Tesla Making Right Decisions To Navigate 'Difficult Year' For Auto Industry, Says Munster: 'Delivery Growth Party Will Only Continue'

Tesla Inc. TSLA allayed investor fears by reporting fairly decent quarterly results across the board and the stock promptly rallied in reaction.

What Happened: Tesla appears to have made the right decisions to successfully navigate what will likely be a difficult year for the auto industry, Deepwater Asset Management’s Gene Munster said in a note while discussing his key takeaways from the earnings call.

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Internal Guidance Vs Formal Guidance: Tesla’s formal guidance for 2023 calls for deliveries of 1.8 million units, suggesting 37% year-over-year growth, Munster said in the note. This represents a slowdown from the 40% growth in 2022. Musk, however, revealed on the call that the company’s internal target was about two million units for 2023.

Munster expects the company to close the year with deliveries of two million units, going by the strong order flow in the wake of the price cuts. This would mark a 52.2% increase from the 1.314 million units delivered in 2022. He noted that the Tesla CEO said orders are currently outpacing deliveries by two times.

Deliveries growth will likely be around 60% in the first half and then drop closer to 40% in the second half, Munster said.

Margins Won’t Crumble But Slip: The fourth-quarter auto gross margin, excluding credits, came in at 24.3%, below the consensus of 26.8%, Munster said. He added that despite the below-consensus margin, the metric still outpaces the broader industry average of mid-teens.

CFO Zach Kirkhorn guided gross margin, excluding credits, to come in above 20% in 2023 compared to Munster’s estimate of 15-20% ahead of the call. Given the expectation for a 7% drop in average selling price, the 20%, plus margin outlook is realistic, he said. He added that some customers who were attracted to the 20% price cut for the flagship Model Y vehicle appear to be upgrading to higher trims.

Pipeline Updates: Munster said that Tesla’s outlook assumes Cybertruck going into production later this year. The company also reiterated that more details on the next-gen vehicle platform currently under development will be forthcoming at the Mar. 1 Investor Day, he noted.

The venture capitalist does not expect the platform, referred to as robotaxi, or Model A, to go into production until 2025. “Even though that’s a long way out, the company appears to be positioning itself to ride Cybertruck’s ramp in 2024 and the Model A ramp in 2026, giving hope to investors that delivery growth party will only continue,” he added.

Price Action: Tesla closed Wednesday’s session up 0.38%, at $144.43, and rallied an incremental 5.51%, to $152.39, in after-hours trading, according to Benzinga Pro data.

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