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I think Fremont is running materially higher in Q2 over Q1 to make up for some of Shanghai, but 60% YoY increase for the month of May in US sales can't possibly be right.....right?
Yes Fremont production would expected to be up YoY since S/X refresh ramp was still at a crawl at this time last year, but 60% seems way too high. That would be in the neighborhood of producing 20k more vehicles in May 2022 over May 2021.
It is simply Gary being Gary. No idea if the story is true, but he will complain like this until Tesla hits 900 again and then it will be onto the next things (yes plural) to complain about for 3 months.
(I don't think he is necessarily wrong... just gets old hearing the same complaints over and over)
The Romans actually invented the term "decimation" and we just experienced an actual decimation today. Nice to see that the legacy of the Roman Empire lives on!
The ground hasn't been salted yet (unlike what Rome did to Carthage). It may be a wild next few months, but we're far from being decimated. Come October with 3rd qtr P/D at the beginning of the month, Financials near the end, not to mention the stock split (20-1 I'm hoping) and the 2nd AI day, we should be well on the road to recovery with a new ATH by year's end!
Where are JP morgan investors dumping JPM stocks, blaming Jamie for creating unnecessary noise ?
Also, ppl take Elon seriously when he says there may be a recession coming. Why doesnt anyone take him seriously when he says no one can catch up to Tesla with FSD for at least 5 years? or that Tesla will be largest company in the future? or that Tesla bot will change everything and will be largest industry ever to be disrupted?
I mean you should price in AGI if you are also scared of recession.
It is simply Gary being Gary. No idea if the story is true, but he will complain like this until Tesla hits 900 again and then it will be onto the next things (yes plural) to complain about for 3 months.
(I don't think he is necessarily wrong... just gets old hearing the same complaints over and over)
Gary is a great window into the Wall Street mindset, and like it or not, retail is not going to be what materially moves this stock. I don't mind him using his platform to put some pressure on Martin and the Board to try and rein Elon in a bit. He needs it.
Am I the only one projecting gross profit per car to rise past $20k soon towards the mid-$20s?
This is a genuine question because when I post reasons for that expectation no one voices contradictions, but on the other hand I see respectable bulls publishing their own financial models with much lower numbers. If I have a bad projection I hope someone will propose the necessary corrections to the model.
Q1 2022
Gross automotive revenue:
$16.681 B
Of which regulatory ZEV credits:
$0.679 B
Gross automotive profit:
$5.539 B
Vehicle deliveries:
310,048 vehicles
Gross profit per delivery, average:
$5.539B / 310k = $17.9k/vehicle
Adjusted to exclude ZEV credits:
$15.7k/veh
Historical Trend
Gross profit per delivery in previous quarters (excluding ZEV credits to capture underlying trend better):
Gross Profit per Vehicle
Gross Margin
Q1 2021
$ 10.1
22.0%
Q2 2021
$ 12.6
25.8%
Q3 2021
$ 14.1
28.8%
Q4 2021
$ 14.8
29.2%
Q1 2022
$ 15.7
30.0%
Average QoQ improvement in $/veh:
$1.4k
Revenue Forecast
Since last summer, prices across the entire S3XY lineup have increased about 15-20%. Barely any of this has hit the financials as of Q1 '22. In my post quoted below, I estimate $11k per vehicle in price increases still in the backlog.
Prices might increase even more.
Positive demand factors:
Oil is still $120/barrel
No relief in sight
Sanctions on Russian oil exports unlikely to relax
Other companies, both Lagacy Auto and hotshot EV startups, have not been delivering on their grandiose EV production forecasts from a few years ago
Customers left with scarce supply of alternatives to Teslas
ICEV supply also falling
EV advertising is increasing
Other companies increasingly need to advertise their EVs to convince customers to buy
Remember the 2022 Super Bowl effect when Tesla orders in America doubled overnight
Cybertruck deliveries will attract much attention and conversations with owners
Flashy, silent, triangular tank hard to ignore
So crazy that people will want to ask
When people talk to Tesla owners or get offered rides, many want to buy one
Las Vegas Loop will introduce millions of people per year to the Tesla vehicle experience
43 million annual visitors
Will be faster, cheaper and more convenient than taxis and rental cars for travel between major destinations
Demographic is much broader and more diverse than typical demographic exposed to Teslas
Hertz
Tom Brady partnership and ads likely to continue
Rentals will continue to give lots of people extended trials of Teslas and Hertz's fleet is expanding
Starship likely to hit orbital flight soon
Starlink adding millions of satisfied users
Falcon 9 continuing to launch for NASA and private customers
Passenger trip around the Moon scheduled for 2023
FSD Beta is expanding user access and improving
If TSLA blows up, attention and positive sentiment on the stock may spill over to vehicle orders
Government support
USA might revive federal EV subsidy
European political desire to speed up move from oil & gas is intensifying
Climate change problems becoming increasingly obvious and urgent
Some people are pleased with Elon buying Twitter and fighting prominent Democrats, and they are gaining interest in EVs and Tesla
Optimus prototype in September might be really cool and go viral on internet
Supercharger network keeps filling out coverage
Roadster and Semi hopefully will be released in 2023
Hardcore smackdown on gasoline sports cars
Hardcore smackdown on diesel tractor-trailer freight
Negative demand factors
Elon was accused of sexual harassment and sexual assault
Bad image irrespective of credibility of allegations
In the unlikely event the allegations are proven true, obviously that would be very bad
Some people are displeased with Elon buying Twitter and fighting prominent Democrats, and they are losing interest in EVs and/or Tesla
Distrust and hatred of billionaires (as an entire category of people) is growing
Usual suspects have been ramping up FUD to 2018 levels, convincing many casual observers that Tesla supports racism, misogyny, etc, that Tesla is financially unstable, etc.
As Tesla Insurance grows and matures, it will add even more revenue per vehicle by 2024. Shifting mix away from Model 3 in favor of Y/S/X/CT will also have a big impact on revenue per vehicle, as detailed in the post quoted below.
Cost Forecast
Several concrete reasons to expect cost per vehicle, on an inflation-adjusted basis, to continue falling from today's levels:
4680s and other Battery Day tech
4680 cell manufacturing line
Cell-to-pack wiring
Structural pack
Cobalt deleted
Shipping + Import Tariff Savings
European Union has 10% tariff
Shipping across oceans or across North America is not cheap
One-piece die castings for front of Model Y bodies
New Berlin paint shop design
Probably will improve material wastage, first-pass quality & rework, and throughput
Better overall factory design for Berlin/Austin/Shanghai expansion
Costly Fremont production is being diluted
Retrofitted facility filled with compromises
California SF Bay Area location means high labor and transportation costs
When all of this is added up, I think we're looking at roughly $3-7k savings per car on S3XY models before factoring in expectations for macroeconomic effects of inflation and material costs like lithium, aluminum and nickel.
One extra note on inflation pressure — It’s unclear how much CoGS is being held down temporarily by the long-term supply contracts vs cost improvements. Likewise, it’s unclear how much of the price increases were driven by demand pressure.
Basic market economic theory says that price for a good can rise for three reasons:
1) More demand
2) Less supply
3) Currency inflation
Our challenge here is that all three are occurring simultaneously and we’re trying to estimate the relative impact of each one.
On the earnings call, these were the remarks concerning inflation and further price hikes:
“Our per unit vehicle cost increased as well. Inflation, raw material prices, expedites and logistics costs continues to impact our cost structure.”
“Actually on the price increase front, I should mention that it may seem like maybe we’re being unreasonable about increasing the prices of our vehicles, given that we had record profitability this quarter. But the wait list for our vehicles is quite long. And some of the vehicles that people will order, the wait list extends into next year. So our prices of vehicles ordered now are really anticipating a supplier and logistics cost growth that we’re aware of and believe will happen over the next six to 12 months. So that’s why we have the price increases today, because a car order today will arrive in some cases a year from now. So we have a very long wait list. And we’re obviously not demand limited. We are production limited by … Very much production limited”
“So we’ve been experiencing increases in costs in general, but also raw materials for a number of quarters now. That pace picked up in Q1, so last quarter. And what we’re seeing for Q2 is slightly higher than that as well. And as indices move, it doesn’t impact us immediately or directly. In some cases we have contracts with suppliers. But then as those contracts expire, we have to renegotiate them so that there can be a lag.”
“In some cases, our contracts do directly reflect movement in commodity prices, raw material prices. But the timing in which that Tesla pays for that has a lag associated with it as well, based on the contract. And so to Elon’s point what we’re trying to do here, because it’s quite an unprecedented situation of raw material movement, and all of these various lags and uncertainty around renegotiating contracts is, we’re trying to anticipate where things will go. And make sure the pricing that we have put in place at the time that those raw material cost increases hit us, that they align.”
“So there were some inherent cost improvements, as I mentioned, but there’s also offsets that we’ve talked about previously in raw materials, commodities. Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down.”
“We absolutely want to make EVs as affordable as possible. It’s been very difficult, I mean I think inflation is at a 40 or 50 year high, and I think the official numbers actually understate the true magnitude of inflation. And that inflation appears to be likely to continue for at least the remainder of this year. When we’re talking to suppliers, the suppliers are under severe cost pressure, and in some cases, we’re seeing suppliers request 20 to 30% cost increases for parts from last year to the end of this year. So there’s a lot of cost pressure there. That’s why we raised our prices because when things were this uncertain with respect to inflation, but you know it’s high, and we’ve got orders that go out a year or more in some cases, then we have to anticipate those cost increases.”
“What’s keeping our costs down, at least in the short term, is that we have long term contracts with suppliers, but those long term contracts will obviously run out and then we’ll start to see potentially significant cost increases.”
“Well, we hope we don’t need to increase the pricing further. The current pricing is anticipating what we think is the probable growth in costs. And if that growth in cost does not materialize, we actually may slightly reduce prices. So we don’t currently anticipate making significant price increases, but obviously we don’t control the macroeconomic environment. If governments keep printing vast amounts of money, and if there are not significant increases in lithium extraction and refinement and the other raw materials such that everyone’s competing for a limited amount of raw materials, then obviously that will drive prices to high levels. So if you have a crystal ball that can tell us what the future’s going to be like, we’ll adjust accordingly, but the current prices are for a vehicle delivered in the future, like six to 12 months from now, so this is our best guess.”
It seems we’ve been getting mixed messaging from Tesla on inflation, cost and car prices. I think the most likely explanations are that either they’re communicating poorly or deliberately obfuscating to avoid revealing their advantages yet.
Zach and Elon repeatedly emphasized the impact of inflation on cost recently. The earning report slide deck does too. And there is definitely a lag in inflation reaching Tesla because of preexisting contracts. 15-20% broad inflation globally is nothing to ignore and Tesla can’t escape the macroeconomy.
On the other hand, they’ve provided equally strong messaging about demand strength, saying that:
they had been “caught off guard” by “a profound awakening to the desirability of EVs”
orders far exceed production growth to the point that CT/Semi/Roadster have been postponed multiple years
shutting down the order availability for some variants is under consideration
the Superbowl ad effect caused US orders to double overnight
Tesla will sell all they can make for the foreseeable future
And of course, then Russia invaded Ukraine. If interest doubled overnight from TV ads for Lightnings and Ioniqs during a single 4-hour media event, how about record oil prices and desire to stop funding and stop depending on a violent dictatorship? Google search trend data shows that all of the following reached all-time high interest worldwide in early March:
“electric vehicles”
“EVs”
“how much does it cost to charge an EV”
“Tesla”
“how much range does a Tesla have”
“energy independence”
And sure enough, in March Tesla broke a 4-month lull in price hikes to increase them like 7% across the board. Yet even two months later they are reiterating that wait times are still a problem. This timing doesn’t appear to indicate a reaction to inflation.
Austin and Berlin will probably hit volume production later this year and into Q1 ‘23 which will save significant cost on manufacturing, logistics and tariffs. They will account for around 35% of total deliveries in 2023 about $4-10k savings, especially from Berlin avoiding a $6-8k import tax on every car. With orders today being fulfilled 6-12 months from now, Tesla would certainly be anticipating those savings because they know their cost model and production ramp expectations better than anyone else. Shanghai’s continued expansion will also lower average costs by virtue of its lower cost structure than Fremont. So why is Tesla making it sound like their price hikes simply reflect anticipation of inflation 6-12 months from now? That sounds like a half-truth with the parts about demand and efficiency left unmentioned.
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.
Margins
Even if inflation between now and 2023 will have been 25% across Tesla’s entire automotive cost structure, that would be a $9.1k increase per car from the $36.5k Q1 average cost. That’s actually not even realistic because Tesla’s factories are on a fixed depreciation and amortization schedule unaffected by inflation as far as I know. But let’s go with $9k to be safe.
Prices increases since October have been:
$9k for 3 RWD
$8k for 3 LR/P
$18k for Y SR (good luck even getting delivery though)
$12k for Y LR
$8k for Y P
$10k for S LR
$16k for S P
$10k for X LR
$19k for X P
Mix will be mostly weighted towards Y and some 3. Maybe $1k of this hit already in Q1 numbers. It is clear that by 2023 when orders from March and beyond are being delivered, price increases will have impacted ASP by around $9k from Q1’s $52.4k to rise to $61.4k, but it doesn’t stop there. Model Y is priced about $7k more than a comparable Model 3 despite costing the same to produce. As mix shifts from approximately 3% S/X 47% 3 50% Y to 4% S/X 21% 3 75% Y, we’ll see an additional ~$2.3k price bonus, taking us to $63.7k expected.
This $11.3k combined price increase already is enough to exceed the $9k worst case scenario for inflation. But with the growth of Austin/Berlin at 35% of volume and $4-10k savings per car, we could easily see $1.4-3.5k overall downward pressure on cost from that. Also Shanghai is cheaper than Fremont by maybe 10% at least and with its growth, it would contribute an additional maybe $1k cost saving. Summing the inflation hit of $9k with the savings leads to estimated average 2023 cost increase of $6k to $42.5k. If inflation is more like 15% then the math works out to $39k. If the new factories do really well, net cost might not increase at all!
Even in the 25% inflation scenario gross profit per unit is $63.7-42.5=$21.2k and in the more realistic scenarios gross profit looks more like $25k. In an optimum case where the new factories drag cost down by $9k for each car they sell (25% efficiency gain) and inflation for Tesla is only 10% overall, cost will actually fall slightly to $36k and gross profit per car would be ~$28k! These cases would have gross margin of 33%, 39% and 44% respectively. Any additional price increases could bump it even higher, and none of this is counting ZEV credits.
Spread that across 3-4 million deliveries and we’re looking at a wild year.
Summary
When I stack up everything that is likely to impact the unit economics for our automotive business, the math tells me that between Q1 '21 and Q1 '24, gross profit per vehicle will be about 40% higher at $25k! The optimistic scenarios come out to like $30k per car especially if FSD progress accelerates with unified vector space/single stack/Dojo training.
Vehicle deliveries will roughly triple between now and then, given 8 quarters to ramp all the new factories.
1 million deliveries/quarter * $25k earnings * 4 quarters/year = $100B annualized automotive gross profit in 2024
It didn't help that the Texas Legislators declared battery storage to be electrical production which eliminated companies such as OnCor from deploying battery storage to even out power surpluses and deficits. Had they not done this, most of the problem two years ago would have been non-existent because battery storage would have carried Texas over in many cases. OnCor did have a plan to purchase Tesla batteries, but as soon as the Legislators found out about it, they declared battery storage as energy production stopping the sale.
Ironically, the utilities, which have significant political influence, are literally creating rate/fee/policy arbitrage against solar and batteries as they foresee reduced profits for their comfortable business-as-usual model....Tesla energy products (which have the capability to create arbitrage themselves) will continue to face these headwinds as long as politicians make decisions based off who fills their coffers most.
I think Fremont is running materially higher in Q2 over Q1 to make up for some of Shanghai, but 60% YoY increase for the month of May in US sales can't possibly be right.....right?
Yes Fremont production would expected to be up YoY since S/X refresh ramp was still at a crawl at this time last year, but 60% seems way too high. That would be in the neighborhood of producing 20k more vehicles in May 2022 over May 2021.
Actually to reply to myself...........this number might not be that off or in fact, correct.
I was just watching Rob's Analysts React video from the other day where the analyst that did the Fremont tour recently, repeated that Tesla said Fremont production capacity is 600k annually. Thats 150k per quarter. Q1's Fremont production was around 114k. When you look at Q2 2021 production rates, a 60% increase in Fremont YoY would put Q2 at about 129k.
So a 15k increase in sales so far Q2 which sounds like what I was expecting Fremont to make in order to make up for some of Shanghai. Fremont continuing that pace all throughout the quarter would give 25-30k increase in production QoQ. As I mentioned in another post, maybe Tesla was able to shift around chip supply that was set for Shanghai to Fremont so that Tesla can hit closer to max capacity of 150k a quarter.
Let's say Fremont increases P/D over Q1 by 26k, so 140k total from Fremont. Add in 15k from Berlin/Austin and we're looking at 41k. The China numbers that will come out next week will obviously tell a lot about Shanghai's production for June.
Why is there such a large subset of TMC that loves trying to correct everything such that they gotta run their fat fingers over the keyboards so much, even whilst such corrections are not needed?
I'm down with GB, he only sells to take the carpet out in bull runs!
I'd be worried about demand if they were cutting jobs at factory and/or reducing number of shifts. Instead, they are still hiring people for these positions.
Driving thin skinned people towards legacy brands supports Tesla's broader mission and helps reduce their long backlog. Tesla can focus on making cars for people who want high performance, great cars and let GM focus on selling cars to people who think picking car brands is a political statements.
Bullish.
PS: If people want to worry over car company politics, perhaps they should be reminded of who was working with Trump to overturn California's emissions laws just a couple years ago.
I know this isn't your thought, but this is rather comical. Try buying anything other than groceries and not supporting a billionaire. Try using the internet, your phone, etc... "Boycott Billionaires"... easy to say tougher to say goodbye to Netflix, Disney, Amazon, Apple, Comcast, AT&T, Ford, Walmart, Nike, etc etc etc.
You gotta go full Kazinski to avoid supporting billionaires.
So that's an average SP increase of $265/year. Extrapolated out, assuming consistent growth over the next decade, the SP targets for June YoY could look like these:
Not a prediction of course given this limited data set and this is very simplistic forecasting, but fairly reasonable assumptions given Tesla's growth plans. Plus any new revenue catalysts such as FSD or Optimus or Energy ramping faster could increase this substantially.
Why is there such a large subset of TMC that loves trying to correct everything such that they gotta run their fat fingers over the keyboards so much, even whilst such corrections are not needed?
I'm down with GB, he only sells to take the carpet out in bull runs!
Or full Christopher Knight. Doesn't really require handcrafting bombs like Kaczynski. Living in a tent through Maine winters with no human contact sure isn't my cup of tea, though.
To be fair this appears to be a followup email to everyone and Reuters based their article on an email to executives. This is according to an additional tweet from whole
I'd be worried about demand if they were cutting jobs at factory and/or reducing number of shifts. Instead, they are still hiring people for these positions.
Yes .. and this could have been easily communicated along with letting WS know that Tesla is streamlining it's workforce for maximum return on $$ spent.
I'm not sure anyone on this board has any issue with Tesla streamlining it's operations ... it's the fact that it is so clumsily reported to the media rather than run through a professional PR department. Yes ... Elon won't go for such a department and he's not gonna change but then again ... maybe .. just maybe he will see the kind of harm that can happen to the SP with his statements ..... NAH ... never gonna happen. Just strap in and hold on tight .. the cars are great and there is no competition ... that is about all one really needs to know. Yes the CEO is a loose cannon ... we just have to deal with it as it's a package .. Tesla/Elon ... you get them both.
