Tesla chief Elon Musk tries to brush off Wall Street worries about demand

Elon Musk sought to brush aside Wall Street’s gathering worries that demand for Tesla electric vehicles is eroding in the face of a weakening economy and growing competition from other carmakers, though he admitted conditions were “a little harder than they would otherwise be”.

His comments on Wednesday, which included a strong indication that the electric carmaker would mount its first stock buyback programme next year, came as Tesla revealed its revenue fell short of Wall Street expectations in the latest quarter as it struggled to deliver vehicles to customers because of transport problems.

Earnings per share of $1.05 came in above market forecasts of 99 cents, thanks partly to higher selling prices and a lower tax charge.

The news left Tesla’s shares down about 5 per cent in after-market trading. Since the company earlier this month revealed a shortfall in new vehicle deliveries for the quarter, the shares have fallen 20 per cent.

Speaking on a call with analysts, Musk tried to lay worries about demand to rest. “I can’t emphasise enough we have excellent demand for [the fourth quarter] and we expect to sell every car we can make as far in the future as we can see,” he said.

However, he warned deflationary forces in the economy were gathering strength, with China and Europe experiencing “a recession of sorts”, leaving demand below where it would otherwise be.

Musk also responded to growing Wall Street speculation about a potential stock buyback by saying the company’s board “generally believes a buyback makes sense” and that a $5bn to $10bn repurchase programme was “likely”, even if conditions worsen and 2023 turns into “a very difficult year”.

News of a large potential buyback comes barely three years after Tesla faced persistent bankruptcy rumours. Its free cash flow reached a record $3.3bn in the latest quarter, lifting its net cash to $19.1bn.

In the latest quarter, revenue rose to $21.45bn, 56 per cent higher than the year before. Wall Street had been expecting earnings of 99 cents per share on revenue of just under $22bn. Tesla was able to hold its closely watched gross profit margin from automotive operations at 27.9 per cent, the same as the preceding three months, though it was down 2.5 percentage points from the year before as it grappled with the new plant costs.

The company has blamed its failure to hit ambitious delivery targets this year on a series of operational challenges, ranging from Covid-related production shutdowns in China to supply chain pressures. However, analysts have started to warn of possible erosion in demand.

The latest challenge has come from the difficulty of shipping a large number of vehicles in the final days of each quarter. A third of deliveries in the third quarter came in the final two weeks of September, the company said.

“There weren’t enough boats, there weren’t enough trains, there weren’t enough car carriers. Tesla got too big,” Musk said.

Tesla did not forecast how many vehicles it expected to deliver in the final months of the year, though many analysts have trimmed their own projections of full-year sales.

At the start of the year, Musk predicted Tesla’s deliveries would “comfortably” beat its average annual growth target of 50 per cent, even though supply chain problems were already piling up. To hit that target after the recent shortfalls, deliveries would have to reach nearly 500,000 in the final three months of this year, 45 per cent more than its previous record quarterly delivery number.