Tesla: the numbers

[wsm007]

This is clearly not a forgotten little company, so the analysis done elsewhere and on this board can probably fill a couple of rooms. Still, I thought to put the key numbers together “cold”, to gauge the fundamentals of the business.

Here goes.

IR: Investor Relations | Tesla Investor Relations
Q2 2023 deck: https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q2-2023-Update.pdf

Market share

This is their estimated market share of all commercial light vehicles, per region:

That’s mind-bending stuff, really; this is not EV’s but the whole market. They are taking - and continue to take - significant market share in all large markets, globally.

Revenue

Revenue $m	Q1	Q2	Q3	Q4	QoQ Q1	Q2	Q3	Q4	YoY Q1	Q2	Q3	Q4	Yr
2020	5,985	6,036	8,771	10,744		1%	45%	22%
2021	10,389	11,958	13,757	17,719	-3%	15%	15%	29%	74%	98%	57%	65%	70.7%
2022	18,756	16,934	21,454	24,318	6%	-10%	27%	13%	81%	42%	56%	37%	51.3%
2023	23,329	24,927			-4%	7%			24%	47%

Ok. Run-rate revenues of $100bn, growing 7%qoq and 47% yoy. Not too shabby…only a handful of companies I follow - and none of the SaaS ones - beat that. These ones in my portfolio did: ELF, CELH, NVDA, GLBE, DLO, TMDX. And no company at all afaik at this scale.

YoY growth last year was 51% and the year before 71%. Clearly there is some slow-down visible this year and the business progression is not smooth quarter to quarter, there are some bumps in the numbers. Still, Q2 revenue went from $6bn to $25bn in 3 years.

They split their business into 3 parts: Auto, Energy and Services. The bulk of the revenue is from Auto - $21.3bn, with energy at $1.5bn and services and other at $2.2bn.

Energy

The energy business showed similar growth trends to Enphase, with a slowdown these last quarters. However it actually grew significantly faster than Enphase over this period. Enphase went from $441m in revenue to $771m in the last 6 quarters. Tesla went from $616m to $1.5bn in the same timeframe. This is Tesla’s Energy revenues and qoq growth:

Energy $m	Q1	Q2	Q3	Q4	QoQ Q1	Q2	Q3	Q4
2022	616	866	1,117	1,310		41%	29%	17%
2023	1,529	1,509			17%	-1%

Services & other

Here is another big business, in hyper-growth. It grew 47% yoy, and here is the history:

Serv $m	Q1	Q2	Q3	Q4	QoQ Q1	Q2	Q3	Q4
2022	1,279	1,466	1,645	1,701		15%	12%	3%
2023	1,837	2,150			8%	17%

Look at that sequential growth in the last quarter: 17% QoQ! I’m assuming some AI stuff goes in there. We don’t have more history, so I don’t know if this is a trend, but that 17% qoq would annualise to 87% yoy if it holds.

Margins

Margins are not great compared to sofware businesses, but pretty decent when you look at how much of it makes it to the bottom line. The CFO stated that they target around 20% gross margins on all products in time. I don’t know what the services margin is, but even though it’s a big business standalone, it’s still only 10% of the auto business, so probably not that relevant to the overall picture.

Gross profit

GM% has come down of late, and this has been by design as they cut prices to improve affordability in this higher interest rate environment:

GP %	Q1	Q2	Q3	Q4
2020	21%	21%	24%	19%
2021	21%	24%	27%	27%
2022	29%	25%	25%	24%
2023	19%	18%

I would think that these margins will tend up again once/if interest rates go down at some point.

Operating profit

Operating profit margins have shown quite a bit of leverage over the course of the last three years or so. In Q2 2020 it was 16%pts lower than gross margins; this last Q2 quarter it was 8%pts lower, quite an improvement:

Op %	Q1	Q2	Q3	Q4
2020	5%	5%	9%	5%
2021	6%	11%	15%	15%
2022	19%	15%	17%	16%
2023	11%	10%

Non-gaap net margin

This comes in at a very decent level - very close to operating margins:

NP %	Q1	Q2	Q3	Q4
2020	4%	7%	10%	8%
2021	10%	14%	15%	16%
2022	20%	15%	17%	17%
2023	13%	13%

Free cash flow margin

FCF %	Q1	Q2	Q3	Q4
2020	-15%	7%	16%	17%
2021	3%	5%	10%	16%
2022	12%	4%	15%	6%
2023	2%	4%

This is quite a bit more variable. Given the significant capex build-outs currently in process (which requires a different write-up and risks becoming too big of a topic, I’m just focusing on the key P&L numbers for this one), this is to be expected.

→ So just looking at the income statement and cash flows I see a very solid business, run profitably and cash-flow positively while still growing at hyper-growth at a very large scale.

Efficiency

I’m just going to look at one number here, inventory turn, to get a sense of how efficiently they manage their inventory.

Inventory turn (times pa)	Q1	Q2	Q3	Q4
2020	4.2	4.7	6.4	8.5
2021	7.9	7.7	7.8	8.9
2022	7.9	6.3	6.2	5.8
2023	5.2	5.7

This is just outstanding stuff for a very capital intensive company growing at this scale imo. Something around 2-4 times is pretty good, 5 to 6 like they are doing is just outstanding.

Closing thoughts

Tesla trades at a RR revenue multiple of 7.6x, and a RR PE of 79. It’s not cheap. But it is probably the only large-scale hyper-growth, AI and EV story. And I liked this quote from the CEO who has been guilty of over-promising on FSD (yes, I know everyone calls him “Elon” like they go to a braai with him every week I don’t.) Still, this quote sounded grounded (vs just calling out a target) to me:

Well, obviously, as people have sort of made fun of me and perhaps quite fairly have made fun of me, my predictions about achieving full self-driving have been optimistic in the past. The reason I’ve been optimistic is – it tends to look like is the – we’ll make rapid progress with a new version of FSD, but then it will curve over logarithmically.
[…]
Now, I’m the boy who cried FSD, but I think we’ll be better than human by the end of this year. That’s not to say we’re approved by regulators. And I’m saying that would be in the U.S. because we’ve got to focus on one market first. But I think we’ll be better than human by the end of this year. I’ve been wrong in the past, I may be wrong this time.

And the price of FSD – so the great thing is the price of FSD is actually very low, it’s not high. When you go back to what I said earlier, the value of the car increases dramatically if it is actually autonomous.

-wsm

(long TSLA)

[WicksAndSticks]

Great write up wsm! I think what’s even more impressive is that market share is accelerating while Tesla continues not spending money on Advertisting. Instead they are funneling that money right back into their cars R&D :

[Smorgasbord1]

Here are two charts from a recent Electrek article:

and

So, next time you read about Tesla’s “EV market share” decreasing, remember where they’re at and think about how Apple’s “smartphone market share” has been decreasing since 2009 or something. Which it has, naturally, as the smartphone market share became the entire cell phone marketshare, and for Tesla we’ll see the EV market share become the automotive market share.

[CompoundingCed]

@wsm007

Gross profit

GM% has come down of late, and this has been by design as they cut prices to improve affordability in this higher interest rate environment:

GP %	Q1	Q2	Q3	Q4
2020	21%	21%	24%	19%
2021	21%	24%	27%	27%
2022	29%	25%	25%	24%
2023	19%	18%

I would think that these margins will tend up again once/if interest rates go down at some point.

I like it that Musk has a mission to lower the price of Tesla EVs in a bid to democratize ownership of EVs. In the past, Tesla has managed to lower prices in a controlled manner, roughly in tandem with lowered costs of production, hence keeping gross margins pretty stable.

However the drastic price cuts they’ve found necessary to make in 2023 to maintain competitiveness and meet sales targets worries me. While the soft economy is an understandable factor, the drastic cuts do give some insights into their (lack of) pricing power and the competitive landscape.

Source: https://www.investors.com/news/tesla-stock-tesla-profit-margins-have-tumbled-bulls-insist-recovery-coming-soon/

[wsm007]

@CompoundingCed

While the soft economy is an understandable factor, the drastic cuts do give some insights into their (lack of) pricing power and the competitive landscape.

Hi @CompoundingCed. They seem to be going about their pricing changes in an extremely methodical way, and they are profitable at price-points that competitors cannot touch. Their second (of only a handful) of priorities is to maximise volume. That means playing with price to increase volumes (vs to maximise profits). Here is what Musk said about the pricing changes in the latest ER (remember that they don’t have middle-men for selling their cars, which is where the comment of “real-time demand” below comes from; no other auto company has that):

I guess, demand has roughly tracked production. So – which is what we aim for is – we look at – it’s something that we have that really – I think no other carmaker has – is that we have real-time demand and real-time production, like so seven days a week. I get an e-mail – auto generated e-mail, with output from all factories and orders globally. So it’s like a real-time finger on the pulse of earth basically. And we adjust course according to what the mood of the public is.

Buying a new car is a big decision for vast majority of people. So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens. And then obviously, another challenge is the interest rate environment. As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car.

So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car. And this is – at least up until recently, it was, I believe, the sharpest interest rate rise in history. So, we had to do something about that.

They also spoke to why they are doing that:

Question

With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts? And if so, when?

Elon Musk

Where’s that crystal ball, again? If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly.
[…]

Zachary Kirkhorn

And so, at least from my perspective, what matters is continuing to generate the cash to invest. That means continuing to be hyper focused on near-term cost reduction. Is everything we do in near-term cost reduction provides capital to reinvest? Hyper-focused on working capital management, which we’ve made quite a bit of progress there on the raw materials and with – a set of that we’ve been very focused on accounts receivables as well to ensure that we can continue to reinvest the cash. This is what we’re focused on. And so, there’s a set of this that we control. We have a pipeline of cost reductions. We are getting tailwinds in the commodity space right now, as Karn mentioned, that’s helpful.

Variability around average selling prices goes back to Elon’s point. We don’t control interest rates. We don’t control macro consumer sentiment. But we have an obligation to be responsive to that to ensure that we’re matching supply and demand and keeping things balanced. And so, this is how we’re managing the next handful of quarters. Soon enough, these quarters will be behind us. They won’t be part of the present value of future cash flows of the business. And so, we want to make sure we keep that view and make sure that the long term business is exactly the way that we want it to be.

The two big price reductions you reference in the table above are for what is by far the smallest volume sellers of their auto product line-up - only 4% of the auto total in the latest Q, and also the products that have been lagging ito volume growth (19% yoy vs 87% for the Model 3/Y) so getting a bit more volume there could be a good thing for Tesla (latest 5 q’s below fl2r):

I find it remarkable that they are maintaining this type of growth for a durable good sale in a rising interest rate environment, without sacrificing too much margin. And whereas I agree with you that there could be short-term weakness in volumes, relatively speaking, I don’t think that is the main thesis for the company.

The analysis you linked it is interesting, but here is what I believe is the author’s main thrust - what he is trying to prove throughout the analysis (quote from the article):

Yet bulls on Wall Street insist that Tesla profit margins will bottom out soon and start to rise in 2024. That would revive earnings growth and justify Tesla stock’s megacap growth status. And if they’re wrong? Tesla might become a “normal” automaker with modest margins and a more down-to-earth valuation.

→ I think not…the author has not fully appreciated this company’s track-record of innovation, or the optionality inherent in both Dojo (for AI) and FSD (for applications that go way beyond autonomous cars)…In addition it has a large energy business, and an even larger services business. But does that merit the current valuation? Who knows…

Having said all that, thinking through your comments makes me think that we could see gross margin and possibly volume softness in the next quarter or two. Which is perhaps why the stock has not performed so well since the ER.

I’m accordingly keeping this one small. Thanks for the debate.

-wsm

[WillO2028]

Addressing today 7% miss from Wall Street Estimates for production numbers today:
WSM007-
“I agree with you that there could be short-term weakness in volumes, relatively speaking, I don’t think that is the main thesis for the company.”

I agree with this last statement, just adding here more context.

I have not checked these numbers; but, I trust this source. Also in the delivery notice from Tesla today-
“ A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call. Our 2023 volume target of around 1.8 million vehicles remains unchanged.”.

Best

Jason