Correction: Between Q4 2017 when the Model 3 ramp began and Q4 2021, the last quarter we were allowed to have the factories open every week, Tesla grew vehicle production with an average 87% CAGR, not 75%.
Q4 ‘17: 25k
Q4 ‘21: 306k
12.3x growth in four years
If I remember correctly, they were officially projecting 50% CAGR the whole time. I no longer believe those 50% projections.
That's certainly impressive but I think those figures are not the best to project compound future growth rates from for at least a couple of reasons:
1) Of those 25K cars in Q4 2017, only 10% were Model 3's while the remaining 90% were the much more complex to manufacture S&X. On one hand, this makes the compound growth rate of 3 and Y much higher, it is starting from a much smaller number, but compound growth rates from very small numbers are easier. On the other hand, the growth rate comparison starts with a much higher mix of more expensive and more difficult cars to produce than it ends up with.
2) Quarterly results are lumpier and I haven't checked to see how this impacts the comparison.
Let's look at the compound growth rates of total automotive revenues and also gross automotive profits on an annual basis from 2017 to 2021:
Total Automotive revenue in millions:
2017: $9,641
2021: $47,232
CAGR: 48.8%
Automotive gross profit in millions:
2017: $2,222
2021: $13,606
CAGR: 57.3%
I think using dollars rather than unit volumes helps equalize for the trend of the mix to go from harder to produce models to easier to produce models. This 4-year period had relatively low inflation but it would be appropriate to back out a small amount to account for that.
All that said, Tesla is at the beginning of the curve of ramping the two most advanced factories to date so we can expect production growth rates to exceed the norm in the immediate future. In terms of long-term automotive only growth in general, I think the 50% or 50% plus a bit is a good target to use to come up with projections that are appropriately conservative. A lot could happen to make the growth rate slower while making the growth rate substantially higher would require everything to come together in ways that are increasingly unlikely as the growth target rises and also as production volumes increase into truly large numbers. Perhaps profit growth could be stronger than 50% plus a little, but profit growth is more susceptible to vagaries of the economy than production growth is.
While I'm excited about the tremendous growth that's looking increasingly certain for automotive production and delivery, those numbers don't reflect the true potential once AI, robotics and especially energy are factored in. Investing in TSLA at the current price will be very lucrative in the not-too-distant future.
Cheers!
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