Gross Margins Still Probably Increased this Quarter
Gross Margins increasing from 30% in Q1 to 31.1% in Q2 despite the ramp up of two new factories and the prolonged shutdown at Tesla's most cost efficient factory.
. . . .and you know what? . . .this is possible.
...
EDIT:
@Gigapress has been anticipating a huge spike in ASP . . .perhaps this is the quarter !!
Revenue per Car
We know big increases in ASP are coming, but the timing is uncertain. Based on historical delivery estimates from Tesla's website, I had predicted before Q1 earnings a $2k ASP increase over Q4, but it was actually only $0.7k and some arithmetic shows that this was almost entirely driven by increased S&X sales volume. Thus, the price increases barely hit at all in Q1 and remained in the order backlog.
Tesla Economist's relatively high earnings estimates are driven largely by estimating significant ASP increases based on review of the order times much like I've done. Maybe
@Troy is doing similar math, but I don't know his method.
Around the time of the price hikes in Jul-Nov '21, delivery estimates were generally showing Mar-Jun '22 for most vehicle variants. Therefore, unless these original delivery estimates ended up being totally wrong by months, then we had serious ASP increases hit in Q2. Quoting my post (
link) from May 11th:
Across all variants the price increases were about $3k for the 3 and $4k for the Y. The Long Range S&X both increased $5k while the Plaids stayed the same. The Tesla website was on average across major markets globally showing March to June delivery estimates at the time the price increases went into effect for Standard Range and Long Range variants and December for Performance/Plaid variants. Considering both the uncertainties in estimating 1) the actual delivery timing and 2) the mix improvement away from Model 3 in favor of higher margin Y/S/X sales, these price increases represent a plausible range of around $1k to $4k bonus for ASP over Q1. Subtracting out the $1k anomaly bonus from ZEV credits in Q1, the net expectation is $0 to $3k average revenue per delivery increase over Q1, with maybe $1.5k as a decent middle estimate.
For what it's worth, this almost exactly matches what Rob Maurer is predicting as well: $2800 QoQ increase for the same reasons I'm looking at.
Cost per Car
From that same May 11th post, I still think that cost control will be better than expectations, because of Tesla's recent track record:
Tesla has demonstrated extremely good cost control in the last couple years as average cost per vehicle has not been increasing even with material, wage, logistics, and supplier costs all increasing. The earnings reports show that Tesla have been unwaveringly innovating faster than the economy can collapse. On the Q1 call the leadership team repeatedly emphasized how difficult Q1 had been for their supply chain and logistics, even compared to Q4’s mayhem. Also, Tesla prioritized premium variants to some extent and sold 1k more S&X than they had sold in Q4, and these cost more to manufacture than the other variants. Yet despite all of this, average cost per car in Q1 miraculously had increased merely $94 over Q4!
Here's the cost data which proves that Tesla has been keeping cost down despite inflation and other cost pressures.
| Auto Cost of Goods Sold | Vehicle deliveries | Avg CoGS per Vehicle |
| Q1 2018 | $2,196 | 29980 | $ 73.2 |
| Q2 2018 | $2,667 | 40740 | $ 65.5 |
| Q3 2018 | $4,525 | 83500 | $ 54.2 |
| Q4 2018 | $4,786 | 90700 | $ 52.8 |
| Q1 2019 | $2,973 | 63019 | $ 47.2 |
| Q2 2019 | $4,360 | 95356 | $ 45.7 |
| Q3 2019 | $4,131 | 97186 | $ 42.5 |
| Q4 2019 | $4,934 | 112095 | $ 44.0 |
| Q1 2020 | $3,821 | 88496 | $ 43.2 |
| Q2 2020 | $3,862 | 90891 | $ 42.5 |
| Q3 2020 | $5,506 | 139593 | $ 39.4 |
| Q4 2020 | $7,070 | 180667 | $ 39.1 |
| Q1 2021 | $6,617 | 184877 | $ 35.8 |
| Q2 2021 | $7,307 | 201304 | $ 36.3 |
| Q3 2021 | $8,384 | 241391 | $ 34.7 |
| Q4 2021 | $11,085 | 308650 | $ 35.9 |
| Q1 2022 | $11,322 | 310048 | $ 36.5 |
Following that megapost I noted (
link and
link):
Tesla is defying inflation.
- The nominal US Producer Price Index has increased 15% (source) since the beginning of 2021.
- Tesla’s average cost of goods sold per vehicle has been flat at $35-36k throughout that time period, even as high-cost S&X sales rose from almost nothing in Q1 & Q2 2021 to 14k+ in Q4 ‘21 and Q1 ‘22.
- Tesla does have many long-term supply contracts that cause a lag before inflation hits them, but after 5 quarters we still haven’t seen CoGS increase. Inflation seems to have simply paused the trend of declining costs.
- Primary factor has been producing more in Shanghai than Fremont
- New factories once ramped will save $thousands per car on manufacturing, shipping and tariffs ..
Conspicuously absent from all comments from Elon and Zach was any mention that Model S&X deliveries had increased by 3k units from Q4, which was almost a 1% swing in overall mix across the 310k total deliveries. S&X cost about $40k more to produce than 3&Y, so this mix shift would’ve had an impact of about $400 on average cost across all deliveries. The entire jump in average CoGS per vehicle was only $600 total, so the S&X mix shift alone probably accounted for the majority of it...
So, basically cost per car, with S&X growth factored out, increased only about $200 (not a typo) from Q1 over Q4 despite Tesla saying that Q1 was
exceptionally difficult and the results from the rest of the car industry show it with the disastrous performance in production and profits from competitors. Amazing. A bunch of people are predicting significant extra costs in Q2 from the Shanghai start and stops, but we already had that same problem in Q1 and didn't see much extra cost, so I think many are overestimating the impact for Q2.
I think the discrepancy between the $94 quoted above and this $600 figure is cause by excluding leases for the $94 number. I haven't reviewed my old notes that closely. The point is that Tesla held costs down somehow in Q1 in the midst of automotive Armageddon.
Both average revenue per car and average cost per car will probably be driven up in part by reduced Shanghai output, because that means fewer standard range vehicles being sold in China. However, with Shanghai having the best margins currently, this situation will be a negative factor for gross margin for the overall global business.
If revenue per car (excluding ZEV credits) does increase $2k from Q1 up to $54.4k and cost only rises about $0.7k again to $37.2k, then gross margin excl credits will have been 31.6%, up from 30.0% in Q1. Might be lower, might be higher, but I'm pretty confident it's higher than it was in Q1.
Earnings Estimate
As of today I'm not really attempting to predict this quarter's earnings precisely, because Q2 is a mess and because all my call options are for 2023 and 2024 so I’m much more concerned about growth, FSD and how the new factories are doing.
www.benzinga.com
