Revenue up. Profits down. I’m guessing competition is biting into EV pricing & margins.
average selling price per vehicle fell and regulatory credit revenue declined. Gross margin, or the profit left after accounting for the cost of goods sold, slid to 16.8% from 17.2% a year earlier. Analysts expected 19.4%, according to StreetAccount.
Competition is part of it. Once subsidies for buyers are removed prices drop to preserve volume. A subsidy for car buyers is also a subsidy for car makers.
The Captain
Actually a big hit was the loss of regulatory credits for producing low emission (EV) vehicles. The current administration has scaled back penalties for high polluting vehicles, meaning Tesla no longer gets the nearly 100% margin regulatory credit fees from other ICE automakers. (They could choose to pay fines to the government, but it’s cheaper to buy the “credits” from Tesla or Rivian or whoever.) Those payments were almost half-a-billion per quarter a year ago, in the most recent quarter they were down by 2/3. (US companies account for most of that loss. In Europe and Asia the game continues.)
So the “margin drop” is not really on vehicles, it’s because they’re not getting free money from GM, Ford, and others.
Low cost EVs from China has to be a problem. Tesla mfg in China should be competitive but competition has to hold down prices and margins. So far not in the U.S. but markets in Europe, Mexico, Canada, South America has to be impacted. Chinese EVs in the U.S. may take a while but it’s only a matter of time.
No wonder Tesla is scaling back EV production and converting plants to other products like robots.
I didn’t think the earnings report on the face of it was that bad. Good sales quarter. Margins got compressed by a lot, but with more competition you’d expect that (more compression than was expected, FWIW). A lot of capex, but they told us to expect that. Good FSD subscription growth, which is high margin, recurring income. Tesla spent a lot on R&D which hurt the bottom line, but if it pays off it is a smart move. Basically, Tesla is investing in itself.
So the balance sheet wasn’t as good as it could have been, but I didn’t see any red flags.
My questions are on the operational side. I’ll do it in bullet points:
Robotaxis. Robotaxis remain operational only in small, carefully geomapped areas, during daylight hours and in good weather, and only on surface streets, and only a very small number of vehicles. Unlike earlier earnings calls, Musk made no predictions about widespread availability or gave any timelines. Instead he emphasized they would expand only as fast as safety allowed. That AV ride hailing is possible at all is extremely impressive, but Tesla robotaxi is clearly not ready for prime time. There is a long way to go before they have a viable product. Which bring us to…
Cybercab. Cybercab was supposed begin mass production in April. Supposedly, there is a pinchpoint with the batteries, but I think we all know the real reason is that FSD isn’t yet good enough for AV ride hailing, so there is no point in building Cybercabs that just sit in parking lots.
Semi. Recall the Semi was supposed to be in full production by this month or next month,. But the Semi was barely mentioned. Musk said they were prioritizing autonomy for other vehicles ahead of the Semi. Basically, a downplay of expectations. Reading between the lines, I’d say the Semi will be a niche vehicle for now and is not a big part of Tesla’s plans for the near future.
Optimus. Unlike the Semi, Optimus was mentioned a lot. Mostly down playing expectations, talking about the difficulties of lacking of supply chain, having to design and building their own components, design challenges, etc. Recall that Optimus was supposed to be in full production this summer. Sounds like now there is no timeline for Optimus production. They did say the initial production would be not be sold to consumers, instead would be used in-house for training and such.
In short, the car business seems to be doing fine. The other stuff is TBD.
That was an interesting item in the earnings report. Sales were steady in China, up a lot in the EU, and weak in the US.
Good summary.
This was a boring earnings with no big proclamations.
Consumer-owned L4 autonomy is far away. No one is close to deploying this in the US - certainly not Tesla.
The best evidence is not one Tesla consumer vehicle has the hardware (or software) that is capable of L4 autonomy.
Tesla says:
We have driven more than 380,000 miles of unsupervised Robotaxi, now across six cities in two different states.
Well, then only 27.5 million miles to go to statistically demonstrate safety.
Have a read on this thread:
March of 9s and all that.
It’s a slog.
SpaceX to the rescue, unless it blows up.
It seems I missed that.
The Captain
Smart move IMO! The technology to make cars is used to make CyberCabs and Optimus robots. The technology is where the value really lies. You can’t outcompete the CCP.
The Captain
I sort of beg to differ. I listened to the call. I mean, there were no intentional big announcements by Tesla staff, so I guess there weren’t any “proclamations” in the strictest sense of the word. But I don’t think it was boring, and there were some really big statements. Which is why the stock has plunged so much today, I think.
Musk went a lot further than he has in the past about how hard and slow it will be to bring Optimus to market. They revealed information about how few autonomous miles they’ve managed to rack up in the robotaxi program (less than 400,000!). Musk stated that it’s the march of nines in reliability that’s constraining their Robotaxi growth - an overt acknowledgment that they’re not scaling quickly because the system isn’t yet reliable enough. There was some handwaving later at regulatory environments being different in different cities (which I don’t think is too likely, and certainly not in Florida where all that stuff is uniform under the state statute), but it doesn’t explain why Tesla hasn’t started scaling up in the cities it’s already in.
So I thought it wasn’t boring at all. It was Tesla kind of being open (perhaps inadvertently) that they won’t be running thousands of robotaxis or selling tens of thousands of Optimuses (Optimii?) this year.
It was indeed more sober reality like the Q1 call.
And there was plenty of that on the Q1 call, especially for vehicle autonomy.
I admit that I don’t follow (= ignore) Optimus because it is so far from reality.
Here’s an exciting call: