Astonishing price cuts all at once. I will definitely need to revise my 2023 earning model. Still looking good but not as bullish on automotive. On the other hand this might indicate that cost deflation is happening faster than I modeled for. COGS per vehicle in Q3 was $39.2k, which was 10% higher than the 2021 average of $35.6k, and even that average had extremely high shipping costs, expedite fees, and chip costs compared to a normal year. Also the new factories are coming into volume production and Tesla likely has a clearer understanding of cost at Berlin and Austin now. Hard to distinguish how much is due to a decline in demand vs an increase in supply.
@Todd Burch is right that some people will take advantage of the lower prices to buy extras, or to upgrade to more expensive variants, so a simple subtraction of the price drops from margins is likely too pessimistic.
Remember that $45/kWh battery credits are going to add an easy $3-4k back into margin this year for North American sales.
The biggest cuts were for Y, S and X which were earning well over 40% margin at the previous prices. Y matters most and it was basically earning about $29k per car if $68k average price and $39k average cost, and that was not even counting cost improvements in Texas and the battery subsidy. If 2023 Y ASP in the US is now going to be ~$55k and cost is going to $36k with deflation and Texas efficiency, profit per car is still going to be 55-36+3 = $22k for 40% gross margin. Both of these numbers are substantially better than Tesla’s global average vehicle profitability has ever been. This matters because Y will comprise the majority of sales volume for Tesla next year. Growth of Y production at the new factories plus hopefully a full year of smooth sailing at Shanghai remains the big story for 2023. Another equivalently huge price cut would be needed to reduce average automotive margin below 20%.
What a power move though. I don’t see how anyone can compete with this.
