulties” including plant shutdowns and supply chain issues.
On Jan. 13, the company cut prices in the US and China, its two biggest markets, by up to 20% on some models, leading many analysts to believe that demand had fallen due to high prices and rising interest rates.
But Musk said demand is strong, and so far in January the company has seen the strongest orders year-to-date in Tesla history.
“We think demand will be good despite probably a contraction in the automotive market as a whole,” he said. “Demand far exceeds production,” Musk said, adding that Tesla is making small price increases.
Tesla said in its investor letter Wednesday that it would produce about 1.8 million vehicles this year, ahead of a predicted 50% annual growth rate. But the outlook section of the letter didn’t give an estimate of deliveries for the year. Previously Tesla has said its deliveries would grow at a 50% annual rate most years.
Morgan Stanley analyst Adam Jonas wrote in a note to investors early Wednesday that demand is a problem for the company. “In our view, the price cuts are indeed a response to slowing incremental demand relative to incremental supply,” he wrote.
Tesla also said it has rolled out its “Full Self-Driving” software to about 400,000 users, and that it recognized $324 million in revenue from Full Self-Driving software during the quarter. Despite its name, “Full Self-Driving” cannot drive itself, and Tesla warns drivers that they must be ready to intervene at any time.
The company said it knows there are questions about macroeconomics in the face of rising interest rates. “In the near term we are accelerating our cost reduction roadmap and driving towards higher production rates, while staying focused on executing against the next phase of our roadmap,” the letter said.
Tesla’s guidance for deliveries this year was “fairly general” because of uncertainty over coronavirus cases in China and economic questions globally, said Edward Jones analyst Jeff Windau.
“I just think they’re probably being a little more cautious and conservative entering the year,” he said. “Their approach isn’t really any different than what we’ve been seeing from other companies.”
Shares of Tesla were up slightly Wednesday, closing at $144.43. They rose less than 1% in extended trading following the earnings report.
The company’s stock tumbled 65% last year on fears that Musk was distracted by his $44 billion acquisition of Twitter. But so far this year they’re up about 35%.
Price cuts that began Jan. 13 fueled concerns on Wall Street that demand for Teslas was falling as intense competition arrives from startups and legacy automakers.