Tesla Anticipates Production of Next-Gen EV Model by Second-Half of 2025 amid Market Challenging Conditions

Tesla Inc. has announced that the anticipated production of its next-gen electric vehicle (EV) model is set to commence in the second half of 2025. The revelation was made by the company's CEO, Elon Musk, during a Wednesday press briefing. However, the news led to a 6.5% decline in Tesla's shares due to Musk's caution that scaling up the automobile's production would prove to be an uphill task.

Musk highlighted that the new model's production would necessitate "a tremendous amount of new revolutionary manufacturing technology," signifying a delay in the resurgence of the dwindling Tesla EV market. His forecast came hot on the heels of a prior Reuters report stating that Tesla had directed its suppliers to brace for the production of a smaller crossover vehicle come June 2025. The new model's launch is critical for the automaker as it fights off stiff competition from more affordable EVs such as those manufactured by China's BYD.

The CEO further indicated that Tesla's venture into the production of the new model is an attempt to mitigate against the projected decrease in sales growth this year. The dip in sales growth comes in the wake of a decreasing fourth-quarter gross margin which is forcing Tesla to focus on the development of the new EV model.

Despite the challenges, Wall Street predicts that the automaker will sell about 2.2 million vehicles this year, marking a 21% rise from 2023. This is, however, lower than Musk's long-term sales target of 50% set three years ago.

Tesla is currently caught between two significant growth periods. The first growth wave was driven by the release of Models 3 (2017) and Model Y (2020). The company predicts that the second wave will initiate with the impending next-generation vehicle platform.

Tesla, known for its significant growth rate in the past years, is now bracing itself for a slowdown in its growth and margins as EV demand softens and rivals increase their market presence. Gary Bradshaw of Hodges Capital Management predicts that Musk could resort to reducing prices to maintain market share amid the challenging conditions.

On the global front, Musk forecast a significant success for Chinese automakers and warned that they could potentially overrun most other car firms in the absence of trade barrier regulations.

Tesla reported a gross margin of 17.6% towards the end of 2023, a reduction from the previous year's 23.8% and lower than the analysts' average estimate of 18.3%, according to LSEG data. Special attention was placed on an automotive gross margin (excluding regulatory credits) that plummeted from 24.3% to 17.2%. Tesla admits it's encountered difficulties in establishing new low-cost EVs.

Investing.com's Jesse Cohen suggests that the demand for Tesla's EVs remains weak, despite price cuts from late 2022. Tesla's shares have correspondingly declined by 16% this year, despite doubling in 2023.

Tesla ended 2023 with a notable income increase from the previous year, with net income doubling to $7.9 billion. However, fourth-quarter revenue only increased by a meagre 3% to $25.17 billion, marking the company's slowest growth pace in over three years. This fell short of analysts' average revenue projection of $25.62 billion. The shortfall is partially attributed to increased cost due to Cybertruck production and AI and other research projects.