Tesla's Plans for Growth in the Coming Years

While many tech companies are cutting jobs, Tesla TSLA 0.38% is still hiring. The company is looking for engineers, production associates, and other workers to help with its new product lines. Tesla is also expanding its production facilities, which will create even more jobs. So if you're looking for work in the tech industry, Tesla is a good place to start.
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The company is still focused on growth, and this may be the only path it can take.
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The electric-vehicle maker gave a target of 1.8 million vehicles for the year when it reported quarterly results late Wednesday. Assuming it meant deliveries, the number would be up about 37% on last year, but below a longer-term ambition of expanding by 50% a year. This signals a more cautious approach to managing expectations after the company spent last year fruitlessly chasing the target, raising concerns about demand.
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Elon Musk, CEO of Tesla, has stated that he is committed to expanding the company as fast as possible, in line with recent price cuts in China, the US, and Europe. He said that orders are currently coming in at twice the rate of production, indicating that the price cuts are having the desired effect on sales.
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The more difficult question is how much margin the company will be willing to give up in order to reach that goal. Tesla's income statement is already taking a hit, with an operating margin of 16% for the fourth quarter, down from 17.2% in the previous three months. And as interest rates rise and competitors launch new products, the market conditions are only becoming more challenging.
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Analysts are divided on how profitable Tesla will be in the next few years. Some believe that the company will see a 15% increase in earnings per share, while others are expecting a more modest 4% increase. Given the rapidly changing landscape of the automotive industry, it is difficult to say with certainty how Tesla will fare in the coming years. However, one thing is certain: Tesla is committed to ramping up production and reducing costs, in order to stay competitive in the ever-changing market.
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The high level of anticipation surrounding these quarterly results and the accompanying call is due to the uncertainty surrounding the company's future prospects. Investors were given more guidance than usual on what to expect in the coming year: for example, Tesla is expecting to receive an extra $150 million to $250 million per quarter in federal subsidies as part of President Biden's climate bill, the Inflation Reduction Act. One message that was clear is that there is virtually no chance of a share buyback any time soon as Mr. Musk prepares for a potential recession. Even three months ago, this seemed like a plausible prospect for a company with $22.2 billion in cash and liquid assets at year-end.
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Tesla's growth path is at odds with the wider tech industry it sees itself as part of. Startups have pivoted toward profitability, and even cash-spewing tech giants have moved to trim their head counts.
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There are a few reasons for the different trajectories of these industries. For one, many digital-technology companies that benefited from the pandemic are now experiencing a slowdown as its impact recedes in the West. On the other hand, growth in the U.S. EV market could strengthen further, thanks to massive subsidies from the U.S. government. However, even the EV market is not immune to the "pretty difficult recession" that Mr. Musk said he anticipated.
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Tesla has little choice but to continue down the rapid-growth route. Car makers can't hire and fire in line with business sentiment like an asset-light digital-technology company; they design models and plan their production over periods of years. Tesla's existing factory projects in Berlin and in Austin, Texas, are bringing capacity online that it needs to fill.
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Government incentives are encouraging Tesla to accelerate its growth. On Tuesday, the company announced a $3.6 billion investment to expand its footprint in Nevada with another battery factory and an assembly line for its heavy-duty truck, the Semi. Both plants are expected to benefit from the Inflation Reduction Act, and they will help Tesla meet growing demand for its products.
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Tesla's market value, at about $536 billion including the dilutive effect of stock options, according to FactSet, has recovered somewhat from last year's collapse. Yet the company still needs to keep expanding extraordinarily fast and making higher margins than other car makers to justify its current valuation. If the company's recent price cuts are any indication, it has not yet managed to transcend the trade-off between growth and profitability.