If you read the transcript, Zach alluded to a hit to GROSS margins but are expecting to expand OPERATING margins going forward for the next 4-5 quarters.
"The launch of Austin and Berlin, we'll have ramp inefficiencies there for some period of time until we get those factories up and running. And so that's likely to put some downward pressure on our margins as those factories ramp. Our goals are to ramp those as quickly as possible. But as Drew mentioned earlier, there are a number of unknown unknowns that we'll need to work through.
With respect to operating margin, we've been very focused as a company on managing our overhead expenses and operating expenses. And operating expenses as a percentage of revenue has been declining, and I expect that trend to continue to happen. And I think the net of all of this is hopefully that we continue to make progress on operating margin over the next four or five quarters. As we think kind of forward, the business up until this point has kind of largely been a hardware automotive business with a little bit of software on top of that."
Reduced Gross Profit Margins in Q1 is a possibility but I think Zach is lowering expectations to then deliver a beat in Q1.
Here is why I think so:
Table on the left is the Shanghai Ramp
Table on the right is my expected Berlin/Austin Ramp
Shanghai Ramp:
See Yellow Boxes
When Shanghai ramped in Q1 2020, it represented 20% of Tesla's production that quarter. Fremont had two items hurting margins in Q1: it commenced production of the Model Y and total Fremont production dropped by 18k units vs Q4 2019. The 0.9% in margins were due to lower production in Fremont, lower Model Y margins in Fremont due to the ramp and Shanghai representing 20% of total production.
Berlin/Austin Ramp:
See Orange Boxes
In contrast to Q1 2020, we see favorable conditions in Q1 2022.
The stable and higher margin Fremont/Shanghai plants will grow production by about 17k in Q1 (rather than the decline we saw in Fremont in Q1 2020).
In addition, the production for Berlin/Austin will only account for about 10% of total production (much less than the Shanghai 20% when it launched).
We also have price increases coming into effect in Q1, With these factors, I am expecting the margin to improve in Q1 2022 by 0.6% (this may change as new information comes in).
This is all guess work; we could see a decline, but for now I am modeling a margin increase in Q1 2022.
