Tesla Q3 Earnings Report

Investment Analysis Clubs Saul’s Investing Discussions
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As expected, it was a challenging quarter due to the high interest rate environment. Tesla missed on the top and bottom line due to Factory upgrades, reductions in ASP, and investments in AI and Cybertruck.

  • Revenue of $23.35B (+8.9% Y/Y) misses by $790M.
  • Capex: $2.46B vs. $2.06B in 2Q23.
  • FCF: $848M vs. $1B in 2Q23.
  • Q3 Non-GAAP EPS of $0.66 misses by $0.07.

Now doubt a lot of the story was around margins:
Operating margin came in at 7.6% of sales to fall from last quarter’s mark of 9.6% and 17.2% a year ago. Total GAAP gross margin was 17.9% compared to 25.1% a year ago and 18.2% in the prior quarter.

CFO Zachary Kirkhorn had stated earlier in the year that FY23 automotive gross margin should remain above 20% with average selling prices in the high $40K range, but several pricing cuts have altered the margin story.

Elon tempered expectations on the Cybertruck, stating that he doesn’t expect it to generate positive cash flow until 2025:
“I think it is our best product ever,” he said. “It is going to … require immense work to reach volume production and be cash flow positive at a price that people can afford,” he said. “So I just want to temper expectations for Cybertruck. It’s a great product, but financially, it will take, I don’t know, a year to 18 months before it is a significant positive cash flow contributor. I wish there was some way for that to be different, but that’s my best guess.”

On the positive side of things, Cybertruck production was stated to remain on track for later this year, with first deliveries scheduled for November 30th at Giga Texas. Musk estimated next year’s delivery number for Cybertruck to be around 250K. The energy generation and storage business was up 40% YoY, while services & other business was up 32% YoY.

Production of TSLA’s higher density 4680 cell is progressing more or less as planned and the company continues building capacity for cathode production and lithium refining in the US. Tesla said it is still on track to deliver 1.8 million vehicles for the year. That target would require its fourth quarter sales to be up at least 17% YoY.

Shareholder Deck:

2023 Q3 Quarterly Update Deck (tesla.com)

27 Likes
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I agree this numbers were expected. The numbers of models 3s sold in each country trickled in over the last two weeks, as much as 97% fewer Model 3s sold.

Given the interest rate and drastic reduction in Tesla’s least expensive model (Model 3) being available to purchase, not to mention buyers fully aware of the upgrade to this Model 3, right around the corner, I feel lucky that sales of MegPack outperformed.

Not selling any shares,

Best

Jason

Upcoming likely catalysts going forward
1/ M-3 Highland launch 4Q
2/ Cybertruck delivs launch 4Q
3/ FSD OEM licensing deal 4Q
4/ Stable auto gross margins 4Q
5/ $7,500 EV instant rebate FY’24
6/ Fed’s pivot on int rates FY’24
7/ TSLA $10B share buyback FY’24
8/ FSD Alpha V12 L4 release FY’24
9/ $25K-$30K Compact FY’25
10/- Energy blowing away ests
11/- UAW strike keeps extending

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It seems like 2024 sales will depend a lot on where interest rates go from here. Must and his CFO mentioned “interest rate” 14 times on the call.

Musk: " I am worried about the high interest rate environment that we’re in. I just can’t emphasize this enough, that the vast majority of people buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally."

When asked about the forecasted 28% growth in vehicle volume for 2024, Musk seemed more moderate than his usual hyperbolic self.

Musk: “I mean, the risk of stating the obvious, it’s not possible to have a compound growth rate of 50% forever or you will exceed the mass of the known universe. But I think we will grow very rapidly, much faster than any other car company on Earth, by far.”

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