he's fully drank the major recession is inevitable kool aid and assumes Tesla will be selling cars with little to no profit, or even at a loss. That does not seem plausible to me.
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I said previously—worth repeating—there is a lot of frustration, lots of feelings of betrayal (largely misplaced IMO), and scapegoating right now. The number of people cut by this is quite large and many of them the most loyal to the brand.
Was previously announced that Tom Zhu would take over Austin manufacturing lead.Interesting news (if true)
Exclusive: Tesla's head of China takes over sales in North America
Tesla's head of China, Tom Zhu, has taken over responsibilities for sales, service, and deliveries in North America.electrek.co
Also the Elon's $4B stock sales in Dec gave the "traditional" impression that Q4 would be inline with guidance.My main gripe is that the last official word we had was that the quarter was going to be "epic" and that deliveries should be just under 50% growth. At some point they knew this was no longer the case and they didn't update guidance and reset expectations accordingly.
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He educated his folks well before turning around this year...
Regarding your opening and closing comments:No it's not getting harder to project the same degree of growth, except maybe a slight adjustment on the production side, and substantial PE compression was not justified.
Here is my take. Tesla is doing exactly what they said they would do: finally ending the delivery wave.
In fact, in the P&D updates for Q3 and Q4, Tesla actually explained that this was the reason:
Tesla also mentioned this multiple times in discussing Q3 results. On October 2nd, Elon replied to a comment on Twitter about the wave.
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Apparently Tesla thought this was an important enough topic to put onto the front-page executive summary of the Q3 report. They also included a full-page pair of charts depicting the historical sawtooth delivery pattern compared to the ideal constant delivery flow and clearly showing that ideally end-of-quarter inventory would be "notably higher". The topic was then discussed at length by Zach Kirkhorn in his opening remarks on the call, and reiterated by Elon later in the call.
Martin Viecha reiterated this today, as @lazybot pointed out.
Discussion
Ending the wave is beneficial, and I wish Tesla had done this sooner, like they said they would a couple years ago but never did. The only purpose of the wave was to make short-term quarterly delivery and financial numbers look more impressive by minimizing vehicle inventory at arbitrary calendar dates four times per year. As Elon and Zach explained, this strategy came with unnecessary operational complexity and higher costs, yet resulted in a worse experience for customers and employees.
One of the fundamental principles of lean manufacturing is to "level the line" wherever practical. This applies to outbound logistics as well as the factory itself. Production leveling reduces muri waste, which is the Japanese word that the Toyota Production System uses (and now most other manufacturing companies too) to describe the waste resulting from of overburdening people, machines, and systems.
Let's bear in mind Tesla's inventory is still at an industry low by a huge margin.
NADA (the National Automobile Dealers Association) published in their mid-year 2022 NADA Data report this page showing that, under normal pre-chip shortage circumstances, in the US the average dealership had around 60-85 days worth of inventory on lots and in transit. In stark contrast, even with the Q3 and Q4 pipeline-filling caused by ending the wave, Tesla has only about 14 days of inventory right now.
Also, cars in transit account for nearly all Tesla's inventory, with very few cars sitting in parking lots accumulating dirt, bird poop, and costs from capital sunk into the inventory and less-obvious costs like insurance, security and property tax. The norm for the rest of the industry is to do this with all the cars and wait for an interested customer to show up. Tesla still generally doesn't even have same-day purchasing like other car companies or pretty much all consumer retail businesses in general.
Tesla's inventory (measured as days of sales) will eventually come down when the bulk of production is not coming from merely two factories shipping cars all around the planet. Other car companies have many more factories with a much shorter average shipping distance for each car. This is yet another advantage of economies of scale that Tesla is currently not enjoying but will in the future to enabled reducing ASPs while maintaining strong margins. Tesla will save not only on shipping costs but also on the various costs of carrying inventory.
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I’m more disappointed that production was lower than expected. I had estimated 15k more than this and as of now I don't know what caused the error. However, it's still a fantastic number in the grand scheme of things, and production should bump up considerably in the next few weeks when Berlin and Texas add third shift work and Shanghai resumes full production.
Demand issues, if any, are temporary. Tesla is now in 14th place globally amongst car companies for unit volume, despite 95% of that volume coming from what is essentially a single vehicle model, 3/Y, that comes in two slightly different sizes and hasn't had a significant styling refresh since launch five years ago. The only selections for styling customization are five paint options (seven in Europe) and your choice of black or white for the seat leather. Products with demand challenges in the car industry do not earn 30% gross margins and have such limited selection, all with zero paid advertising. This is basic economics.
- 23% Q/Q increase; 44% Y/Y increase
- 2M cars per year exit run rate, 40k per week, as management guided for all year long
- Tesla is now making more cars than Suzuki, and will likely pass Mercedes in Q1 and then Changan and BMW in Q3 or Q4.
Let's be clear: To assert that Tesla's gap in deliveries and production was primarily caused by limited demand is to assert that Tesla's corporate communications on the matter have been misleading to the point of arguably being outright fraudulent. Just say it: "I think they're lying and you should believe my narrative that I invented instead."
Those who anticipated production and delivery growth at ~40% YoY for 2022 may very well be reasonably predicting 2023 YoY growth to be ~40% or so as well, and potentially the same for 2024, etc. While Tesla certainly could produce more than this via ramping up production at their 4 existing S/X/3/Y factories, adding a full 3rd shift, etc, it is within the range of possibilities that Tesla would choose to grow production at 40% rather than 50% for various (valid) reasons, depending on macroeconomic / pandemic / geopolitical / branding / margin / etc considerations. Likewise, Tesla certainly could adjust pricing / margins / free Supercharger usage / add new paint colors / etc to produce more than enough demand in 2023 and 2024, it is within the range of possibilities that Tesla would choose to grow demand at 40% rather than 50%. It is also quite possible that we see a Q4 2022 earnings report reflecting margin closer to 25% - 26% than to the 27% - 30% TSLA investors have become accustomed to. (I hope 25% - 26% is low, but we shall see in 24 days and I will be happy to have all on here bring this up at that time, but for now I merely conjecture that some reasonable investor might rationally be using a figure closer to 25.5% than to 28.5% in their modeling.) We shall see what impact to margins occurred in Q4, and what (if any) incentives and price adjustments Tesla chooses to have in 2023 Q1 in order to achieve their desired demand level and margin balancing points.No it's not getting harder to project the same degree of growth, except maybe a slight adjustment on the production side, and substantial PE compression was not justified.
Here is my take. Tesla is doing exactly what they said they would do: finally ending the delivery wave.
It does not have to be either extreme; humans find extremes / all-or-nothings as easy and comforting, but reality almost always exists in between, with a great deal more nuance and hidden cause-and-effect than just taking everything in the world around you at face value or at no value. It does not have to be "This was just Tesla unwinding the wave, no demand issues" nor does it have to be "This is all demand issues and Tesla executive leadership has been misleading (or worse). Consider, for example, why did Tesla choose to unwind the wave at this time? PURE CONJECTURE: A reasonable middle-ground scenario that could have played out was in 2022 Q3, Tesla executive leadership began to see risk on the demand side due to a combination of internal (massive 2022 price increases) and external (massive macroeconomic / geopolitical / pandemic / etc) factors. Based on the data available to them at the time, and faced with choices such as "We can push thru it by doing <x, y, z>" or "We can allow the wave to partially unwind rather than jumping thru those <x, y, z> hoops", both of which would be valid choices, they chose the latter. During 2022 Q4, after experimenting with various demand levers (most especially in China, where some are projecting the bulk of the current production-minus-deliveries gap to be), the costs of various demand levers became more clear, and throughout the quarter Tesla executive leadership decided to continue to unwind the wave rather than push thru it with the <t, u, v> levers which were available to them then. Both in 2022 Q3 and 2022 Q4, Tesla leadership chose to communicate the action they were taking (unwinding the wave) and point out some specific benefits of doing so (avoiding higher end-of-quarter costs, avoiding potential negative customer experience in that rush, etc) without going into detail of ALL the factors (such as potential weakness in demand) which led them to make that choice now (vs earlier in 2022 Q1 or Q2, or later by waiting until 2023, etc).Let's be clear: To assert that Tesla's gap in deliveries and production was primarily caused by limited demand is to assert that Tesla's corporate communications on the matter have been misleading to the point of arguably being outright fraudulent. Just say it: "I think they're lying and you should believe my narrative that I invented instead."
What is that, like 20 days of inventory?Decent estimate of inventory split that was being discussed up thread
Damn, it’s heartbreaking to watch Tesla Economist’s total meltdown on the bird… a solid reminder not to gamble the options market and not invest money, you cannot afford to loose short term.
It’s almost impressive the 180 degrees shift he made overnight after years of posting bullish predictions
Don’t get me wrong -my best wishes for him.
Part of the problem also seems to be logistics issues.Also, It's certainly reasonable to conjecture that perhaps Tesla executive leadership's decision to unwind the wave at this time was due in part to their internal data and projections regarding vehicle demand.
It's freaking December. Tesla may not want to shut down, but I'd bet many suppliers, even in China, pretty much write off the last two weeks with holidays, vacations, etc.I still don’t understand what happened in Shanghai in December. Anyone seen production numbers?
Taking any rational approach to valuation, if the preponderance of the data leads an investor to view 40% YoY growth rate and 25% margins as the likely future for the next 1-3 years, then PE compression was absolutely justified.