Nora Tam/South China Morning Post via Getty Images
- Elon Musk said he expects Tesla sales to hit 2 million this year, following the company's aggressive price cuts.
- His bullishness comes on the back of Tesla's better-than-expected fourth-quarter earnings results on Wednesday.
- Still, the firm saw a drop in vehicle gross margins, showing it is having to "sacrifice margins for volume," a Wedbush analyst said.
Elon Musk is gung-ho on the prospect of selling 2 million Tesla vehicles this year after recent price cuts, but a Wedbush analyst says the carmaker is having to "sacrifice margins for volume."
Musk's upbeat outlook comes after the electric-vehicle maker reported on Wednesday fourth-quarter earnings that topped Wall Street expectations. The company said its revenue grew 37% to $24.32 billion, beating market projections for $24.16 billion.
In an earnings call with analysts, Musk said he expects car deliveries to hit 2 million this year, per Reuters. That's despite the fact that he's predicting a "pretty difficult recession this year."
"We think demand will be good despite probably a contraction in the automotive market as a whole," Musk said on the call.
Tesla strong earnings come after the carmaker made some aggressive price cuts recently in a bid to boost demand. It slashed prices across global markets, including a reduction of up to 20% for the Model Y SUV in the US. "These price changes really make a difference for the average consumer," Musk said, per Reuters.
Despite the earnings beat, Tesla's automotive gross margin declined to 25.9%, the lowest in five quarters. Musk said the dismal figures reflected increased costs, higher raw material and commodity prices.
That shows the company is enduring an erosion of margins in order to prop up sales volumes, according to Dan Ives, an analyst with Wedbush Securities.
"They're ultimately needing to sacrifice margins for volume. And now the question is, with a price war happening in China, what does the trajectory look like in 2023," Ives told CNBC on Wednesday.