Tesla had already reported their Q3 vehicles deliveries numbers at the beginning of October and then had the robotaxi even on Oct 10th, so not much was expected to come out of the earnings release and analyst call last week. I myself wasn’t expecting anything too much.
Boy, was I wrong! There were lots of really significant updates within the earnings results and the conference call, which led to the stock jumping +21% the following day, which I believe was the second biggest percentage jump for TSLA in one day.
Granted, the stock had dropped a bit after the Oct 10 robotaxi event, so the jump has only brought the stock price back to where it was a few weeks ago.
Expectations and Oct 10th Robotaxi event:
The Q3 deliveries number announced in early October was good but I think there was an expectaion that margins might not be that good, despite a solid top line, and we would have to wait a few more weeks for the full earnings release to see how margins looked.
The robotaxi event had some cool things shown (wireless automobile charging, a 20 seat self driving robo van, as well as a live demonstration of the future 2 seat robotaxi/cybercab in operation on the private lot that was rented for the event, etc)
Wall Street didn’t see anything they could plug into their forecasts with near term revenue or profits so the stock retreated a bit in the following week. The robo van probably has more possibilities than anyone is thinking about right now. I suspect plenty of people will be customizing them for all kinds of different uses (removing many of the 20 seats and making it into a high end self driving office to go from meeting to meeting in a given city while continuously having a full working office environment.) but that will be at least a few years away.
It was reported that some analysts were disappointed that they didn’t reveal anything about the lower priced vehicles that are expected to go into production in the first half of 2025 and that was at least partially responsbile for the stock price drop after the event.
However, it would have been total self sabotage to announce anything regarding lower priced vehicles so many months before they can be produced as it would have likely led some customers to hold off on buying the current models if they know that a sub $30k vehicle is coming early next year. Most of their customers aren’t as plugged into the company’s earnings discussions and wouldn’t already be aware.
The robotaxi event did start very late, later than scheduled. Tesla later said that there were not one, but two medical emergencies with attendees at the event which caused them to push back the start time and they also say that they had to cut back on some of updates and announcements that were planned at the even given the shorter available time. This is probably why so many significant updates were provided last week on the earnings announcement.
Significant items from Earnings release/call:
1) More affordable vehicles
They reiterated that the new lower priced vehicles will be launching in the first half of 2025. A quarter or two ago, this timing was actually pushed up from the second half of '25 to the first half. While CEO Elon Musk, and the company, have a reputation for suggesting faster timelines than things ultimately happen, they seem to be consistent on this one (so far) since moving up the timing earlier this year
When they first announced the move up of the timing to 1H’25, they said it was because they found a way to bring down costs on new vehicles on their existing production lines, without having to build brand new next generation production lines.
This has pluses and minuses. It will bring the new lower cost vehicles to market faster, since they don’t have to have the next-gen lines ready for them yet, but the overall cost reduction won’t be quite as much as it proably could be on the next-gen line. They haven’t specifically stated the pricing on these new vehicles, but many folks believe it would be sub-$30,000.
Note that the next-gen production lines are still happening, and are expected to be a major breakthrough in producing Tesla vehicles faster, cheaper, and more efficiently in the future. This is likely to be a very big deal. It’s hard to see how other automakers are going to be able to compete successfully once Tesla rolls out the next-gen lines.
Tesla is already believed to be the only automaker in the world, including China, that is currently making EV’s profitable, and this will reduce costs and increase margins even more.
The robotaxi/cyber cab will almost certainly all be produced on next-gen lines. But they didn’t hold up the 2025 lower priced models for the new lines, in order to get them to market sooner.
Also note that, because no details of the new lower cost vehicles have been released, we don’t know how how different these models will be. E.g. will they just be a newer version of existing Tesla models that can be made less expensively? or will they be all new models?
2) A Third (non-low cost) new vehicle coming in early 2025?
One of the possible surprises in their earnings release seems to indicate that, not only will Tesla release at least two new low cost models in 1H’25, but there seems to be at least a third new model, that probably will not be one of the lower cost variety.
This is the wording that has raised these expectations:
“Preparations remain underway for our offering of new vehicles – including more affordable models – which we will begin launching in the first half of 2025.”
Picking apart this wording, they are saying “more affordable models” (plural) which is consistent with existing expectations that there would be at least two lower cost models next year.
But they say “offering of new vehicles - including more affordable models”, which seems to pretty specifically suggest that there will be another higher cost model coming as well (since it says the new vehicles will “include more affordable models”, there must be at least another one too.
It’s possible that the third vehicle will be the new roadster that Tesla has talked about in the past, which supposedly will use spaceX technology and go from 0-60 mph in less than one second, but most people were under the impression that they have been focused on the autonomous stuff and the roadster was not an priority, so it will be surprising if that is coming so soon.
3) Strong Cash Flow
One thing that immediately stood out in the Q3 earnings release was that cash flow of +$3 billion was much stronger than expected, especially considering the huge investments that the company is making in AI chips and technology as they work toward autonomy and self driving. These high investments will likely remain at a high level for a while, but will eventually scale and come down, especially if they are successful in using more and more of Tesla’s in house dojo chips which will be much less expensive to produce vs paying for Nvidia chips.
4) Improving Margins
One of the main drivers of the surprisingly strong cash flow was that margins were much better than most anyone expected.
There is a chart floating around online which I will try and link that shows that the average worldwide cost of sales for Tesla model 3/Y has decreased from over $41,235 per car in Q1 2020 to $31,996 in the latest quarter Q3 2024…and this is despite one of the highest over all levels of inflation in recent memory!
Before this quarter, the lowest cost of sales had been $34,016 in the previous quarter Q2’24 and nobody was expecting the sudden drop to below $32k one quarter later.
5) Cyber Truck (more on improving margins and profitability!)
Cyber truck continues to ramp and is now the #3 best selling electric vehicle in the United States (Tesla has all three of the top 3 selling EV’s now with model 3, model Y and cybertruck). For the first time in Q3, cyber truck has now swung to positive margins. This was likely also one of the main contributors to better overall margins and cash flow this quarter.
Cyber truck is no doubt a polarizing product, many people simply hate the way it looks, but despite a perception that the vehicle is not doing well, it continues to be a successful product for Tesla selling more and more each quarter, and should continue to be more and more profitable going forward.
6) Future growth - Q4’24 and 2025
Elon musk estimated the vehicle deliveries will increase between 20%-30% growth in 2025. This was just an off the cuff comment he made and I wouldn’t put too much reliance on this. We’ll need to see it to believe it. But regardless, this was a much higher number than most anyone was expecting, so even if it comes in at 15-20%, that will still be better than many were expecting. Time will tell how this plays out.
They also said they estimate that full year 2024 deliveries will slightly exceed 2023. This is a surprise as the slow start to 2024 led many to believe deliveries would still be a little below full year 2023. But, becasue we can back into a Q4 number this now suggests a stronger Q4 than was previously expected. They would need to do a record breaking 515,000+ quarterly vehicle deliveries in Q4 of this year to achieve this. For comparison, they did 462k deliveries this quarter and 484k in Q4 of last year.
7) Energy margin surprise
Ditto for energy sales. They have full year 2024 estimates that suggest stronger Q4 than most were expecting.
Energy sales in Q3 were lower than Q2 (which was expected after Q2’s huge surprise when they grew more than +100% YOY) but the margins improved and were 30.5% in Q3, much more than expected. This was a big surprise increase from only 24.5% last quarter in Q2 2024.
8) Full Self Driving “FSD” Autonomy and Safety
In the third quarter, Tesla’s using autopilot/FSD had a crash only once every 7.08 million miles driven. In comparison, in the United States, a human driven car averages one accident every 670,000 miles. This is a more than ten times safety improvement and I bet will likely be one of the best data points to look at as robotaxi’s start to roll out autonomously, to give major cities comfort that it is safe for them to operate, given that they will likely be much safer than the average car that is currently on the road today
CEO Elon Musk said that Tesla estimates FSD performance will exceed human drivers capability (not just the rate of accidents as noted above, but the overall total performance) in the second quarter of 2025 next year.
9) Ride Hailing app for future robotaxi service
We learned on the earnings call that Tesla’s ride hailing app is actually already being used in the Bay Area of California, only available to certain Tesla employees on a test basis. I believe this cars must have a human driver sitting behind the wheel, although the cars are most likely using self driving throughout most, if not all of each ride.
I don’t think anyone had been aware of this before, so this was another pretty big surprise that the Tesla robotaxi ride hailing app is actually in operation and being used in testing already.
I think I heard them specify on the call that the screenshots of the app that were shown six months ago at the time of Q1 earnings were actually screen shots of the real app that is now being used in this testing
Elon said that they expect the Tesla ride hailing service to be rolled out publicly in 2025 (assuming it is ready and they get all necessary permits to operate), first in Texas and California with an aim for a bigger, hopefully nation wide roll out in 2026.
There is a video going around online of a recent Palo Alto CA city council meeting where one of the city council members talks about discussions with Tesla to being testing robotaxi service on Palo Alto roadways which appear to be further along than anyone had realized.
Elon estimates that if everything goes to plan (big “if”) they could be producing 2 million robotaxi vehicles in 2026. Take this with a grain of salt, especially regarding the timing.
10) Semi Truck
They reiterated that the big Tesla semi truck production facility that is already under construction in Nevada still anticipates to begin production in late 2025 with larger scale production in 2026. Brands that had been testing the Tesla electric semi truck already seem to be ordering more once they test them out. Particularly Pepsi who now are believed to have several dozen on order in addition to the ones already in their fleet.
I suspect that electrifying the semi truck industry could be one of the biggest positive environmental impact improvements, maybe ever, as such a large portion of air polution I understand comes from gas powered semi trucks.
Once they get self driving autonomy for the semi trucks (could still be several years, timing totally uncertain), they will probably be able to charge a pretty crazy amount per vehicle for Semi truck FSD, which will be extremely high margin. I assume it could be at least $1,000 per month per vehicle but I also wonder if it could be something like $5,000 per month per vehicle which would still probably be less than the annual fully loaded cost of an employee driver. People don’t talk as much about the potential of the semi business but I could see this being an area that just prints huge amounts of money for Tesla in the future.
11) Other
Nothing new was suggested regarding any other automakers discussions to license the FSD technology. Previously Tesla had suggested that some discussions were already under way but apparently there is still nothing ready to announce, if anything is happening here at all thus far.
They also put out some new videos during the robotaxi event which showed how much they are working on efficiencies across all of their products. One of the animations shows that some of the same batteries used in the robotaxi will be the same batteries (fewer of them) inside the optimus humanoid robots. I thought I heard somewhere that some of the acuators that enable the movments of optimus robots could be the same used to open/close doors of the robotaxi’s (but I can’t find where I heard that so maybe I’m not rememebering correctly).
Some of the new Optimus videos are pretty cool, which have demonstrated how they connect themselves to charging stations, essentially hanging themselves on a wall connector to charge. Tesla had some of the optimus robots interacting with the crowd at the robotaxi event, even pouring and serving drinks. However it is believed that they were all being remotely controlled and are not yet autonomous. It will still likely be at least a few more years before Optimus robots are ready for production, although some are being tested in Tesla factories already. Elon Musk has consistently said they he thinks the Optimus business will someday be bigger than all of Tesla’s automobile and other divisions combined. Way too early to ascribe any value in the company’s stock for this yet, and could be a while.
Wrap Up
So there were lots of significant, really surprising updates last week and I think the stock jump was warranted. The price has been going back and forth between the low to mid $200/share quite a bit in recent quarters, but at least to me, it feels a bit different, like this rise might hold more so than it has recently, given how many quantifyable positives were released with Q3 results and shoudl bode well for the future.
That’s it. I continue to be more and more confident that holding my large Tesla stake, most likely for the next several years, is right for me.
-mekong
