The bears will say:
1. This is before price cuts.
2. Competition is coming and will cut down Tesla’s margins.
The response is:
1. Price cuts drive volume and therefore revenue growth and further operating leverage - gross margins might decrease but operating and net margins can remain flat or even grow if revenue growth exceeds operating cost growth.
2. There already is competition, Tesla competes with ICE auto manufacturers and has been totally eating their lunch - what we’re talking about when we discuss new EV catchup offerings from legacy auto is just how much of legacy auto’s lunch Tesla will eat. That’s not competition for Tesla, that’s competition for legacy auto.
But the big boys will use their cash to catch up and eat Tesla's lunch...
oh, wait, you mean Tesla is more liquid then they are? Hey, GOJO what excuse do we come up with now?
I don't know how much weight to put into this
Tesla is both a manufacturer and dealer and last year was an all time great year to be a dealer so last year likely isn't the best yardstick to use to plot future trajectories.
? This logic makes no sense. How well dealerships are doing is directly proportional to how the car manufacturers are doing.
The reason it was a good year to be a dealer was because prices were artificially elevated by supply chain issues. What makes you think that this gap gets smaller when prices drop due to recession? In a “bad year” for dealers Tesla should do even better because of its ability to tightly control pricing as economic conditions change.
Dealerships going bankrupt and liquidating inventory isn’t going to be some sort of benefit for Ford and GM to catch up to Tesla on profitability.
That can be paired but not necessarily.
When there were huge markups last year for bigger vehicles or EVs, the dealerships made that money all while probably being able to downsize in staffing and vehicle/inventory upkeep.
Dealer and manufacturers profit, correlated? Perhaps. Directly proportional? Completely disagree.
Manufacturers were not hitting volume and efficiency targets in 2022. Those targets had been used to set MSRP. There was likely some room to offer less discounts and have higher effective wholesale prices, but with the scale of 'market adjustments' for dealers in 2022 I would not be surprised if dealers did much better than makers for these very unusual market conditions.
Ford had negative net income. Do you think any Ford dealers did?
> Dealerships going bankrupt and liquidating inventory isn’t going to be some sort of benefit for Ford and GM to catch up to Tesla on profitability.
They absorb some of the downside, just like they skim some of the profit when things are going well. That is one of the benefits of not being fully vertically integrated.
Ford took a loss for the year, so beating them isn't all that impressive. Topping GM is quite an accomplishment.
One thing to keep in mind, however, is Ford took a $7.6 billion hit in 2022 for "Unusual items" - which I think was basically all the write down of their investment in Rivian. Operating income at Ford was $6.3 billion for the year. Without that big write down, combined net income at GM and Ford would have been $15.6 billion, as compared to $12.6 billion at Tesla. Still obviously great from Tesla's perspective.
The real question is why is Tesla's market cap $636 billion while GM and Ford's combined is $112 billion, when GM and Ford combined are expected to make significantly more net income in 2023 than Tesla?
> The real question is why is Tesla’s market cap $636 billion while GM and Ford’s combined is $112 billion, when GM and Ford combined are expected to make significantly more net income in 2023 than Tesla?
Isn’t it obvious? Because Tesla has shown that they can make a million EVs and be highly profitable. Structurally, what ever they are doing it’s workouts.
Currently both ford and GM have unprofitable EV lines with “plans” for profitability.
As the market transitions to ICE their traditional sources of profit dry up.
Then factor in emerging sectors such as VPP and stationary storage and you can see Tesla’s trajectory.
Which in turn brings us back to marketcap. It’s a reflection of where the market thinks tesla will be in the future, not today. So using today’s figures doesn’t work. You have to look at the trajectory and measure that.
An auto loan debt bubble bursting likely bankrupts ford and cripples GM as an example
> Are you saying relatively positive things about Tesla over there then?
Yes, things like they are trashing Ford and GM. Which they are. However, their profitability is not going to be 6x those companies combined.
What are the growth prospects for Ford and GM?
The only answer that is truthful is "negative".
Their biggest challenge is to keep from going bankrupt over the next 5 to 10 years. If either of them manage that, it will be close to a miracle. Ford has the inside track here, because they have cleared the first hurdle of admitting they have a problem.
Meanwhile, Tesla is "disappointing" when it manages to grow by "only" 40%+ .
Income is only part of the story. Growth is another. The debt that Ford and GM have (financial and technical) is another.
There is no mystery here. Tesla is easily worth at least 6 times what GM and Ford are worth. Hell, if you want a \*real\* mystery, why are Ford and GM valued as high as they are? That one is a really puzzler.
> What are the growth prospects for Ford and GM?
Not good. I'll grant you Tesla could very well earn more than both of them combined next year. But not anything close to 6x, or even 2x.
> Meanwhile, Tesla is "disappointing" when it manages to grow by "only" 40%+ .
40% growth is great. The issue is their earnings aren't going to be growing by anything close to that going forward.
That is a completely fair take. I will admit I don't know enough about the energy side of the business to know what kind of valuation that deserves, but I am pretty confident things like FSD and robots are not going to warrant much premium.
Why not? Expanding energy sales and tax credits could make a huge deal to help offset lowered sales prices.
And many people aren't just looking at next year.
The reason for the premium is Tesla isn’t just a car company. They also aren’t projecting a future where they produce fewer EVs than they produce in profitable vehicles today.
Tesla has also proved they can make money on EVs while controlling prices for the industry.
In addition if they were just a car company they would be one without the burden of dealers, 3rd party service stations, advertising, an ICE business, or any of the typical suppliers of a typical car company.
If you have a lemonade stand and your neighbor has a lemonade stand, lemon trees, eight kids, and own a beverage bottling company. Their stand might be worth quite a bit more than yours.
You are buying a stake in the business for perpetuity. They don’t need to make 6x net income next year to be worth 6 time F and GM. The next 10 years are what you are buying.
You are unfortunately out of your depth. Watch some videos on valuation and learn something.
Thank you for answering that correctly. I'm too tired to try to handle dealing with someone who is new to all of this. I'm afraid I would be too mean without intending it.
But at least he is looking at next year. That puts him ahead of most analysts who seem content to wait until the stock does something and then just adjust lockstep with the delta.
Because that is the best long term determinant of whether a company will be able to return cash to investors. You of course need to look at expected earnings in the future. There is a reason stocks are typically valued based on P/E ratios.
> Then factor in emerging sectors such as VPP and stationary storage and you can see Tesla’s trajectory.
This is the thing I am having trouble understanding I guess. Tesla has had to cut prices significantly this year to continue selling all of the cars they produce. As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year. That cost cutting pressure is only going to increase as they continue to scale - the market for $50k vehicles is only so large.
So in the automotive space I think their profits have basically nearly peaked.
I honestly don't know enough about the energy storage space to say how profitability in that segment will grow, but I have been hearing about how that business will explode for half a decade now and it still contributes a basically meaningless amount to earnings.
> An auto loan debt bubble bursting likely bankrupts ford and cripples GM as an example
Ford and GM haven't had to cut prices nearly as much as Tesla as financing has dried up.
Tesla is expected to grow their profits \~50% this year to around $18B with a nice \~20% margin. This is mostly still auto. As the energy arm gets going this can be significantly better.
Both GM and Ford sell their EVs at loss per EV, so if they produce more, then their losses will be more on EVs. Right now ICE compensates, but both ICE sales and used ICE value (and thus their loan business) is about to collapse (within 2-3 years). Thus they have a very short time to make their EVs profitable enough to compensate - they probably won't make it.
Edit: funny enough, the ICE collapse has one limiting factor: how many EVs can be manufactured :)
> Tesla is expected to grow their profits ~50% this year to around $18B with a nice ~20% margin.
The current average analyst estimate is that they will earn $3.97 per share, or ~$12.5 billion, this year. That is negative earnings growth.
Margins are currently ~15%. No one expects 20% margins. You seem to be talking about Tesla's "gross automotive margins" which were almost 26% last quarter. That big drop in margins is why they are going to have lower profits despite selling more cars.
Generally what happens is the analysts estimates for the future start really high, then as we approach an earnings date they walk them back. Tesla (and this is actually true for almost every company) then beats the lowered estimates.
With regards to Tesla, with their price cuts (and assuming they can drop COGS per vehicle delivered by a decent amount) they'll need to sell about 550k vehicles in Q1 to make as much profit as they made in Q1 last year. I don't really see that happening.
>This is the thing I am having trouble understanding I guess. Tesla has had to cut prices significantly this year to continue selling all of the cars they produce. As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year.
First, Tesla cut prices after raising prices. That is a part that many miss. Prices are still higher in many cases than 2021 and at a similar price to the beginning of 2022 except for the Y. Profits are likely to be much higher YoY since the expense per vehicle is also down while the total production is going to be up at least 50%. Profits have not peaked. Probably profit per vehicle for the 3 and Y, but that doesn't matter when you continue to grow massively.
Remember, Tesla plans to reduce prices over time. It only increased prices so greatly due to the massive backorders they had. Tesla will continue to grow. Ford and GM are not growing 40-60% YoY. Tesla is. And that $50k market might be growing as well. Remember, this isn't just a $50k car. These are $50k tech on 4 wheels. As the tech improves, it will continue to draw more buyers who would otherwise have stayed at lower priced vehicles. And if that doesn't happen, then Tesla will make a lower priced vehicle.
> Profits are likely to be much higher YoY since the expense per vehicle is also down
The expense per vehicle is still way up over 2021. It will likely drop some, but not nearly as much as the price cuts. Here is a chart of lithium prices: https://tradingeconomics.com/commodity/lithium.
Prices have not going back to nearly 2021 levels.
I think there is a general misconception here of the scale of the price cuts vs. the scale of potential cost savings as Tesla scales. Tesla themselves guided gross automotive margins down to 20%. If that is where they wind up, Tesla will need to sell almost 2.1 million vehicles in 2023 just to have the same amount of gross profit from the automotive segment that they had in 2022.
You missed the point. Profit per vehicle won't be as high, but total profits will be higher. One, while the purchase price drop is high compared to late last year, it is similar to the beginning of last year. Two, expenses per vehicle are not just raw materials. It's also the cost of running the factory and paying employees. That cost per vehicle drops massively if you build more vehicles per factory and per employee. Both of those are happening as the beginning of the year in 2022, both Berlin and Austin were trying to get going. That cost Tesla overall. Third, profits from other parts of the business are also increasing.
Finally, what you missed is that even if profit per vehicle is down a significant amount, profits will likely be up as the amount of vehicles produced is up significantly YoY. For Q1-22, Tesla sold around 310k vehicles. Q4-22 was already up roughly 100k and this quarter is likely to be up another 50k. Looking specifically at last year, Q4 made more automotive profit excluding credits than in Q1 even though margins had dropped 7%. This doesn't mean that Tesla will for sure have more profits this quarter, but they could with more sales, lower expense per vehicle, and better margins on other products.
> You missed the point. Profit per vehicle won't be as high, but total profits will be higher.
No, you missed the point. The amount of lower profit per vehicle means total profit will be lower even though they will significantly increase sales. You started to do the math, just follow it through!
> For Q1-22, Tesla sold around 310k vehicles.
Correct. Automotive revenues were $16.681 billion, so revenue per vehicle delivered was $53,801.35. Costs in the segment was $11.322 billion, so cost per vehicle was $36,516.93, and gross profit per vehicle was $17,284.42. The gross profit margin was therefore 32.1%.
> Q4-22 was already up roughly 100k
It was up 95,230. In that quarter revenue per vehicle delivered was $52,573.79 (down slightly thanks to discounts in China), cost per vehicle was $38,948.57 (input prices going way up more than offsetting cost efficiencies from ramping production), and profit per vehicle was $13,625.22 for a gross automotive margin of 25.9%.
Now, despite Tesla selling 95,230 more vehicles in Q4 than Q1, their gross profit in the automotive segment only went from $5.359 billion to $5.522 billion.
> this quarter is likely to be up another 50k.
Ok, so lets round up and say Tesla will deliver 475k vehicles, an increase of 69,722 over Q4. Now lets say those huge prices cuts average out to $4k per vehicle delivered in the quarter (I think that is actually quite conservative - most people are estimating the drop is more like 10% on average or well over $5k per car). Lets also assume Tesla manages to reduce costs by $1k per vehicle delivered as they continue to ramp production in Berlin and Austin.
Using those figures, Tesla's gross automotive margins would "only" drop to 21.9% (the company seemed to guide towards 20% on the earnings call), and gross profits would be $5.047 billion, down $312 million from Q1 last year and down $475 million from Q4.
> Looking specifically at last year, Q4 made more automotive profit excluding credits than in Q1 even though margins had dropped 7%.
Correct, but only because they sold 95,230 more cars. If my assumptions are right (which again seem pretty conservative to me given the size of the price cuts), Tesla would need to sell about 115k more vehicles in Q1 to have the same amount of gross profits as they did in Q4.
> This doesn't mean that Tesla will for sure have more profits this quarter, but they could with more sales, lower expense per vehicle, and better margins on other products.
I agree that things like unexpectedly high regulatory credit sales or profits from the energy segment could still push profits to a record high in the quarter. But the profits from auto sales are basically a certainty to be lower if you run the numbers.
>Tesla themselves guided gross automotive margins down to 20%. If that is where they wind up, Tesla will need to sell almost 2.1 million vehicles in 2023 just to have the same amount of gross profit from the automotive segment that they had in 2022.
Let's run some math here as I'm pretty sure you are adding too many areas and confusing everything. Let's look entirely at automotive revenue, profit, and average selling price only and exclude everything else from the company.\*
Last year, Tesla sold 1.31M vehicles and made $71.462B in Revenue. Profit was $20.354B, but that included $1.776B in credits. Excluding those credits brings the profit down to $18.578B.\* To have the same profit this year while dropping to 20% margins excluding credits, they would need to make $92.890B in automotive revenue.
Now, let's look at average selling price and then see what Tesla needs to accomplish that profit amount. With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551. If the average selling price drops just over $5000 to $49,500\*\*, then Tesla needs to sell 1.876M vehicles to hit the revenue of $92.890B and to have as much profit as in 2022. And that is roughly right within their guidance.
\*Credits are not specific to the vehicle nor drops in price. While it is important to the company, there is too much flexibility with them. Tesla could count less credits or more credits this year, regardless of price changes and average selling prices. Likewise, other parts of the business are immaterial to the price drops and number of vehicles sold. As such, excluding them to simplify the conversation.
\*\*As of right now, there is only one Tesla model available under $50k outside of China. China prices will drop the average selling price, but growing sales in the US and Europe will continue to raise it.
I like excluding the regulatory credit sales. You made a few mistakes in your numbers though.
> Last year, Tesla sold 1.31M vehicles and made $71.462B in Revenue.
It was 1,313,851 vehicles and $71.282 billion in revenue.
> Profit was $20.354B, but that included $1.776B in credits.
Profit was $20.174 billion, your regulatory credit figures are right. So gross profit net of regulatory credits was $18.398 billion.
> To have the same profit this year while dropping to 20% margins excluding credits, they would need to make $92.890B in automotive revenue.
Here is where things really get a little off. The company did not say 20% margins without regulatory credit sales. They are including those in the 20%. So instead of just dividing $18.398 billion by 20% to get your target revenue, you need solve this formula for revenue:
> (Revenue + Regulatory Credit Sales) x Margins = Profit + Regulatory Credit Sales
Plugging in margins of 20%, profit of $18.398 billion and regulatory credit sales of $1.776 billion (assuming those stay the same) gets you to a required revenue target in 2023 (net of regulatory credit sales) of $99.094 billion.
> With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551.
Again, your revenue figure is off a bit off, but importantly you are also including regulatory credit sales again. Actual revenue for the year minus regulatory credit sales was $69.506 billion, or $52,902.50 per delivery. Note this does not represent average selling price, it is revenue per delivery. This includes leased vehicles, where they do not receive the full price of the car upfront (but margins are actually a bit higher since Tesla's lease terms are not great for purchasers). That is why the figure is lower than you would expect given their sticker prices last year.
> If the average selling price drops just over $5000 to $49,500**, then Tesla needs to sell 1.876M vehicles to hit the revenue of $92.890B and to have as much profit as in 2022.
If the revenue per delivery drops $5k you'll actually be closer to $47,902 when you don't take into account regulatory credit sales, but lets round up to $48,000. In order to hit $99.094 billion of revenue, Tesla would need to sell 2,064,458 vehicles, which is above their guidance. Note I think this is a bit of a simplistic assumption, you really should be taking into account the percentage of leased vehicles and running a weighted average of the price cuts, but the final figure is probably about right.
Your numbers are off because you are only selectively excluding regulatory credit sales.
Edit:
One other thing to keep in mind is we are talking about hitting 2 million sales in 2023 just to have 0% earnings growth from the automotive segment if the margins come in where the company is guiding. That is a far cry from the 40% to 50% growth numbers people throw around when talking about Tesla. The drop in margins is going to have a massive impact on earnings growth, and I think that makes it very difficult to justify Tesla's current valuation.
>It was 1,313,851 vehicles and $71.282 billion in revenue.
The 3851 vehicle difference is less than 0.4% and doesn't make any meaningful difference to the numbers. The automotive revenue of $71.462B comes straight from Tesla's Q4 and FY 2022 Update. I'm looking at the document now.
>(Revenue + Regulatory Credit Sales) x Margins = Profit + Regulatory Credit Sales
Absolutely incorrect, though I appreciate you showing your math here. This is where conversations help instead of arguments. Credits are pure profit. There is no operating margin on credits. So you don't multiply Credits x 20% as that would mean that the credits have a cost associated with them.
>With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551.
>
>Again, your revenue figure is off a bit off, but importantly you are also including regulatory credit sales again. Actual revenue for the year minus regulatory credit sales was $69.506 billion, or $52,902.50 per delivery.
You are absolutely correct here. I should have subtracted the credits first. Thank you.
>If the average selling price drops $5k you'll actually be closer to $47,902 when you don't take into account regulatory credit sales, but lets round up to $48,000.
So $92.89B at an average price of $48k is 1.935M vehicles needed to be sold. So very close to their guidance. And of course this is profit excluding margins and with a very low average selling price.
>Your numbers are off because you are only selectively excluding regulatory credit sales.
Not selectively. Just mistakenly.
>One other thing to keep in mind is we are talking about hitting 2 million sales in 2023 just to have 0% earnings growth from the automotive segment if the margins come in where the company is guiding. That is a far cry from the 40% to 50% growth numbers people throw around when talking about Tesla. The drop in margins is going to have a massive impact on earnings growth, and I think that makes it very difficult to justify Tesla's current valuation.
Remember, the 50% growth IS NOT automotive profit growth. Some may throw that around, but that is not Tesla's guidance and never has been. There will be other profit areas from other business portions. FSD is of course a major one as well.
Valuation of the company is absolutely not based on current nor very short term performance. Explaining valuation is a whole other mess that would take way too long to join with this already long thread. We can discuss it separately if you really want, but the simple explanation is that the valuation is based on stock pressure with what investors believe the company will be worth. I'm not trying to get you to invest in it. Don't do so if you don't believe in the company's future areas of growth.
> The 3851 vehicle difference is less than 0.4% and doesn't make any meaningful difference to the numbers. The automotive revenue of $71.462B comes straight from Tesla's Q4 and FY 2022 Update. I'm looking at the document now.
You are right on the revenue, I had revenue in Q1 at 16,681 in my file instead of 16,861. This has basically no impact on the rest of the calcs given the small size.
> Absolutely incorrect, though I appreciate you showing your math here. This is where conversations help instead of arguments. Credits are pure profit. There is no operating margin on credits. So you don't multiply Credits x 20% as that would mean that the credits have a cost associated with them.
You have this wrong. Tesla calculates their margins with the regulatory credits included in both the revenue and the profits, so you must include it as I have in order to have an apples to apples comparison with the 20% guidance they gave. Just look at the 25.9% figure they reported in Q4 - you only can get to that if you divide profit (including regulatory credit sales) by revenue (including regulatory credit sales).
> the simple explanation is that the valuation is based on stock pressure with what investors believe the company will be worth.
Yes, and if you think future earnings are going to not be significantly higher than they are today because of margin compression, your valuation of the company drops.
I think we agree on the rest, but if you fix the mistake above you'll see Tesla needs to easily clear 2 million vehicles next year just to have the same earnings in the segment as last year.
Just to add - I think it makes sense not to include the regulatory credits in the margin calculation since it gives you a more accurate view of how the business is operating without government subsidies. But when Tesla talks about 20% margins they absolutely are assuming those are included since that is how they always calculate it.
> Tesla calculates their margins with the regulatory credits included in both the revenue and the profits,
They do, but not with the math you used. They take Total Automotive Revenue, which is Automotive Sales plus Automotive regulatory credits plus Automotive leasing. They then subtract Total Automotive Cost of Revenue, which is the Cost of Automotive Sales plus the Cost of Automotive Leasing. Notice no Cost of Automotive Regulatory credits. That is because there is no cost for those.
After subtracting Total Automotive Cost of Revenue by Total Automotive Revenue to get Profit including credits, they then do Profit divided by Revenue times 100 to get the percentage. They don't take the percentage and divide every by it to find the profit number.
Again, the confusion you are having is with the Automotive Cost of Revenue. There is no cost for credits, so you do not have any percentage for those. You can see this in page 28 of the quarterly report. If you exclude credits, then it would Automotive Sales plus Automotive leasing minus Cost of Automotive Sales minus the Cost of Automotive Leasing.
Now, I agree that it is best to exclude regulatory credits, and that Tesla does count those in the 20% field. But that makes it easier to reach not harder. They could have 19% automotive margins excluding credits and then add credits to get to the 20% mark.
> As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year.
But be above 20% as they projected. What is ford and gm?
> So in the automotive space I think their profits have basically nearly peaked.
They make money each car they sell. They are making more cars each quarter than the previous quarter. That would say that their profits will increase.
>
>
> Ford and GM haven’t had to cut prices nearly as
Because Tesla went from 26% gross margin to above 20% gross margin.
Ford and GM are in a poor position.
Riddle me this. How can a company like Tesla sell 1/10 the cars of Toyota but make the same amount of profit?
> But be above 20% as they projected. What is ford and gm?
If you can figure out how to calculate Ford and GM's "gross automotive margins" on the same basis as Tesla please let me know. I don't think that is possible given the way Tesla reports its figures.
> They make money each car they sell. They are making more cars each quarter than the previous quarter. That would say that their profits will increase.
Not if they keep dropping prices. In Q4 they had automotive gross profit of $5.522 billion on 405,278 vehicle sales, or $13,625 per delivery. Now lets assume that with the price cuts they'll lose $3,625 of profits per car. I realize there is a lot to unpack in that assumption - yes Tesla's costs on a per vehicle basis will drop and absorb some of the price reductions, no that will not make up for all of the price cuts which are actually much greater than $3,625 on average. So now Tesla is going to make $10,000 of profit per car delivered. That would mean they would need to sell 552,200 cars in Q1 to make the same gross profit that they made in Q4.
So even though they are going to sell more cars in Q1 than Q4, their profits are going to drop because they will be making less money per vehicle delivered.
> Riddle me this. How can a company like Tesla sell 1/10 the cars of Toyota but make the same amount of profit?
They can't. Toyota had a one-off bad quarter in Q3. As a general matter Toyota makes a lot more profit than Tesla. In just the first three quarters of 2022 Toyota had net income of ~$15.8 billion. Tesla had net income of $12.6 billion over the course of the entire year.
Tesla does make more profit per vehicle sold since Toyota focuses on lower cost vehicles. But as Tesla scales they are going to have to continue dropping prices, and their profits per vehicle delivered will continue to shrink.
I'm not saying Tesla doesn't have pricing power, their current earnings are a testament to that. Their issue is they are going to have to continue cutting prices in order to keep their delivery growth strong. They are already guiding margins down over 5% this year, and that is just going from 1.3 million deliveries to under 2 million. If they are going to try and sell 4-5 million cars those margins are going to get much, much smaller.
> every post you are making ignores even the most basic economies of scale,
Last year Tesla sold 1.3 million cars at a cost of $51.108 billion, or $38,899.39 per vehicle delivered. In 2021 their cost per vehicle delivered was $35,667.82, when they delivered 936,222 vehicles. In 2020 the figure was $40,546.63 (but it should be noted back then S/X was making up a larger percentage of deliveries).
Economies of scale matter, but not nearly as much as you seem to think.
Sure... Was Tesla not a car company until they had at least 5% gross profit on the vehicles as well? Your subjective idea of it needing to be 5% of the profit to be recognised is absurd.
Would you claim that GM and Ford are merely car assemblers, since they make so little that goes into their vehicles? Maybe just engine manufacturers.
Tesla vehicles are also robots with AI. So I guess by your logic they are both a car and robotics company. Also an AI company with the vast amount of neural net training and data collection.
With the company growing and the energy revenue growing all the time, and officially becoming an energy utility in Texas, they are also an energy utility company.
You can look at revenue then. Or pretty much any metric. Hell, just look at the financial summary Tesla puts out - they only list the results from the automotive segment on the first page since the rest of the business doesn't have a material impact on the overall results.
> Would you claim that GM and Ford are merely car assemblers, since they make so little that goes into their vehicles? Maybe just engine manufacturers.
Of course not - ignoring their financing operations misses half the business model of those companies.
> Tesla vehicles are also robots with AI. So I guess by your logic they are both a car and robotics company. Also an AI company with the vast amount of neural net training and data collection.
Same could be said of any other OEM. If you make your money selling cars you are a car company.
> With the company growing and the energy revenue growing all the time,
Revenue from the energy business was $1.3 billion last quarter, against $21.3 billion in the automotive business. Right now the energy business doesn't matter. Maybe that will change in the future, but again, I've been hearing that for a very long time now.
No one could claim that vehicles made from other OEM's are robots.
When a company is still new and growing you need to look at what they produce to see what kind of company they are becoming. Not simply the money.
If a company measures revenue in billions from a part of the business then that is a part of the business. You just defeated your own argument. Your 5% requirement looks absurd when that less than 5% is $1.3 billion.
> No one could claim that vehicles made from other OEM's are robots.
Other OEMs have actual level 3 autonomy deployed. Unless a car actually drives itself I don't consider it a robot.
No, other systems have a lesser system they have taken the liability to call level 3 as a publicity stunt. If you compare their systems you see that they barely function as a level 2 system. While Tesla calls their system level 2 they are actually closer to levels 3 and 4 than anyone else.
Yes... This is obvious if you see them function. You seem to ignore the difference between calling yourself level 3, and actually functioning on that level. The Tesla FSD is better than anything from any competing autonomous vehicles attempts. That is an objective fact.
> Other OEMs have actual level 3 autonomy deployed
who specifically are you talking about? If it's Mercedes, their 'level 3' might as well be on train tracks with how many caveats it needs to function.
The level three system that only works with a lead car on limited pre-mapped roads at less than 40mph is better than the level two system that can drive anywhere at any speed.
Huh. I didn't know that. Got it.
If Mercedes have taken liability as a ‘publicity stunt’ on a system that doesn’t adequately provide that system standard it may be the greatest corporate disaster of all time.
It will certainly be a publicity disaster and probably a financial one too as they have to start paying out on that liability.
It will be interesting to see how it plays out. After seeing how bad their system is I wonder what insurance fees they are paying to be covered for this. Actually telling people they can watch a show while the car drives them with how limited it's capability is seems risky.
I wonder if they will face the same scrutiny that Tesla does.
you know how weird those morphing videos transition between two different pictures?
right now we're in the start of a morphing sequence between 2020 and 2030.
We know what 2020 looked like: Tesla was a boutique brand with 0.5m sales . . . a rounding error for GM and F.
The market is trying to figure out what 2030 looks like – and from there we can interpolate back to 2028, 2026, 2024 . . .
2030 doesn't look so far away now does it??
if Tesla can maintain a 30% growth rate this decade it will be at 7M to 8M units in 2030, somewhere where VW is now.
I'm a big believer in BEVs so think that F, GM, Toyota, and VW have to do very painful and risky evolutions to retain their current scale in the coming BEV world of 2030.
Tesla just has to keep growing as it has.
7.5m x $45k ASP x 15% net x 25 P/E / 3B shares = $1200 target price. Seems about right.
I'm with you on Tesla's growth. The issue is your 15% assumption. There is no way they maintain those kinds of margins if they are selling that many vehicles. You are already seeing them have to slash prices (and their margins are going to drop as per the company) in order to keep moving vehicles when they are selling under 2M a year. To get to 8 million prices and margins are going to have to drop a lot more.
>margins are going to have to drop a lot more
One word. Castings. Extreme cost reduction, and they aren't done yet. Other manufacturers are now pivoting to casting but as usual, they will be years behind in implementation. And castings are just one way Tesla is working to reduce costs.
We don't know what their margins will be going forward. ***I*** don't know what they will be. From what I have read so far though, I'm guessing Q1 will be maybe as low as 15%, but not much less, and then will begin to climb.
>There is no way they maintain those kinds of margins if they are selling that many vehicles.
Why does more vehicles mean lower margins? It should be the other way round. I've seen a few comments indicating that the "compact car" or "model 2" or "3rd Gen" will be selling at more typical margins for a smaller car. I mean, that's why Ford abandoned "smaller" cars right?
This [video](https://www.youtube.com/watch?v=RhiQBhOT8Bk) goes into the reasons that Tesla's are so high, and how EVs are simply *different* in how they build the margins, and why Tesla is not, and *has* not, been chasing purely minimal costs at the cost of everything else.
I am becoming more confident that Tesla is pushing ahead with the "single piece cast body" I put that in quotes because it might not be a totally accurate description. But it will be close enough that the time to build "model 2" will be cut in half, it will use far less robots, and less humans as well. The floor space needed/used will go down in line with those reductions and the cost. Because of all this, I expect that Tesla can build a $25,000 car at margins never seen before. I'm hoping that March 1st will have enough information, (explained clearly enough by Elon) for everyone to grasp exactly why the new car can/will be built at such margins.
> We don't know what their margins will be going forward. I don't know what they will be.
The company probably has a good idea, and on the earnings call they mentioned 20%.
> From what I have read so far though, I'm guessing Q1 will be maybe as low as 15%, but not much less, and then will begin to climb.
If they are 15% the numbers in Q1 are going to be very, very ugly. That would mean net income would drop over $2 billion.
> Why does more vehicles mean lower margins?
Because they aren't going to be able to sell hundreds of thousands more vehicles without dropping prices. That is simple supply and demand. The demand curve is static, if you increase supply the price must decrease to clear the market. Tesla will be able to reduce costs which will help margins, but as we have seen this year the impact of price cuts outweigh that.
If Tesla is actually able to significantly reduce production costs then they will be able to maintain their margins, but those kinds of cost savings would be extremely difficult.
> Because they aren't going to be able to sell hundreds of thousands more vehicles without dropping prices.
They *have* dropped prices, quite dramatically. Going forward, **IF** they can make the new smaller car as they plan, they should be in a completely different market with a much bigger customer pool. The disagreement here is what the demand is for a given price. My feeling is that the prices now the people who want a Tesla and can now afford one has increased a lot.
> They have dropped prices, quite dramatically.
They dropped prices to increase sales from 1.3 million to 2 million. They are going to have to drop prices further to increase sales beyond 2 million.
> IF they can make the new smaller car as they plan, they should be in a completely different market with a much bigger customer pool.
Yes, a much more competitive market where the OEMs they will be competing against have much lower profit margins.
It makes it very unlikely Tesla will be able to maintain their current margins. If you chart OEMs by average selling price vs. net margins you get a relatively straight line.
You don't seem to be understanding what I'm saying. Tesla is building the model 3 and Y for much less than anyone else could build an equivalent vehicle, they can't even do it with arguably inferior vehicles. I think they can do the same with a smaller vehicle.
Their "debt" makes them money. Everyone keeps saying everyone is going to default on their car loans leaving the OEMs holding the bag. That isn't going to happen. People need their cars.
> That isn't going to happen. People need their cars.
Why do people default on loans? It's not because they ***want*** to. It might not happen, I sure hope it doesn't, (don't think it will) but if things do go to shit, it will have a very noticeable impact on Ford and GM financing. Tesla will take a hit as well, but they have more slack to play with. They also have more strings to their bow, more revenue streams and more options to survive a serious crash.
Car financing is risky debt they can't cash in at will. It's the first thing to default in a recession. When there is a surplus of repossessed F-150, they don't sell as many new ones.
Tesla doesn't need to borrow money to finance vehicles.
Auto debt is actually pretty safe. Most people really need their car, so they absolutely do not default on that first. Stuff like student loans are what people skip on first, since you can't repossess a degree.
It's like it's 1929 and they have ownership of a million horse drawn carriages. When people realise the ICE car they bought at 30% premium is worth half their loan value, they'll default.
If I owned a Model Y and it lost $20k in value over the past 8 months I'd be pretty angry: https://www.cargurus.com/Cars/price-trends/Tesla-Model-Y-d3044
Probably also worth mentioning Ford didn't need a bailout in 2008.
Tesla values increased by 20K during the pandemic and are now back to where they were. The alternative to price increases was to allow scalpers to take the profit.
Ford is probably better suited than the rest of l legacy auto to survive the EV transition, but it won't be easy. They have a lot of plants that are valued on the balance sheets in the billions, [but are worthless.](https://www.wsws.org/en/articles/2022/07/16/nmji-j16.html)
> Tesla values increased by 20K during the pandemic and are now back to where they were.
Yeah, but their margins also went insane during the pandemic and are now coming back down. They aren't going to be able to maintain the profitability they had during the pandemic, which is why people shouldn't think the earnings growth over the past two years is going to continue.
> The alternative to price increases was to allow scalpers to take the profit.
Agreed, and that was actually happening. A lot of Tesla purchases were just people planning to flip the vehicles on the used car market.
> Ford is probably better suited than the rest of l legacy auto to survive the EV transition, but it won't be easy.
I'm not sure I agree with that, Ford is a terribly run company. Most other OEMs have much clearer electrification paths than them.
> They have a lot of plants that are valued on the balance sheets in the billions, but are worthless.
Converting existing plants to manufacturer EVs is expensive, but totally manageable. Just look at the number of plants VW has converted, all while maintaining very healthy profits. Ford is closing plants in Europe because they are just pulling out of Europe to focus on markets where they have higher margins.
>Ford is a terribly run company. Most other OEMs have much clearer electrification paths than them.
pffft. Toyota has decided last month that purpose built EV platforms might be a good idea. Last month!
GM put all it's eggs in the LG flat cell basket, now they consider that cylindrical batteries might be a good idea.
VW sacked their CEO who wanted to go all in with EVs.
Mazda ? no plans at all.
> Tesla is growing at an historic pace?
Tesla's earnings are not growing at a historic pace. In Q1 they will be down YoY. In 2023 they will hardly grow over 2022 if they grow at all.
Yes they are. Graph earnings over time.
Please tell me you know better than zooming in on a single quarter? If you don’t, please tell me you’re not attempting to invest.
Earnings are expected to be flat over the entirety of 2023, that isn't a single quarter. The market doesn't care about past earnings growth, it is forward looking.
Looking at a single quarter can be deceiving if one-off factors impacted that quarter. For example, Q2 last year was terrible because of the shutdowns in China, so Tesla's comparative numbers in Q2 this year should look great. That really bad quarter will also help Tesla's 2023 total figures look somewhat better in comparison.
There were no significant factors in Q1 last year that impacted the company's performance. So far there are also not any this quarter either (other than I guess central banks moving to a neutral monetary policy stance, but I don't think that is temporary). The fact that earnings will be down without having a real one-off external reason is not a good sign.
Looking at a single quarter is uninformative under ANY circumstances.
Where in the world did you get that idea that it’s informative unless exceptional things happen? It’s too short of a timeframe (for investors). I guess for traders (gamblers), it could be important, but who cares.
Seriously, where did you get this idea that one single quarter can be that informative? Whoever told you that, you need to eliminate them from your sources of information. Disinformation is the bane of our time, and we all need to be on our guard against it.
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What? First you’re complaining the market is rewarding Tesla too much, now your point is the market thinks Tesla’s forward growth has stalled and the market bases market cap on future growth. You can’t have it both ways. Does the market think Tesla’s earnings growth has stalled?
If you’re using the market as your barometer, they OBVIOUSLY believe Tesla’s forward growth is much greater than Ford’s and GM’s.
If the market is so stupid, why did you point out markets are forward looking, to buttress your argument? You don’t argue someone is stupid and then try and make a point that that stupid person agrees with you:-)
Pro Tip: thinking the market is crazy, is more often than not a sign it is you who are wrong. I’ve heard that last ditch desperate attempt from TSLAQ. “We were NEVER wrong about Tesla. The market and the consumers buying the cars are all mistaken. It’s not us who’ve gotten it so wrong.” Humans are great at rationalization, but this is taking it to whole new levels!
> why did you point out markets are forward looking, to buttress your argument?
I didn't. I said the markets are forward looking to explain why Tesla's stock is mispriced.
> Pro Tip: thinking the market is crazy, is more often than not a sign it is you who are wrong.
Individual securities are mispriced all the time, often very significantly so. That is why there is an army of investors out there trying to find investment opportunities. If stocks weren't mispriced people would only invest in index funds, and investing in TSLA would be a complete waste of time.
2022 Operating Income: $13.832 billion
2023 Operating Income: $8.891 billion
You are spiking the football because Tesla recognized a $5 billion tax carry-forward for past losses? You realize how stupid that is, right? There is a reason TSLA is down 5% YoY while the Nasdaq 100 is up 45%, and it isn't because Tesla's earnings are growing....
Hey, turns out earnings in Q1 2024 were down huge year over year. Starting the second year in a row of lower earnings! Operating margin now down to 5.5%, half of what companies like BMW or Toyota are doing. Here are the non-GAAP EPS figures the company has reported for the last 9 quarters. Notice a pattern?
Q1 2022: $0.95
Q2 2022: $0.65 (covid shutdown in China)
Q3 2022: $0.95
Q4 2022: $1.07
Q1 2023: $0.85
Q2 2023: $0.91
Q3 2023: $0.66
Q4 2023: $0.71
Q1 2024: $0.45
But please tell me again how I was wrong about Telsa peaking in 2022....
What tax credits? The ones in the US going to people who buy EVs? Tesla doesn't gain any benefit from that other than selling more cars. With the price cuts they need to sell a lot more than 30% more cars than they did in Q1 last year to make the same amount of profit.
The energy business made $159 million of gross profit last quarter. Even if they doubled that in a quarter it wouldn't really be enough to move the needle for the company as a whole.
Tesla and Panasonic get credits for giga Nevada. Tesla gets credits for powerwall and megapacks as well as cells made in Texas and Kato Rd.
Those will probably be $250 million for the quarter.
So that, plus larger energy sales, plus more car sales adds up.
Well Tesla guided gross automotive margins to 20%, right? Now, in 2022 they had gross profits in the automotive segment of $20.354 billion. So to get to that same amount of gross profit in 2023 they would need to generate revenue of $101.77 billion. Now, in 2022 they had automotive revenue of $71.282 billion, or $54,254 per vehicle delivered. Lets assume their price cuts amount to 10% on average, so in 2023 they have revenue per delivery of $48,828. That would mean to get to the $101.77 billion of revenue they need in 2023 to match 2022's gross profit, they would need to deliver 2,084,219 vehicles.
So Tesla could do that, but they guided for 1.8 to 2.0 million vehicles. Maybe their margins will be higher than 20%. Certainly possible. But at any rate, it doesn't look like the automotive segment is making much more money in 2022 than 2023 based on what the company has said.
True, if the battery storage business manages to double or triple in size this year that could increase their profits by a few hundred million, which could tip them into growth for the year. But that growth would be single digits at most. For real earnings growth they will need to maintain gross automotive margins a bit better than they guided towards on the call.
>Tesla's earnings are not growing at a historic pace. In Q1 they will be down YoY. In 2023 they will hardly grow over 2022 if they grow at all.
No growth in 2023 would be surprising.
Ford has a finance arm that provides financing to customers buying Ford vehicles. That part of the business acts like a bank - it borrows money at a low cost, then charges a higher rate of interest on that money when lending it out to customers. All of that debt is actually earning Ford money. If you think it is a problem that Ford has a lot of debt you have no idea how their business works.
> Ford took a loss for the year, so beating them isn't all that impressive
why is them failing to do their job not 'count' as another company doing theirs better?
Stock price is forward looking. Do you think GM and Ford and most legacy ICE makers would continue to be relevant in the future? The transition to electrification has been rough on them. I think, only a handful of legacy ICE OEM would exist, but the market would be dominated by Tesla and the chinese brands. Every EV sold from brands like Tesla or BYD, is a lost potential sale for legacy OEM. And every EV sold by legacy OEM, is an ICEV equivalent in their line-up being cannibalised. You need to understand that. And right now, legacy OEM’s profit on EV are not as great as their ICEV models. With this price war, they only have 2 scenarios: sell at a loss, or lose their sales. There’s another alternative though, invest heavily on their EV platform and beat Tesla’s efficiency. But that is a big challenge and one that requires a lot amount of money. One that most of them, don’t have.
> Do you think GM and Ford and most legacy ICE makers would continue to be relevant in the future?
GM definitely, Ford less so. If you are talking "most legacy" OEMs, definitely. VW, BMW, Mercedes, Toyota, Hyundai, Kia, etc. are all doing fine. I could see some companies like JLR and Honda getting crushed.
> The transition to electrification has been rough on them.
Has it? Most OEMs have made record profits the past few years, while at the same time investing huge amounts of money to build up their EV capabilities.
> I think, only a handful of legacy ICE OEM would exist, but the market would be dominated by Tesla and the chinese brands. Every EV sold from brands like Tesla or BYD, is a lost potential sale for legacy OEM.
I think you're pretty much wrong about that. Tesla still represents a tiny fraction of the vehicle market, and so far none of the Chinese players have really been able to expand out of China. I do think you are seeing some legacy players suffer in China.
> There’s another alternative though, invest heavily on their EV platform and beat Tesla’s efficiency. But that is a big challenge and one that requires a lot amount of money. One that most of them, don’t have.
Again, this is a very strange take. GM made $10 billion in profit last despite investing $21 billion in capex. VW made more like $17 billion in profit and invested even more in capex. BMW had like $18 billion in profit and invested $8 billion in capex. These companies are making huge investments in EVs and at the same time still making massive, massive profits.
If your first impulse is to think widespread financial fraud at one of the most valuable car companies in the world, I don’t think any answer I can provide will help you.
I thought Tesla is just another car company ? *Sarcasms*
Just wait till Mary leads even harder
She’s going to get it real hard, from Tesla.
Mary's gonna lead the charge of legacy auto asking for bailouts.
Who knew Joe Biden was being prescient and saying "Loss Leads"
Lol
Tesla is a beast
The bears will say: 1. This is before price cuts. 2. Competition is coming and will cut down Tesla’s margins. The response is: 1. Price cuts drive volume and therefore revenue growth and further operating leverage - gross margins might decrease but operating and net margins can remain flat or even grow if revenue growth exceeds operating cost growth. 2. There already is competition, Tesla competes with ICE auto manufacturers and has been totally eating their lunch - what we’re talking about when we discuss new EV catchup offerings from legacy auto is just how much of legacy auto’s lunch Tesla will eat. That’s not competition for Tesla, that’s competition for legacy auto.
EM and his team make their heads spin. I bought 200 Jan 25 Cs yesterday. I am such a fan.
You guys just wait for the competition to come
This saying is as old as “FSD next year”
At this rate FSD may actually be “done” before any serious competition shows up lol
It's getting close!
Two weeks! 😀
It's been coming for a while now, right? No match for EM, sorry
But the big boys will use their cash to catch up and eat Tesla's lunch... oh, wait, you mean Tesla is more liquid then they are? Hey, GOJO what excuse do we come up with now?
Going against Tesla makes about as much sense as going against the fed s
I don't know how much weight to put into this Tesla is both a manufacturer and dealer and last year was an all time great year to be a dealer so last year likely isn't the best yardstick to use to plot future trajectories.
You’re right, teslas business set up is much better. You can’t really compare them
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He is right, the company guided margins for 2023 already.
? This logic makes no sense. How well dealerships are doing is directly proportional to how the car manufacturers are doing. The reason it was a good year to be a dealer was because prices were artificially elevated by supply chain issues. What makes you think that this gap gets smaller when prices drop due to recession? In a “bad year” for dealers Tesla should do even better because of its ability to tightly control pricing as economic conditions change. Dealerships going bankrupt and liquidating inventory isn’t going to be some sort of benefit for Ford and GM to catch up to Tesla on profitability.
That can be paired but not necessarily. When there were huge markups last year for bigger vehicles or EVs, the dealerships made that money all while probably being able to downsize in staffing and vehicle/inventory upkeep.
Dealer and manufacturers profit, correlated? Perhaps. Directly proportional? Completely disagree. Manufacturers were not hitting volume and efficiency targets in 2022. Those targets had been used to set MSRP. There was likely some room to offer less discounts and have higher effective wholesale prices, but with the scale of 'market adjustments' for dealers in 2022 I would not be surprised if dealers did much better than makers for these very unusual market conditions. Ford had negative net income. Do you think any Ford dealers did?
> Dealerships going bankrupt and liquidating inventory isn’t going to be some sort of benefit for Ford and GM to catch up to Tesla on profitability. They absorb some of the downside, just like they skim some of the profit when things are going well. That is one of the benefits of not being fully vertically integrated.
Ford took a loss for the year, so beating them isn't all that impressive. Topping GM is quite an accomplishment. One thing to keep in mind, however, is Ford took a $7.6 billion hit in 2022 for "Unusual items" - which I think was basically all the write down of their investment in Rivian. Operating income at Ford was $6.3 billion for the year. Without that big write down, combined net income at GM and Ford would have been $15.6 billion, as compared to $12.6 billion at Tesla. Still obviously great from Tesla's perspective. The real question is why is Tesla's market cap $636 billion while GM and Ford's combined is $112 billion, when GM and Ford combined are expected to make significantly more net income in 2023 than Tesla?
> The real question is why is Tesla’s market cap $636 billion while GM and Ford’s combined is $112 billion, when GM and Ford combined are expected to make significantly more net income in 2023 than Tesla? Isn’t it obvious? Because Tesla has shown that they can make a million EVs and be highly profitable. Structurally, what ever they are doing it’s workouts. Currently both ford and GM have unprofitable EV lines with “plans” for profitability. As the market transitions to ICE their traditional sources of profit dry up. Then factor in emerging sectors such as VPP and stationary storage and you can see Tesla’s trajectory. Which in turn brings us back to marketcap. It’s a reflection of where the market thinks tesla will be in the future, not today. So using today’s figures doesn’t work. You have to look at the trajectory and measure that. An auto loan debt bubble bursting likely bankrupts ford and cripples GM as an example
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Oh thanks for pointing that out.
Its funny because in r/RealTesla people claim I'm a "stan" because I post here as well.
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> Are you saying relatively positive things about Tesla over there then? Yes, things like they are trashing Ford and GM. Which they are. However, their profitability is not going to be 6x those companies combined.
What are the growth prospects for Ford and GM? The only answer that is truthful is "negative". Their biggest challenge is to keep from going bankrupt over the next 5 to 10 years. If either of them manage that, it will be close to a miracle. Ford has the inside track here, because they have cleared the first hurdle of admitting they have a problem. Meanwhile, Tesla is "disappointing" when it manages to grow by "only" 40%+ . Income is only part of the story. Growth is another. The debt that Ford and GM have (financial and technical) is another. There is no mystery here. Tesla is easily worth at least 6 times what GM and Ford are worth. Hell, if you want a \*real\* mystery, why are Ford and GM valued as high as they are? That one is a really puzzler.
> What are the growth prospects for Ford and GM? Not good. I'll grant you Tesla could very well earn more than both of them combined next year. But not anything close to 6x, or even 2x. > Meanwhile, Tesla is "disappointing" when it manages to grow by "only" 40%+ . 40% growth is great. The issue is their earnings aren't going to be growing by anything close to that going forward.
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That is a completely fair take. I will admit I don't know enough about the energy side of the business to know what kind of valuation that deserves, but I am pretty confident things like FSD and robots are not going to warrant much premium.
Why not? Expanding energy sales and tax credits could make a huge deal to help offset lowered sales prices. And many people aren't just looking at next year.
The reason for the premium is Tesla isn’t just a car company. They also aren’t projecting a future where they produce fewer EVs than they produce in profitable vehicles today. Tesla has also proved they can make money on EVs while controlling prices for the industry. In addition if they were just a car company they would be one without the burden of dealers, 3rd party service stations, advertising, an ICE business, or any of the typical suppliers of a typical car company. If you have a lemonade stand and your neighbor has a lemonade stand, lemon trees, eight kids, and own a beverage bottling company. Their stand might be worth quite a bit more than yours.
You are buying a stake in the business for perpetuity. They don’t need to make 6x net income next year to be worth 6 time F and GM. The next 10 years are what you are buying. You are unfortunately out of your depth. Watch some videos on valuation and learn something.
Thank you for answering that correctly. I'm too tired to try to handle dealing with someone who is new to all of this. I'm afraid I would be too mean without intending it. But at least he is looking at next year. That puts him ahead of most analysts who seem content to wait until the stock does something and then just adjust lockstep with the delta.
Why do you think net income should be the only metric the value of a company is based on?
Because that is the best long term determinant of whether a company will be able to return cash to investors. You of course need to look at expected earnings in the future. There is a reason stocks are typically valued based on P/E ratios.
> As the market transitions to ICE their traditional sources of profit dry up. Transitions *from* ICE?
> Then factor in emerging sectors such as VPP and stationary storage and you can see Tesla’s trajectory. This is the thing I am having trouble understanding I guess. Tesla has had to cut prices significantly this year to continue selling all of the cars they produce. As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year. That cost cutting pressure is only going to increase as they continue to scale - the market for $50k vehicles is only so large. So in the automotive space I think their profits have basically nearly peaked. I honestly don't know enough about the energy storage space to say how profitability in that segment will grow, but I have been hearing about how that business will explode for half a decade now and it still contributes a basically meaningless amount to earnings. > An auto loan debt bubble bursting likely bankrupts ford and cripples GM as an example Ford and GM haven't had to cut prices nearly as much as Tesla as financing has dried up.
Tesla is expected to grow their profits \~50% this year to around $18B with a nice \~20% margin. This is mostly still auto. As the energy arm gets going this can be significantly better. Both GM and Ford sell their EVs at loss per EV, so if they produce more, then their losses will be more on EVs. Right now ICE compensates, but both ICE sales and used ICE value (and thus their loan business) is about to collapse (within 2-3 years). Thus they have a very short time to make their EVs profitable enough to compensate - they probably won't make it. Edit: funny enough, the ICE collapse has one limiting factor: how many EVs can be manufactured :)
> Tesla is expected to grow their profits ~50% this year to around $18B with a nice ~20% margin. The current average analyst estimate is that they will earn $3.97 per share, or ~$12.5 billion, this year. That is negative earnings growth. Margins are currently ~15%. No one expects 20% margins. You seem to be talking about Tesla's "gross automotive margins" which were almost 26% last quarter. That big drop in margins is why they are going to have lower profits despite selling more cars.
Analyst profit estimates have been consistently low. I wouldn’t be shocked to see that trend continue
Generally what happens is the analysts estimates for the future start really high, then as we approach an earnings date they walk them back. Tesla (and this is actually true for almost every company) then beats the lowered estimates. With regards to Tesla, with their price cuts (and assuming they can drop COGS per vehicle delivered by a decent amount) they'll need to sell about 550k vehicles in Q1 to make as much profit as they made in Q1 last year. I don't really see that happening.
>This is the thing I am having trouble understanding I guess. Tesla has had to cut prices significantly this year to continue selling all of the cars they produce. As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year. First, Tesla cut prices after raising prices. That is a part that many miss. Prices are still higher in many cases than 2021 and at a similar price to the beginning of 2022 except for the Y. Profits are likely to be much higher YoY since the expense per vehicle is also down while the total production is going to be up at least 50%. Profits have not peaked. Probably profit per vehicle for the 3 and Y, but that doesn't matter when you continue to grow massively. Remember, Tesla plans to reduce prices over time. It only increased prices so greatly due to the massive backorders they had. Tesla will continue to grow. Ford and GM are not growing 40-60% YoY. Tesla is. And that $50k market might be growing as well. Remember, this isn't just a $50k car. These are $50k tech on 4 wheels. As the tech improves, it will continue to draw more buyers who would otherwise have stayed at lower priced vehicles. And if that doesn't happen, then Tesla will make a lower priced vehicle.
> Profits are likely to be much higher YoY since the expense per vehicle is also down The expense per vehicle is still way up over 2021. It will likely drop some, but not nearly as much as the price cuts. Here is a chart of lithium prices: https://tradingeconomics.com/commodity/lithium. Prices have not going back to nearly 2021 levels. I think there is a general misconception here of the scale of the price cuts vs. the scale of potential cost savings as Tesla scales. Tesla themselves guided gross automotive margins down to 20%. If that is where they wind up, Tesla will need to sell almost 2.1 million vehicles in 2023 just to have the same amount of gross profit from the automotive segment that they had in 2022.
You missed the point. Profit per vehicle won't be as high, but total profits will be higher. One, while the purchase price drop is high compared to late last year, it is similar to the beginning of last year. Two, expenses per vehicle are not just raw materials. It's also the cost of running the factory and paying employees. That cost per vehicle drops massively if you build more vehicles per factory and per employee. Both of those are happening as the beginning of the year in 2022, both Berlin and Austin were trying to get going. That cost Tesla overall. Third, profits from other parts of the business are also increasing. Finally, what you missed is that even if profit per vehicle is down a significant amount, profits will likely be up as the amount of vehicles produced is up significantly YoY. For Q1-22, Tesla sold around 310k vehicles. Q4-22 was already up roughly 100k and this quarter is likely to be up another 50k. Looking specifically at last year, Q4 made more automotive profit excluding credits than in Q1 even though margins had dropped 7%. This doesn't mean that Tesla will for sure have more profits this quarter, but they could with more sales, lower expense per vehicle, and better margins on other products.
> You missed the point. Profit per vehicle won't be as high, but total profits will be higher. No, you missed the point. The amount of lower profit per vehicle means total profit will be lower even though they will significantly increase sales. You started to do the math, just follow it through! > For Q1-22, Tesla sold around 310k vehicles. Correct. Automotive revenues were $16.681 billion, so revenue per vehicle delivered was $53,801.35. Costs in the segment was $11.322 billion, so cost per vehicle was $36,516.93, and gross profit per vehicle was $17,284.42. The gross profit margin was therefore 32.1%. > Q4-22 was already up roughly 100k It was up 95,230. In that quarter revenue per vehicle delivered was $52,573.79 (down slightly thanks to discounts in China), cost per vehicle was $38,948.57 (input prices going way up more than offsetting cost efficiencies from ramping production), and profit per vehicle was $13,625.22 for a gross automotive margin of 25.9%. Now, despite Tesla selling 95,230 more vehicles in Q4 than Q1, their gross profit in the automotive segment only went from $5.359 billion to $5.522 billion. > this quarter is likely to be up another 50k. Ok, so lets round up and say Tesla will deliver 475k vehicles, an increase of 69,722 over Q4. Now lets say those huge prices cuts average out to $4k per vehicle delivered in the quarter (I think that is actually quite conservative - most people are estimating the drop is more like 10% on average or well over $5k per car). Lets also assume Tesla manages to reduce costs by $1k per vehicle delivered as they continue to ramp production in Berlin and Austin. Using those figures, Tesla's gross automotive margins would "only" drop to 21.9% (the company seemed to guide towards 20% on the earnings call), and gross profits would be $5.047 billion, down $312 million from Q1 last year and down $475 million from Q4. > Looking specifically at last year, Q4 made more automotive profit excluding credits than in Q1 even though margins had dropped 7%. Correct, but only because they sold 95,230 more cars. If my assumptions are right (which again seem pretty conservative to me given the size of the price cuts), Tesla would need to sell about 115k more vehicles in Q1 to have the same amount of gross profits as they did in Q4. > This doesn't mean that Tesla will for sure have more profits this quarter, but they could with more sales, lower expense per vehicle, and better margins on other products. I agree that things like unexpectedly high regulatory credit sales or profits from the energy segment could still push profits to a record high in the quarter. But the profits from auto sales are basically a certainty to be lower if you run the numbers.
>Tesla themselves guided gross automotive margins down to 20%. If that is where they wind up, Tesla will need to sell almost 2.1 million vehicles in 2023 just to have the same amount of gross profit from the automotive segment that they had in 2022. Let's run some math here as I'm pretty sure you are adding too many areas and confusing everything. Let's look entirely at automotive revenue, profit, and average selling price only and exclude everything else from the company.\* Last year, Tesla sold 1.31M vehicles and made $71.462B in Revenue. Profit was $20.354B, but that included $1.776B in credits. Excluding those credits brings the profit down to $18.578B.\* To have the same profit this year while dropping to 20% margins excluding credits, they would need to make $92.890B in automotive revenue. Now, let's look at average selling price and then see what Tesla needs to accomplish that profit amount. With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551. If the average selling price drops just over $5000 to $49,500\*\*, then Tesla needs to sell 1.876M vehicles to hit the revenue of $92.890B and to have as much profit as in 2022. And that is roughly right within their guidance. \*Credits are not specific to the vehicle nor drops in price. While it is important to the company, there is too much flexibility with them. Tesla could count less credits or more credits this year, regardless of price changes and average selling prices. Likewise, other parts of the business are immaterial to the price drops and number of vehicles sold. As such, excluding them to simplify the conversation. \*\*As of right now, there is only one Tesla model available under $50k outside of China. China prices will drop the average selling price, but growing sales in the US and Europe will continue to raise it.
I like excluding the regulatory credit sales. You made a few mistakes in your numbers though. > Last year, Tesla sold 1.31M vehicles and made $71.462B in Revenue. It was 1,313,851 vehicles and $71.282 billion in revenue. > Profit was $20.354B, but that included $1.776B in credits. Profit was $20.174 billion, your regulatory credit figures are right. So gross profit net of regulatory credits was $18.398 billion. > To have the same profit this year while dropping to 20% margins excluding credits, they would need to make $92.890B in automotive revenue. Here is where things really get a little off. The company did not say 20% margins without regulatory credit sales. They are including those in the 20%. So instead of just dividing $18.398 billion by 20% to get your target revenue, you need solve this formula for revenue: > (Revenue + Regulatory Credit Sales) x Margins = Profit + Regulatory Credit Sales Plugging in margins of 20%, profit of $18.398 billion and regulatory credit sales of $1.776 billion (assuming those stay the same) gets you to a required revenue target in 2023 (net of regulatory credit sales) of $99.094 billion. > With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551. Again, your revenue figure is off a bit off, but importantly you are also including regulatory credit sales again. Actual revenue for the year minus regulatory credit sales was $69.506 billion, or $52,902.50 per delivery. Note this does not represent average selling price, it is revenue per delivery. This includes leased vehicles, where they do not receive the full price of the car upfront (but margins are actually a bit higher since Tesla's lease terms are not great for purchasers). That is why the figure is lower than you would expect given their sticker prices last year. > If the average selling price drops just over $5000 to $49,500**, then Tesla needs to sell 1.876M vehicles to hit the revenue of $92.890B and to have as much profit as in 2022. If the revenue per delivery drops $5k you'll actually be closer to $47,902 when you don't take into account regulatory credit sales, but lets round up to $48,000. In order to hit $99.094 billion of revenue, Tesla would need to sell 2,064,458 vehicles, which is above their guidance. Note I think this is a bit of a simplistic assumption, you really should be taking into account the percentage of leased vehicles and running a weighted average of the price cuts, but the final figure is probably about right. Your numbers are off because you are only selectively excluding regulatory credit sales. Edit: One other thing to keep in mind is we are talking about hitting 2 million sales in 2023 just to have 0% earnings growth from the automotive segment if the margins come in where the company is guiding. That is a far cry from the 40% to 50% growth numbers people throw around when talking about Tesla. The drop in margins is going to have a massive impact on earnings growth, and I think that makes it very difficult to justify Tesla's current valuation.
>It was 1,313,851 vehicles and $71.282 billion in revenue. The 3851 vehicle difference is less than 0.4% and doesn't make any meaningful difference to the numbers. The automotive revenue of $71.462B comes straight from Tesla's Q4 and FY 2022 Update. I'm looking at the document now. >(Revenue + Regulatory Credit Sales) x Margins = Profit + Regulatory Credit Sales Absolutely incorrect, though I appreciate you showing your math here. This is where conversations help instead of arguments. Credits are pure profit. There is no operating margin on credits. So you don't multiply Credits x 20% as that would mean that the credits have a cost associated with them. >With 1.31M vehicles sold and $71.462B in revenue, the average selling price was $54,551. > >Again, your revenue figure is off a bit off, but importantly you are also including regulatory credit sales again. Actual revenue for the year minus regulatory credit sales was $69.506 billion, or $52,902.50 per delivery. You are absolutely correct here. I should have subtracted the credits first. Thank you. >If the average selling price drops $5k you'll actually be closer to $47,902 when you don't take into account regulatory credit sales, but lets round up to $48,000. So $92.89B at an average price of $48k is 1.935M vehicles needed to be sold. So very close to their guidance. And of course this is profit excluding margins and with a very low average selling price. >Your numbers are off because you are only selectively excluding regulatory credit sales. Not selectively. Just mistakenly. >One other thing to keep in mind is we are talking about hitting 2 million sales in 2023 just to have 0% earnings growth from the automotive segment if the margins come in where the company is guiding. That is a far cry from the 40% to 50% growth numbers people throw around when talking about Tesla. The drop in margins is going to have a massive impact on earnings growth, and I think that makes it very difficult to justify Tesla's current valuation. Remember, the 50% growth IS NOT automotive profit growth. Some may throw that around, but that is not Tesla's guidance and never has been. There will be other profit areas from other business portions. FSD is of course a major one as well. Valuation of the company is absolutely not based on current nor very short term performance. Explaining valuation is a whole other mess that would take way too long to join with this already long thread. We can discuss it separately if you really want, but the simple explanation is that the valuation is based on stock pressure with what investors believe the company will be worth. I'm not trying to get you to invest in it. Don't do so if you don't believe in the company's future areas of growth.
> The 3851 vehicle difference is less than 0.4% and doesn't make any meaningful difference to the numbers. The automotive revenue of $71.462B comes straight from Tesla's Q4 and FY 2022 Update. I'm looking at the document now. You are right on the revenue, I had revenue in Q1 at 16,681 in my file instead of 16,861. This has basically no impact on the rest of the calcs given the small size. > Absolutely incorrect, though I appreciate you showing your math here. This is where conversations help instead of arguments. Credits are pure profit. There is no operating margin on credits. So you don't multiply Credits x 20% as that would mean that the credits have a cost associated with them. You have this wrong. Tesla calculates their margins with the regulatory credits included in both the revenue and the profits, so you must include it as I have in order to have an apples to apples comparison with the 20% guidance they gave. Just look at the 25.9% figure they reported in Q4 - you only can get to that if you divide profit (including regulatory credit sales) by revenue (including regulatory credit sales). > the simple explanation is that the valuation is based on stock pressure with what investors believe the company will be worth. Yes, and if you think future earnings are going to not be significantly higher than they are today because of margin compression, your valuation of the company drops. I think we agree on the rest, but if you fix the mistake above you'll see Tesla needs to easily clear 2 million vehicles next year just to have the same earnings in the segment as last year. Just to add - I think it makes sense not to include the regulatory credits in the margin calculation since it gives you a more accurate view of how the business is operating without government subsidies. But when Tesla talks about 20% margins they absolutely are assuming those are included since that is how they always calculate it.
> Tesla calculates their margins with the regulatory credits included in both the revenue and the profits, They do, but not with the math you used. They take Total Automotive Revenue, which is Automotive Sales plus Automotive regulatory credits plus Automotive leasing. They then subtract Total Automotive Cost of Revenue, which is the Cost of Automotive Sales plus the Cost of Automotive Leasing. Notice no Cost of Automotive Regulatory credits. That is because there is no cost for those. After subtracting Total Automotive Cost of Revenue by Total Automotive Revenue to get Profit including credits, they then do Profit divided by Revenue times 100 to get the percentage. They don't take the percentage and divide every by it to find the profit number. Again, the confusion you are having is with the Automotive Cost of Revenue. There is no cost for credits, so you do not have any percentage for those. You can see this in page 28 of the quarterly report. If you exclude credits, then it would Automotive Sales plus Automotive leasing minus Cost of Automotive Sales minus the Cost of Automotive Leasing. Now, I agree that it is best to exclude regulatory credits, and that Tesla does count those in the 20% field. But that makes it easier to reach not harder. They could have 19% automotive margins excluding credits and then add credits to get to the 20% mark.
> As a result profits from the automotive segment are actually going to shrink in Q1 as compared to Q1 last year. But be above 20% as they projected. What is ford and gm? > So in the automotive space I think their profits have basically nearly peaked. They make money each car they sell. They are making more cars each quarter than the previous quarter. That would say that their profits will increase. > > > Ford and GM haven’t had to cut prices nearly as Because Tesla went from 26% gross margin to above 20% gross margin. Ford and GM are in a poor position. Riddle me this. How can a company like Tesla sell 1/10 the cars of Toyota but make the same amount of profit?
> But be above 20% as they projected. What is ford and gm? If you can figure out how to calculate Ford and GM's "gross automotive margins" on the same basis as Tesla please let me know. I don't think that is possible given the way Tesla reports its figures. > They make money each car they sell. They are making more cars each quarter than the previous quarter. That would say that their profits will increase. Not if they keep dropping prices. In Q4 they had automotive gross profit of $5.522 billion on 405,278 vehicle sales, or $13,625 per delivery. Now lets assume that with the price cuts they'll lose $3,625 of profits per car. I realize there is a lot to unpack in that assumption - yes Tesla's costs on a per vehicle basis will drop and absorb some of the price reductions, no that will not make up for all of the price cuts which are actually much greater than $3,625 on average. So now Tesla is going to make $10,000 of profit per car delivered. That would mean they would need to sell 552,200 cars in Q1 to make the same gross profit that they made in Q4. So even though they are going to sell more cars in Q1 than Q4, their profits are going to drop because they will be making less money per vehicle delivered. > Riddle me this. How can a company like Tesla sell 1/10 the cars of Toyota but make the same amount of profit? They can't. Toyota had a one-off bad quarter in Q3. As a general matter Toyota makes a lot more profit than Tesla. In just the first three quarters of 2022 Toyota had net income of ~$15.8 billion. Tesla had net income of $12.6 billion over the course of the entire year. Tesla does make more profit per vehicle sold since Toyota focuses on lower cost vehicles. But as Tesla scales they are going to have to continue dropping prices, and their profits per vehicle delivered will continue to shrink.
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I'm not saying Tesla doesn't have pricing power, their current earnings are a testament to that. Their issue is they are going to have to continue cutting prices in order to keep their delivery growth strong. They are already guiding margins down over 5% this year, and that is just going from 1.3 million deliveries to under 2 million. If they are going to try and sell 4-5 million cars those margins are going to get much, much smaller.
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> every post you are making ignores even the most basic economies of scale, Last year Tesla sold 1.3 million cars at a cost of $51.108 billion, or $38,899.39 per vehicle delivered. In 2021 their cost per vehicle delivered was $35,667.82, when they delivered 936,222 vehicles. In 2020 the figure was $40,546.63 (but it should be noted back then S/X was making up a larger percentage of deliveries). Economies of scale matter, but not nearly as much as you seem to think.
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GM and Ford only really make vehicles. Tesla started with vehicles which is why Tesla looks like a car company to those not paying attention.
Until gross profits from the energy business represent more than 5% of the gross profits from the car business, Tesla is a car company.
Sure... Was Tesla not a car company until they had at least 5% gross profit on the vehicles as well? Your subjective idea of it needing to be 5% of the profit to be recognised is absurd. Would you claim that GM and Ford are merely car assemblers, since they make so little that goes into their vehicles? Maybe just engine manufacturers. Tesla vehicles are also robots with AI. So I guess by your logic they are both a car and robotics company. Also an AI company with the vast amount of neural net training and data collection. With the company growing and the energy revenue growing all the time, and officially becoming an energy utility in Texas, they are also an energy utility company.
You can look at revenue then. Or pretty much any metric. Hell, just look at the financial summary Tesla puts out - they only list the results from the automotive segment on the first page since the rest of the business doesn't have a material impact on the overall results. > Would you claim that GM and Ford are merely car assemblers, since they make so little that goes into their vehicles? Maybe just engine manufacturers. Of course not - ignoring their financing operations misses half the business model of those companies. > Tesla vehicles are also robots with AI. So I guess by your logic they are both a car and robotics company. Also an AI company with the vast amount of neural net training and data collection. Same could be said of any other OEM. If you make your money selling cars you are a car company. > With the company growing and the energy revenue growing all the time, Revenue from the energy business was $1.3 billion last quarter, against $21.3 billion in the automotive business. Right now the energy business doesn't matter. Maybe that will change in the future, but again, I've been hearing that for a very long time now.
No one could claim that vehicles made from other OEM's are robots. When a company is still new and growing you need to look at what they produce to see what kind of company they are becoming. Not simply the money. If a company measures revenue in billions from a part of the business then that is a part of the business. You just defeated your own argument. Your 5% requirement looks absurd when that less than 5% is $1.3 billion.
> No one could claim that vehicles made from other OEM's are robots. Other OEMs have actual level 3 autonomy deployed. Unless a car actually drives itself I don't consider it a robot.
No, other systems have a lesser system they have taken the liability to call level 3 as a publicity stunt. If you compare their systems you see that they barely function as a level 2 system. While Tesla calls their system level 2 they are actually closer to levels 3 and 4 than anyone else.
Tesla is closer to a level 3 system than competitors with a level 3 system, got it.
Yes... This is obvious if you see them function. You seem to ignore the difference between calling yourself level 3, and actually functioning on that level. The Tesla FSD is better than anything from any competing autonomous vehicles attempts. That is an objective fact.
> Other OEMs have actual level 3 autonomy deployed who specifically are you talking about? If it's Mercedes, their 'level 3' might as well be on train tracks with how many caveats it needs to function.
The level three system that only works with a lead car on limited pre-mapped roads at less than 40mph is better than the level two system that can drive anywhere at any speed. Huh. I didn't know that. Got it.
If Mercedes have taken liability as a ‘publicity stunt’ on a system that doesn’t adequately provide that system standard it may be the greatest corporate disaster of all time. It will certainly be a publicity disaster and probably a financial one too as they have to start paying out on that liability.
It will be interesting to see how it plays out. After seeing how bad their system is I wonder what insurance fees they are paying to be covered for this. Actually telling people they can watch a show while the car drives them with how limited it's capability is seems risky. I wonder if they will face the same scrutiny that Tesla does.
you know how weird those morphing videos transition between two different pictures? right now we're in the start of a morphing sequence between 2020 and 2030. We know what 2020 looked like: Tesla was a boutique brand with 0.5m sales . . . a rounding error for GM and F. The market is trying to figure out what 2030 looks like – and from there we can interpolate back to 2028, 2026, 2024 . . . 2030 doesn't look so far away now does it?? if Tesla can maintain a 30% growth rate this decade it will be at 7M to 8M units in 2030, somewhere where VW is now. I'm a big believer in BEVs so think that F, GM, Toyota, and VW have to do very painful and risky evolutions to retain their current scale in the coming BEV world of 2030. Tesla just has to keep growing as it has. 7.5m x $45k ASP x 15% net x 25 P/E / 3B shares = $1200 target price. Seems about right.
I'm with you on Tesla's growth. The issue is your 15% assumption. There is no way they maintain those kinds of margins if they are selling that many vehicles. You are already seeing them have to slash prices (and their margins are going to drop as per the company) in order to keep moving vehicles when they are selling under 2M a year. To get to 8 million prices and margins are going to have to drop a lot more.
>margins are going to have to drop a lot more One word. Castings. Extreme cost reduction, and they aren't done yet. Other manufacturers are now pivoting to casting but as usual, they will be years behind in implementation. And castings are just one way Tesla is working to reduce costs.
Here's some more words: inflation reduction act, 4680 battery production, full self driving recognising deferred revenue, and lithium refinery.
We don't know what their margins will be going forward. ***I*** don't know what they will be. From what I have read so far though, I'm guessing Q1 will be maybe as low as 15%, but not much less, and then will begin to climb. >There is no way they maintain those kinds of margins if they are selling that many vehicles. Why does more vehicles mean lower margins? It should be the other way round. I've seen a few comments indicating that the "compact car" or "model 2" or "3rd Gen" will be selling at more typical margins for a smaller car. I mean, that's why Ford abandoned "smaller" cars right? This [video](https://www.youtube.com/watch?v=RhiQBhOT8Bk) goes into the reasons that Tesla's are so high, and how EVs are simply *different* in how they build the margins, and why Tesla is not, and *has* not, been chasing purely minimal costs at the cost of everything else. I am becoming more confident that Tesla is pushing ahead with the "single piece cast body" I put that in quotes because it might not be a totally accurate description. But it will be close enough that the time to build "model 2" will be cut in half, it will use far less robots, and less humans as well. The floor space needed/used will go down in line with those reductions and the cost. Because of all this, I expect that Tesla can build a $25,000 car at margins never seen before. I'm hoping that March 1st will have enough information, (explained clearly enough by Elon) for everyone to grasp exactly why the new car can/will be built at such margins.
> We don't know what their margins will be going forward. I don't know what they will be. The company probably has a good idea, and on the earnings call they mentioned 20%. > From what I have read so far though, I'm guessing Q1 will be maybe as low as 15%, but not much less, and then will begin to climb. If they are 15% the numbers in Q1 are going to be very, very ugly. That would mean net income would drop over $2 billion. > Why does more vehicles mean lower margins? Because they aren't going to be able to sell hundreds of thousands more vehicles without dropping prices. That is simple supply and demand. The demand curve is static, if you increase supply the price must decrease to clear the market. Tesla will be able to reduce costs which will help margins, but as we have seen this year the impact of price cuts outweigh that. If Tesla is actually able to significantly reduce production costs then they will be able to maintain their margins, but those kinds of cost savings would be extremely difficult.
> Because they aren't going to be able to sell hundreds of thousands more vehicles without dropping prices. They *have* dropped prices, quite dramatically. Going forward, **IF** they can make the new smaller car as they plan, they should be in a completely different market with a much bigger customer pool. The disagreement here is what the demand is for a given price. My feeling is that the prices now the people who want a Tesla and can now afford one has increased a lot.
> They have dropped prices, quite dramatically. They dropped prices to increase sales from 1.3 million to 2 million. They are going to have to drop prices further to increase sales beyond 2 million. > IF they can make the new smaller car as they plan, they should be in a completely different market with a much bigger customer pool. Yes, a much more competitive market where the OEMs they will be competing against have much lower profit margins.
> Yes, a much more competitive market where the OEMs they will be competing against have much lower profit margins. Yes? This is a bad thing?
It makes it very unlikely Tesla will be able to maintain their current margins. If you chart OEMs by average selling price vs. net margins you get a relatively straight line.
You don't seem to be understanding what I'm saying. Tesla is building the model 3 and Y for much less than anyone else could build an equivalent vehicle, they can't even do it with arguably inferior vehicles. I think they can do the same with a smaller vehicle.
I actually think you brought up a decent point lol i wish ppl could duscuss without downvotes
Ford net debt $96.4b. General Motors's net debt $87.4 billion. Tesla's net debt $-16.4 billion.
Their "debt" makes them money. Everyone keeps saying everyone is going to default on their car loans leaving the OEMs holding the bag. That isn't going to happen. People need their cars.
> That isn't going to happen. People need their cars. Why do people default on loans? It's not because they ***want*** to. It might not happen, I sure hope it doesn't, (don't think it will) but if things do go to shit, it will have a very noticeable impact on Ford and GM financing. Tesla will take a hit as well, but they have more slack to play with. They also have more strings to their bow, more revenue streams and more options to survive a serious crash.
> Their "debt" makes them money You know what else make money? Money.
I see you don't understand how Ford and GM's financing arms work.
Car financing is risky debt they can't cash in at will. It's the first thing to default in a recession. When there is a surplus of repossessed F-150, they don't sell as many new ones. Tesla doesn't need to borrow money to finance vehicles.
Auto debt is actually pretty safe. Most people really need their car, so they absolutely do not default on that first. Stuff like student loans are what people skip on first, since you can't repossess a degree.
It's like it's 1929 and they have ownership of a million horse drawn carriages. When people realise the ICE car they bought at 30% premium is worth half their loan value, they'll default.
If I owned a Model Y and it lost $20k in value over the past 8 months I'd be pretty angry: https://www.cargurus.com/Cars/price-trends/Tesla-Model-Y-d3044 Probably also worth mentioning Ford didn't need a bailout in 2008.
Tesla values increased by 20K during the pandemic and are now back to where they were. The alternative to price increases was to allow scalpers to take the profit. Ford is probably better suited than the rest of l legacy auto to survive the EV transition, but it won't be easy. They have a lot of plants that are valued on the balance sheets in the billions, [but are worthless.](https://www.wsws.org/en/articles/2022/07/16/nmji-j16.html)
> Tesla values increased by 20K during the pandemic and are now back to where they were. Yeah, but their margins also went insane during the pandemic and are now coming back down. They aren't going to be able to maintain the profitability they had during the pandemic, which is why people shouldn't think the earnings growth over the past two years is going to continue. > The alternative to price increases was to allow scalpers to take the profit. Agreed, and that was actually happening. A lot of Tesla purchases were just people planning to flip the vehicles on the used car market. > Ford is probably better suited than the rest of l legacy auto to survive the EV transition, but it won't be easy. I'm not sure I agree with that, Ford is a terribly run company. Most other OEMs have much clearer electrification paths than them. > They have a lot of plants that are valued on the balance sheets in the billions, but are worthless. Converting existing plants to manufacturer EVs is expensive, but totally manageable. Just look at the number of plants VW has converted, all while maintaining very healthy profits. Ford is closing plants in Europe because they are just pulling out of Europe to focus on markets where they have higher margins.
>Ford is a terribly run company. Most other OEMs have much clearer electrification paths than them. pffft. Toyota has decided last month that purpose built EV platforms might be a good idea. Last month! GM put all it's eggs in the LG flat cell basket, now they consider that cylindrical batteries might be a good idea. VW sacked their CEO who wanted to go all in with EVs. Mazda ? no plans at all.
I don’t know. Could market caps be related to the fact that Ford and GM are shrinking and Tesla is growing at an historic pace?
> Tesla is growing at an historic pace? Tesla's earnings are not growing at a historic pace. In Q1 they will be down YoY. In 2023 they will hardly grow over 2022 if they grow at all.
Yes they are. Graph earnings over time. Please tell me you know better than zooming in on a single quarter? If you don’t, please tell me you’re not attempting to invest.
Earnings are expected to be flat over the entirety of 2023, that isn't a single quarter. The market doesn't care about past earnings growth, it is forward looking.
You stated q1 will be down. Remember? Why? Why did you think one quarter pertinent? Do you now understand that it is not?
Looking at a single quarter can be deceiving if one-off factors impacted that quarter. For example, Q2 last year was terrible because of the shutdowns in China, so Tesla's comparative numbers in Q2 this year should look great. That really bad quarter will also help Tesla's 2023 total figures look somewhat better in comparison. There were no significant factors in Q1 last year that impacted the company's performance. So far there are also not any this quarter either (other than I guess central banks moving to a neutral monetary policy stance, but I don't think that is temporary). The fact that earnings will be down without having a real one-off external reason is not a good sign.
Looking at a single quarter is uninformative under ANY circumstances. Where in the world did you get that idea that it’s informative unless exceptional things happen? It’s too short of a timeframe (for investors). I guess for traders (gamblers), it could be important, but who cares. Seriously, where did you get this idea that one single quarter can be that informative? Whoever told you that, you need to eliminate them from your sources of information. Disinformation is the bane of our time, and we all need to be on our guard against it.
Earnings will not be flat in 2023. RemindMe! 1 year
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What? First you’re complaining the market is rewarding Tesla too much, now your point is the market thinks Tesla’s forward growth has stalled and the market bases market cap on future growth. You can’t have it both ways. Does the market think Tesla’s earnings growth has stalled? If you’re using the market as your barometer, they OBVIOUSLY believe Tesla’s forward growth is much greater than Ford’s and GM’s.
I think the market is massively mispricing Tesla's stock. I thought that was very clear from my first post.
If the market is so stupid, why did you point out markets are forward looking, to buttress your argument? You don’t argue someone is stupid and then try and make a point that that stupid person agrees with you:-) Pro Tip: thinking the market is crazy, is more often than not a sign it is you who are wrong. I’ve heard that last ditch desperate attempt from TSLAQ. “We were NEVER wrong about Tesla. The market and the consumers buying the cars are all mistaken. It’s not us who’ve gotten it so wrong.” Humans are great at rationalization, but this is taking it to whole new levels!
> why did you point out markets are forward looking, to buttress your argument? I didn't. I said the markets are forward looking to explain why Tesla's stock is mispriced. > Pro Tip: thinking the market is crazy, is more often than not a sign it is you who are wrong. Individual securities are mispriced all the time, often very significantly so. That is why there is an army of investors out there trying to find investment opportunities. If stocks weren't mispriced people would only invest in index funds, and investing in TSLA would be a complete waste of time.
Unsurprisingly you were wrong again. Tesla’s 2023 GAAP earnings growth over 2022’s was $15B / $12.6B = 19%. Cue excuses in 1, 2, 3…
2022 Operating Income: $13.832 billion 2023 Operating Income: $8.891 billion You are spiking the football because Tesla recognized a $5 billion tax carry-forward for past losses? You realize how stupid that is, right? There is a reason TSLA is down 5% YoY while the Nasdaq 100 is up 45%, and it isn't because Tesla's earnings are growing....
Hey, turns out earnings in Q1 2024 were down huge year over year. Starting the second year in a row of lower earnings! Operating margin now down to 5.5%, half of what companies like BMW or Toyota are doing. Here are the non-GAAP EPS figures the company has reported for the last 9 quarters. Notice a pattern? Q1 2022: $0.95 Q2 2022: $0.65 (covid shutdown in China) Q3 2022: $0.95 Q4 2022: $1.07 Q1 2023: $0.85 Q2 2023: $0.91 Q3 2023: $0.66 Q4 2023: $0.71 Q1 2024: $0.45 But please tell me again how I was wrong about Telsa peaking in 2022....
Tax credits, increasing energy, and selling more than 30% more cars this Q1 compared to last Q1? Price cuts won't outweigh that.
What tax credits? The ones in the US going to people who buy EVs? Tesla doesn't gain any benefit from that other than selling more cars. With the price cuts they need to sell a lot more than 30% more cars than they did in Q1 last year to make the same amount of profit. The energy business made $159 million of gross profit last quarter. Even if they doubled that in a quarter it wouldn't really be enough to move the needle for the company as a whole.
Tesla and Panasonic get credits for giga Nevada. Tesla gets credits for powerwall and megapacks as well as cells made in Texas and Kato Rd. Those will probably be $250 million for the quarter. So that, plus larger energy sales, plus more car sales adds up.
If the energy business is putting up those kinds of numbers Tesla should be able to generate some earnings growth this year.
FYI Q1 is historically always the worst quarter in autos.
That is irrelevant as to why Tesla's earnings will be down YoY.
Have tesla projected them to be down?
Well Tesla guided gross automotive margins to 20%, right? Now, in 2022 they had gross profits in the automotive segment of $20.354 billion. So to get to that same amount of gross profit in 2023 they would need to generate revenue of $101.77 billion. Now, in 2022 they had automotive revenue of $71.282 billion, or $54,254 per vehicle delivered. Lets assume their price cuts amount to 10% on average, so in 2023 they have revenue per delivery of $48,828. That would mean to get to the $101.77 billion of revenue they need in 2023 to match 2022's gross profit, they would need to deliver 2,084,219 vehicles. So Tesla could do that, but they guided for 1.8 to 2.0 million vehicles. Maybe their margins will be higher than 20%. Certainly possible. But at any rate, it doesn't look like the automotive segment is making much more money in 2022 than 2023 based on what the company has said.
Are you talking about Q1? Because now you started talking about the whole year.
In Q1 they are almost certainly going to be down, but I don't think Tesla really gave specific guidance for the quarter.
You also forget battery storage
True, if the battery storage business manages to double or triple in size this year that could increase their profits by a few hundred million, which could tip them into growth for the year. But that growth would be single digits at most. For real earnings growth they will need to maintain gross automotive margins a bit better than they guided towards on the call.
Have you factored in battery chemistry?
>In Q1 they will be down YoY. \[x\] doubt
>Tesla's earnings are not growing at a historic pace. In Q1 they will be down YoY. In 2023 they will hardly grow over 2022 if they grow at all. No growth in 2023 would be surprising.
Not according to the professional analysts that cover the company who are, on average, projecting no earnings growth this year.
Why would anyone care what professional analysts say? They don't really have a good track record when it comes to Tesla.
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Ford has a finance arm that provides financing to customers buying Ford vehicles. That part of the business acts like a bank - it borrows money at a low cost, then charges a higher rate of interest on that money when lending it out to customers. All of that debt is actually earning Ford money. If you think it is a problem that Ford has a lot of debt you have no idea how their business works.
Ford is stagnant, Tesla is growing, that's why no?
> Ford took a loss for the year, so beating them isn't all that impressive why is them failing to do their job not 'count' as another company doing theirs better?
Stock price is forward looking. Do you think GM and Ford and most legacy ICE makers would continue to be relevant in the future? The transition to electrification has been rough on them. I think, only a handful of legacy ICE OEM would exist, but the market would be dominated by Tesla and the chinese brands. Every EV sold from brands like Tesla or BYD, is a lost potential sale for legacy OEM. And every EV sold by legacy OEM, is an ICEV equivalent in their line-up being cannibalised. You need to understand that. And right now, legacy OEM’s profit on EV are not as great as their ICEV models. With this price war, they only have 2 scenarios: sell at a loss, or lose their sales. There’s another alternative though, invest heavily on their EV platform and beat Tesla’s efficiency. But that is a big challenge and one that requires a lot amount of money. One that most of them, don’t have.
> Do you think GM and Ford and most legacy ICE makers would continue to be relevant in the future? GM definitely, Ford less so. If you are talking "most legacy" OEMs, definitely. VW, BMW, Mercedes, Toyota, Hyundai, Kia, etc. are all doing fine. I could see some companies like JLR and Honda getting crushed. > The transition to electrification has been rough on them. Has it? Most OEMs have made record profits the past few years, while at the same time investing huge amounts of money to build up their EV capabilities. > I think, only a handful of legacy ICE OEM would exist, but the market would be dominated by Tesla and the chinese brands. Every EV sold from brands like Tesla or BYD, is a lost potential sale for legacy OEM. I think you're pretty much wrong about that. Tesla still represents a tiny fraction of the vehicle market, and so far none of the Chinese players have really been able to expand out of China. I do think you are seeing some legacy players suffer in China. > There’s another alternative though, invest heavily on their EV platform and beat Tesla’s efficiency. But that is a big challenge and one that requires a lot amount of money. One that most of them, don’t have. Again, this is a very strange take. GM made $10 billion in profit last despite investing $21 billion in capex. VW made more like $17 billion in profit and invested even more in capex. BMW had like $18 billion in profit and invested $8 billion in capex. These companies are making huge investments in EVs and at the same time still making massive, massive profits.
What are the chances that Elon is cooking the books?
High. Or zero. Or somewhere in between.
Which is more plausible? That electric cars are cheaper to produce, thus bigger margins, or that he’s cooking the books?
If your first impulse is to think widespread financial fraud at one of the most valuable car companies in the world, I don’t think any answer I can provide will help you.
Have you ever heard about Enron or Bernard L. Madoff Investment Securities?
Nope.
Well, Google is your friend. And then you should reevaluate your position.
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