Tesla reportedly earned, on average, $15,653 in gross profit per vehicle in the third quarter of 2022. That blows away other automakers like Volkswagen, Toyota and Ford — Tesla averages five times the per-vehicle gross profit of Ford in particular.
No one can until they catch up with Tesla’s new production methodology which was no accident. The anti Tesla mantra was that Tesla didn’t have the 100 year expertise of incumbent automakers who knew how to make cars. It turns out that this 100 year legacy is the millstone around their necks.
In a price war, low cost producer calls the tune. In the US for EVs thats Tesla.
Their large efficient new plants have to be a major advantage vs the new ones like Rivian. And vs traditional auto makers who have old plants that must retool. And must deal with unions and possible severance costs.
In the US Tesla is the clear leader. Competition in China might be more challenging.
I usually find earnings announcements boring, but not this time. Musk took over Twitter at the end of October, and I think it took about a month for the reality of what he has done to penetrate the national zietgeist. Then came two events: a 2-for-1 sale to Twitter advertisers, and a significant discount in Tesla prices with a month left in the quarter.
I know that Twitter’s advertising base collapsed; multiple quantitative and qualitative sources verified that. Tesla sales were a bigger question, and given the possible impact of looming EV rebates for 2023 it is/was hard to read the tea leaves and know with any confidence what was going on.
If I had to guess I’d expect a miss but not too great. Two thirds of the quarter was already done, and Tesla has a purchase forward model where sales are committed ahead of time, so any impact from the brand damage shouldn’t account for much. Additionally, I suspect any damage will be confined to the US, and not affect China or Europe greatly.
Going further out, I’d guess some real diminution in sales (in the US) in the current quarter (ending March) based on Musk’s antics. Those will likely not affect sales in Europe or China, so the losses (if there are) won’t be life threatening, but will continue to it downward pressure on the stock. It ain’t over yet, I think.
A miss of what? They can’t “miss” sales or deliveries since everybody knows them already. Do you mean that Wall St. might have guessed Tesla’s earnings wrong? Yeah, that’s pretty typical. But usually they guess too low.
You might remember this chart, showing how badly Tesla missed something or other.
Musk’s disgusting behavior does seem to be affecting people’s attitudes, but doesn’t seem to be affecting sales. Since Tesla’s price cuts, interest is higher than ever, production is higher than ever, and sales are higher than ever. The only thing that remains to be seen is what Tesla’s margins look like going forward. All indications are that they’ll continue to be well over 20%.
Yes, earnings. As you note, Tesla implemented non-trivial price reductions during the quarter. Since Tesla doesn’t release sales/production numbers monthly, only quarterly, there’s no way for anyone to know (ahead of earnings) precisely how those price cuts will affect quarterly revenues and profits. As Goofy pointed out, many sales/deliveries had already occurred under the old prices, and many deliveries in December would have been contracted prior to the reductions. So analysts can’t figure precisely how many of the sales were made under the old (higher) prices versus the new (lower) prices.
I think that you’re right in identifying their forward-looking statements on margins as being significantly interesting. But how can they possibly be well over 20%? I assume you’re talking about gross margins (net and operating margins aren’t that high), but over the last year or so they’ve “only” averaged about 26% gross margins. Yet their price cuts were between 6-20% - higher on the Model Y as a percentage, and the Model Y is the one they produce more of. If they’ve cut their prices by significantly more than 6% from 2022 (across their product line), how can they continue to have profit margins well over 20% going forward?
Once the supply chains smooth out the input prices tend to come down. Also, Tesla is continuously reducing manufacturing costs, so I 20 percent price cut on 50,000 dollar car that has a 30 in profit, may not be as big as it seems.
In other words, if there is 15000 in profit in a 50,000 dollar car in December 2022, the price gets cut 20k in January 2023, it would seem that the new margin would be 5000 or about 12.5 percent. But, if the cost to produce the car drops to 30000 dollars by the first of February due to declining input costs and manufacturing efficiency then the same car that was 50000 with a 30 percent margin is now a 40000 dollar car with a 25 percent margin.
So, yes the profit margin is compressed but the volume increases.
Obviously. If you cut prices by 20%, but cut manufacturing costs by 25%, your margins will increase.
I suppose the question is perhaps better re-phrased as asking what could possibly result in enough cost savings that a 20% price cut wouldn’t bring down margins below the high 20’s? They produced about 1.3 million this year - they’re “only” going to grow that to 1.8 million next year. Which means the overwhelming majority of cars Tesla makes next year will be generally the same models, produced in the same factories by the same people as this year. It’s unlikely that Cybertruck will have sizable volume relative to the (likely) million and a half Model 3’s and Y’s that they’re on pace to make.
What happens between now and, say, Q2 that will reduce manufacturing costs by anywhere close to the price cuts?
I doubt that there is anything that can make up the entirety of the largest price cuts. But after they establish the higher order volume they may bump some prices back up. They already did this on the Model Y. And they could start production of the 4680 battery cells. And they could be counting on the giga press for castings. These things can’t be ramped up immediately, most likely.
So the drastic price cuts are likely an attention getter and to maintain market share until they do get higher margins again.
I’m not seeing how, if Tesla released sales/production numbers monthly, that would somehow enable us to know anything precisely. Maybe some people might have been able to make better guesses without working very hard.
Lower logistics and transport costs everywhere. More revenue recognition from FSD sales. Ramping Austin and Berlin production, leading to lower per vehicle cost. Continued focus on reducing cost of production. Better product mix. Declining cost of materials, especially if there’s much of a recession. Gobs of 100% margin upgrades bought after the fact due to people spending less on the car and getting rebates.
As well, it looks like the IRA will be providing massive subsidies for battery production in the US. Tesla does more of that than anybody. In fact, the IRA is going to rain money down on Tesla more than anybody else. This includes the “not vehicle” business of stationary storage, which Tesla will ramp massively this year by way of its Lathrop megafactory.
So even if it does manage to fall short of 20% (which it won’t), they will make it up in energy storage margins.
Of course I watched. I see there’s a transcript (I have no idea how accurate) here.
This is probably the most relevant bit, where Martin Viecha was reading the questions from retail investors voted on at say.com.
Martin Viecha: Thank you very much. The next question from investors is, after recent price cuts, analyst released expectations that Tesla automotive gross margin, excluding leasing and credits, will drop below 20% and average selling price around $47,000 across all models. Where do you see average selling price and gross margins after the price cuts?
Elon Musk: Yes, go ahead, Zach.
Zachary Kirkhorn: Yeah, I’ll jump in on this. So there is certainly a lot of uncertainty about how the year will unfold, but I’ll share what’s in our current forecast for a moment. So based upon these metrics here, we believe that we’ll be above both of the metrics that are stated in the question, so 20% automotive gross margin, excluding leases and rent credits and then $47,000 ASP across all models. And so two other comments I want to make on this. Just tactically on sequential ASP changes from Q4 to Q1. And just as a reminder, the ASP reduction is not as large as the reduction in configurator prices. As in Q4, we had backlog customers that were delivering cars to at a lower price book, given that backlogs had been so long for so much of 2022.
But then also, there are various programs in place that we used in Q4 that lowered ASPs. The second comment I wanted to make here is that as a management team here, we’re most focused on what our operating margin is. And so as other areas of the business become more important, particularly the energy business, which is growing faster than the vehicle business and as we’re heavily focused on operating leverage here, improving efficiency of our overheads, we think the right metric for us to be focused on is operating margin. And so I wanted to make sure that I shared that with the investor community as well, because that is what we’re primarily managing to now.*
No - but given how much room there is between their recent margin levels (near 30%) and that floor, they’re not offering much information about where they think those margins are actually going. Other than some comments from Musk alluding to the massive margins associated with true FSD (which can’t be a 2023 event).
Not a criticism - predictions are hard, especially about the future, and given macro uncertainty on a bunch of things there’s only so much any company can know about the coming year.