• 4Q23 revenue was in line with our estimates, while Adj. PATMI was above on higher interest income. FY23 revenue/Adj. PATMI was at 97%/108% of our FY23e forecasts. TSLA met its 1.8mn (+38% YoY) vehicle delivery target for FY23.
• Expected volume growth slowdown due to a shift in focus to developing new products like its next-generation low-cost EV, while margin pressures remain due to intensifying competition from BYD and other Chinese EVs. We expect flat YoY gross margins for FY24e
• We cut our FY24e revenue/EBITDA estimates by 7%/27%, respectively, to reflect a slowdown in unit growth and further margin headwinds. Our DCF target price is cut to US$175 (prev. US$240). We downgrade to NEUTRAL from ACCUMULATE. We believe that competition will only intensify further from aggressive Chinese EV makers, putting further pressure on pricing and margins. Our WACC assumption of 9% remains unchanged, while we reduce the growth rate to 4% (prev. 5%).

The Positive

+ Record deliveries in 4Q23, Model Y best-selling car in FY23. TSLA delivered 485k vehices in 4Q23, a new record for a single quarter, with the company also hitting its FY23 target of 1.8mn deliveries. Additionally, Model Y was the best-selling vehicle globally with >1.2mn (65% YoY) units sold – beating Toyota’s RAV4 and Corolla models.

The Negatives

– Intensifying competition and lower prices hurting margins. We had assumed the intense price war in China over the last 1.5 years would ease as EV players shift from buying market share to improving profitability. However, we now expect competition to continue intensifying – with BYD spending another ~US$13bn in CAPEX for FY24e, and other Chinese EV companies like Li Auto and Xpeng growing CAPEX 30+% YoY. EV volume growth YoY for BYD is almost 2x that of TSLA. Increasing competition should place further pressure on prices and margins in the near term. ASPs for TSLA vehicles were down -17% YoY in FY23.

– Slowdown in near-term growth due to focus on developing new products. TSLA expects FY24e unit volume growth to be significantly lower vs FY23 (+38% YoY), with its focus shifting away from ramping production of current EVs as lead times have dwindled, to developing newer products like its next-gen low-cost EV. Given ongoing price wars and still high interest rates, we expect ASPs to decline roughly 4% YoY, and have also reduced our FY24e revenue estimates by 7%. We expect TSLA to lose the top spot to BYD in EV deliveries for FY24e.

ASP (Average Selling Price): total auto revenue for a given period divided by the number of vehicles sold.