Tesla profit soars. And also craters

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2024/01/24/business/teslas-electric-vehicles-profit-price-cuts.html?unlocked_article_code=1.QE0.meED.9DigRf-HwTW6&smid=url-share

Tesla Profit Doubles From Tax Effect, but Price Cuts Hurt

Quarterly earnings soared from a year earlier after the company booked a tax benefit, but increased competition and a price war took a toll, the electric-car maker said.

It’s a gifted link, so … free.

The interesting thing about the article, to me at least, is that Tesla’s profit from making cars is off, way off, thanks to the price cuts offered late last year., In fact, according to the piece, Tesla’s margins in the latest quarter are comparable to other car manufacturers.

Interesting developments. Meanwhile, Elon wants more shares for his adept leadership. The Board has yet to respond.

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Which sort of knocks the pins out of the narrative the big automakers have been pushing, in their pursuit of ever higher ATP and GP. They still have their fall back position of pricing Fords and Chevies like they were Mercedes.

Steve

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More of the same, but different, really.

https://www.investors.com/news/tesla-stock-ev-giant-prices-are-inverting-why-thats-a-bad-sign/

High end Tesla’s can now cost less that the mid-option, as Tesla continues cutting prices to move inventory.

One telling quote from the article from Investor’s Business Daily,

Barclays view is that 2024 will be the first time in Tesla's history that volume will likely be more a function of demand than of the company's production capacity.

And:

Tesla bulls in the latter half of 2023 repeatedly predicted that Tesla's price cuts were ending and that auto gross margins had bottomed.

The Model Y is Tesla’s most popular offering but with prices continuing to fall it appears there could be an inventory glut. In the fourth quarter Tesla delivered 53,868 Model Y vehicles in Europe, down 2% compared to 2022, according to data compiled by Troy Teslike.

However, while Model Y deliveries declined year-over year it was not a supply issue with Tesla finishing Q4 with 32,000 unsold Model Y vehicles.

Tesla Berlin, which will suspend production for two weeks starting on Jan. 29, is running well below capacity. Tesla Shanghai has reduced exports to Europe.

Tesla may also have to now cut prices on Model 3 vehicles to realign pricing in Europe and the U.S.

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Meanwhile Tesla is announcing a new model. Red something. Said to be a mini SUV. New low cost model? Able to compete with gas engine vehicles on price? And the Chinese competition?

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The car is not the heart of it.

Less than a decade from now Tesla wants to give the cars away at a small loss to pick up the internet user time.

Just like Pratt RTX sells engines for less than cost but parts are sold for decades with very high markups.

adding rereading this if GM and Ford or others hesitate for the next three to five years that spell their demise because EVs will be given away for market share.

Demise may equal stumble along for the next five years. What else would GM be doing?

Another thought Tesla’s parts problems may offer some obsolescence. People may buy cheaper Teslas with better tech towards the goal of gaining internet users.

When a Tesla is totaled the insurance picks up a better new Tesla which pays for the newer assembly lines.

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I thought that was because they couldn’t get parts from China (supply chain disruptions, such as the Houthi).

DB2

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No they don’t. That’s the happiest happy talk ever. There is no profit in “internet time” without advertising (not likely for a driver, even in a self-driving car, which isn’t going to happen in less than a decade), or transactions, which also in a no-go for people en route somewhere. What, they’re going to get a 1¢ rebate from McDonalds announcing “You deserve a break today” every time the owner drives by a Mickey Dee’s?

Other automakers are already offering (low grade) internet connection free for the life of the car with the car as the platform. How do they make money from that - at least the kind of money they’re already used to?

Oh, I get it. You think they’re gong to sell NFT’s as they pass pedestrians going to the movies on Saturdays. Or somnething.

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I thought we were talking about Elon Musk.

Are we talking the Goof Motorwerks?

I am not sold FSD will ever work.

Musk is.

Your comments show a limited POV.

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I have more time now.

Reading the tea leaves. Or at least putting an idea out there.

Over the course of the year, Americans collectively spent 70 billion hours behind the wheel- an eight percent increase since 2014. Each week, drivers travel more than 220 miles.Feb 27, 2019

Tesla’s goal is FSD. I am not sold. But as mentioned Musk is sold. Last I knew. He wants some of that 70 billion hours for FSD EV to sell computer hardware, software, shopping, social media access, Operating System, work apps, search features etc…and of course advertising. Tesla might have their own search portal. Tesla might offer their own movies and TV streaming service. Tesla is a software company already.

The more EV market share Tesla has the larger a tech firm it is.

Tesla has become an all-end points gatekeeper for internet access. The returns could be huge. If FSD happens. That does not need to be completely accident-free. To be determined yet.

It is pie in the sky. It looks like Musk’s goal.

On the flip side if he does run the price of an EV below cost the Chinese manufacturers will do it. That is another side of Musk he is not naive about competition.

His political dancing turns a lot of people off. My sister already owns a Tesla. She hates him. She won’t buy another Tesla until she buys another Tesla. Henry Ford wanted to support Hitler. We have owned Fords.

Meanwhile, Musk is more in with the crowd who successfully boycotted Bud Light. The guys with pickup trucks who want a Tesla and some shares in the company. The same guys who say there is no climate change. Musk’s dance is smart.

Just a note for the guys who like Goofy railing. This is obvious stuff. Will Musk pull it off? I am a doubter. I did not mean to state it as factual right now. It is pie-in-the-sky stuff. Who better than Musk to make it happen?

You have a simple choice, Telsa succeeds or China gets this market.

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It is important I think to put this into context. Tesla has never seen itself as competing against other EVs, except perhaps in China. It has always been trying to take sales away from gas cars. The average transactional price for a non-luxury vehicle in 2023 (USA) was about $45K. If Tesla wants to get Toyota level sales in the US, that’s the sales price it at least has to match (with incentives) if not drop below. With its current lineup, that means big price reductions in the Models 3&Y.

Tesla should be able to do this and still be profitable because it achieved a remarkable $3K reduction in COGS per vehicle year-to-year.

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So Tesla can probably increase car sales 15% in 2024 by cutting costs, reducing prices, and lowering margins. Perhaps 20% if the macroeconomic environment improves. But if it wants to return to 50% average annual sales increases and justify its current P/E of 60, it will need to sell a Tesla-quality vehicle at below $30K. That’s the next generation vehicle scheduled for mid-2025 for which Musk has promised a radically more efficient production method.

2024-2025 will be a flat period for Tesla, when it will be prepping its gigafactories and supply chain for mass production of the next generation car at an unprecedented scale. Updates to the Models 3/Y and ramping of the cybertruck will help it tread water during the next two years, aided by a $5B free cash flow and $30B in cash on hand. That should be more than enough to do gigaMexico and the planned expansions of its other plants and perhaps another gigafactory in some place like India.

After 2026, Tesla valuation in it automotive business will depend on FSD and the prospect of almost fully automated gigafactories using AI and Bots that will dramatically bring down COGs.

That is my Tesla fanboi bull narrative for the automotive side of the business. I am gradually adding to my TSLA position as it drops below $200.

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That is a great near-term and mid-term analysis.

Long-term with FSD will passengers(previous driver) be online much of the time? Will Tesla control that experience? Your opinions.

Will computer and internet usage in the EV be the major profit center?

To compete for this would EVs go sub-cost in price? Or close to cost? Much longer term.

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NYT Dealbook by Andrew Ross Sorkin

Musk doubled down on his call for more shares. He stunned investors this month when he said that if the board didn’t increase his stake, to 25 percent from 13 percent, he would consider developing new artificial intelligence products “outside of Tesla.” That spooked even Tesla bulls who feared that granting Musk so many shares would dilute their holdings. Failing to do so could risk Musk hiving off the A.I. work that had driven investor enthusiasm in the stock.

My comment, Tesla is only a car company. That is not worth the present valuation. Musk needs Tesla to become a major tech company that happens to have computer usage in a fleet of EVs.

Elon Musk can ethically build all the software systems in a separate company from Tesla. Then you have a low-value car company. Musk has a high-value tech company with well over 25% of it under his control.

Musk does not have the power to get those shares from Tesla. Perhaps no one agrees to double his stake. At that point, Tesla is worth something over GM’s and Ford’s roughly $50 billion in market cap.

Musk would walk away making himself perhaps $1 trillion within the next decade. Not a penny of it for Tesla shareholders. Perfectly ethical and allowable.

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Spot on analysis as far as it goes because it only covers cars. It is unrealistic to think that a car company can maintain such elevated P/E ratios. What else is the market seeing? My view is that Tesla has to grow into its other ventures like storage and robots and cars have to provide the cash flow for Tesla to get there.

EV adoption has been strong enough to start commoditizing the product, that’s what ‘the competition is coming’ means. The market economics of commodities is different from the market economics of luxury brands. In commodities the low cost producer is the winner, that the importance of…

Wall Street worries about current margins. I worry about the new ventures coming online.

The Captain

has an section describing the mechanics of commodity markets.

Amazon says: “You purchased this edition on May 2, 2005.”

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Do you think Tesla will actually end up developing AI and the Optimus, after Musk’s comments? He’s suggesting that if the board doesn’t give him enough shares to bring his voting percentage up to about 25% (which would be about $80-100B worth of shares, to get there after taxes), he won’t build those things at Tesla. Implying he’ll do them outside of Tesla…perhaps at xAI, which he has far more control over.

It will be difficult for the board to give Musk what he wants, for a number of reasons. But they probably also can’t let him stay as CEO and shut down their AI work (which would presumably cripple FSD) so that he can make those products at a rival company instead. And if a big chunk of their market cap actually is based on Tesla’s moonshots turning out different than Google’s, they can’t let him shunt their AI and Optimus to a competing company either.

What do you think is going to happen?

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Life goes on.

The Captain

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But you’re an investor in Tesla, and have indicated quite a few times that your investment case relies heavily on future projects (like AI and robots), not just or even primarily the auto business. What’s your assessment of the likelihood that Musk just has Tesla not get into the AI and robotics fields, and instead pursues those at XAI (or not at all)?

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You seem to think that AI is a one man show like in Hollywood movies and that Musk is that one and only star in this Hollywood thriller.

No, I don’t know how the movie ends and nobody knows. If you want safe investing, buy index funds.

Funny that TSLA didn’t go down today. Up +$0.62 +0.34%. Monday early should be down some. It could be a good Covered Call Candidate. :slightly_smiling_face:

The Captain

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Not at all. Quite the contrary. As I think I’ve said before, I see no particular reason why Tesla has any particular advantages in either AI or robotics, such that people should think that it’s any more likely to develop successful products in those fields than any of the other firms in the field. Lots of smart AI boffins out there, lots of firms employ them, and more are entering every day.

But investors in Tesla at current prices almost have to be giving a certain high level of value to Tesla’s efforts in those areas. So if Musk - who is the CEO - says that Tesla won’t develop an AI or robotics product at all…if that were to come to pass, it has to affect their investment thesis. Right? If Musk decides that he’s not going to steer Tesla towards being an AI/robotics company that people think is a car company, but instead pursues AI/robotics in his own outside shop and runs Tesla as just a car company (with an energy division, I guess), that should seriously affect the value of Tesla. So I’m curious if you think that’s actually a possibility.

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Are you an investor in Tesla at these prices? Sounds doubtful after saying…

The Captain

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Wall Street is looking at a sub $100 billion market cap for Tesla.

Elon Musk will stop pestering the board within a few days and develop the main value of Tesla externally.

This is nearly over.

Do your own due diligence if you own Tesla shares. I do not have to be right sitting on the side lines as I am. It is your money.

@Goofyhoofy You misunderstood a lot of things again.