After the Q3 earnings report was announced, Tesla had to cut prices to boost performance

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Text / Zhao Qi

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On October 24, when multiple e-commerce platforms launched the “Double Eleven” pre-sale, Tesla was sent to the hot search because of the price reduction promotion.

According to the official announcement, the starting price of Model 3 dropped from 279,900 yuan to 265,900 yuan, and the starting price of Model Y dropped from 316,900 yuan to 288,900 yuan, a decrease of 14,000 yuan and 28,000 yuan respectively. And just half a month ago, Tesla also refuted the rumors of price cuts that were going viral at the time.

To become one of the most sincere sellers in this “Double Eleven”, Tesla is also involuntarily. After the third-quarter earnings report a few days ago, the outside world is generally skeptical about whether Tesla can achieve its full-year delivery target. Therefore, the price reduction in China will inevitably lead to speculation that it is sprinting for the annual target in exchange for price. After all, China is the fastest-growing market for this electric vehicle upstart.

Friends who have experienced the last week of the summer vacation frantically make up their homework can probably understand Tesla’s urgency at this moment.

one enemy

From the data point of view, Tesla’s revenue in the Chinese market far exceeds that of new car manufacturers.

The financial report shows that in the third quarter of 2022, Tesla’s revenue in the Chinese market reached US$5.13 billion, an increase of 64.8% from US$3.11 billion in the same period last year. This growth rate also outpaced the United States (59.6%) and other regions (43.9%), making China the fastest growing region for Tesla’s revenue. At the same time, the Chinese market accounted for 23.9% of Tesla’s total revenue, compared with 22.6% in the same period last year.

While China may be the most volatile new energy vehicle market on the planet, Musk’s company has nearly crushed its Chinese counterparts in terms of revenue.

Since Wei Xiaoli has not yet announced their third-quarter financial results, we first compare their data for the first half of this year.

The revenue of Weilai, Xiaopeng, and Ideal from January to June this year was 10.29 billion yuan, 8.73 billion yuan and 7.44 billion yuan respectively, while Tesla China’s revenue of $5.13 billion in the third quarter was about 37.26 billion yuan. RMB. From this point of view, the efforts of the three leading players in China’s new car-making forces in the entire first half of the year are not as good as Tesla’s harvest in China in a quarter.

However, Tesla’s advantage in terms of profits in the Chinese market may not be that great. Although the financial report did not specifically disclose the profit in China, Tesla’s overall net profit margin in this quarter was 15.3%. Based on this, it is speculated that its net profit in China in the third quarter was about 5.7 billion yuan.

BYD’s previous performance forecast showed that its net profit in the third quarter was about 5.5 billion to 5.9 billion yuan.

In other words, in terms of net profit, in the third quarter, Tesla China and BYD were basically tied.

According to the data from the Passenger Federation, from July to September this year, BYD’s new energy vehicle sales were about 519,000, while Tesla China was less than a quarter of the former, with only 121,000. The reason why the sales gap is so wide, but the profits are relatively close, is mainly because the unit price gap between the two companies’ products is too large.

BYD takes the route of small profits but quick turnover, and the starting price of various car series is basically between 100,000 and 200,000. Tesla is positioned as a high-end model. Even after the price cut, the Model Y and Model 3 start at more than 250,000 yuan. There are also two luxury cars, the Model S and Model X, which are priced at more than 900,000 yuan.

Because of its good performance, when Tesla needs to hit its performance in the last quarter of this year, the pressure naturally falls on China.

Good results, but not as expected

“The third quarter was a record quarter on many levels,” Musk said on an analyst call after the third-quarter earnings report.

Silicon Valley “Iron Man” is true. In the just past fiscal quarter, several Tesla metrics hit record highs.

From July to September 2022, Tesla’s single-quarter revenue exceeded the $20 billion mark for the first time, reaching $21.45 billion, an increase of 55.9% from $13.76 billion in the same period last year.

Tesla’s revenue categories include car sales, car rentals, carbon credits, energy storage, services and others. Car sales are, of course, its core source of income. In the third quarter, Tesla earned $17.79 billion from selling cars, a year-on-year increase of 56.1%, accounting for 83% of total revenue.

The strong growth was driven by record vehicle deliveries. In the third quarter, Tesla delivered a total of 344,000 vehicles, an increase of 42.4% from 241,000 in the same period last year. Tesla can only recognize related revenue after the vehicle is finally delivered. Therefore, for this star company to increase revenue, it is not only necessary to obtain more and faster orders and complete production, but also to deliver products to consumers more efficiently.

From this point of view, Tesla’s performance in the third quarter can be described as “driven out”.

Because according to the high-level introduction, the company encountered unexpected resistance in cross-border logistics, mainly from ships from Shanghai to Europe. Also, there are problems with local trucking in parts of the US and Europe. In fact, 2/3 of the orders in this quarter were delivered in September, and 1/3 of the orders were delivered in the last two weeks – just like all summer rush jobs.

According to Tesla, the company plans to create a more stable delivery cycle in the future to reduce its reliance on cross-border logistics during peak periods. In fact, the pressure from the macro environment is not limited to cross-border logistics. Factors such as rising raw material costs and exchange rate changes have also deeply affected Tesla’s performance.

Affected by rising raw material prices, Tesla’s operating costs increased by 59.2% year-on-year, higher than the 55.9% revenue growth rate, resulting in a 1.5 percentage point decrease in gross profit margin from the third quarter of 2021 to 25.1%.

In terms of net profit, Tesla’s net profit attributable to common shareholders this quarter was US$3.29 billion, double the 1.62 billion yuan in the same period last year, with a net profit margin of 15.3%. Its net profit would have been even crazier had it not been for the strength of the U.S. dollar triggered by the Fed’s rate hikes that shrunk its overseas earnings. The financial report showed that Tesla’s profit fell by about $250 million due to the impact of exchange rates.

Although a number of data hit record highs, in the eyes of Wall Street, the report card in the third quarter is still not good enough. Some indicators such as revenue and vehicle deliveries fell short of market expectations. The 343,000 deliveries, for example, fell short of Wall Street’s forecast of 365,000. The revenue of $21.45 billion was also lower than the $21.96 billion expected by Wall Street analysts.

Because of this, Tesla’s stock price fell 6.65% the day after the earnings report.

China is under pressure

Delivery pressure came to the fourth quarter.

Tesla’s 2022 delivery target is more than 1.4 million vehicles, up 50% from 930,000 the year before. In the first three quarters, Tesla delivered a total of 909,000 vehicles globally, which means that if it wants to complete the KPI of deliveries, in the last three months, Tesla has to sprint to the goal of 500,000 vehicles.

Ensuring sufficient capacity is of course the first step in completing deliveries. Among them, the Shanghai Gigafactory with an annual production capacity of more than 750,000 vehicles is the top priority. It not only supplies the Chinese market, but also undertakes production orders other than the domestic market of the United States. According to data from the China Passenger Car Association, the export volume of Tesla’s Shanghai Gigafactory from July to September was 19,756, 42,463 and 5,522, respectively.

Thanks to the production capacity hitting a new high in the third quarter, the Shanghai Gigafactory delivered a total of 480,000 units from January to September this year, which is close to the full-year delivery figure in 2021.

In the U.S., Tesla has also further ramped up production at its Fremont plant, and the pace of Model Y production in Texas continued to increase month-over-month during the quarter. In Europe, the newly built Berlin-Brandenburg plant in Germany is in the ramp-up phase, which has now reached 2,000 vehicles per week.

In addition to capacity, another factor that affects delivery is demand, or more precisely, demand forecasting.

In the first quarter of 2019, Tesla experienced a performance hit in the last month. However, some policy adjustments were repeated at the time, making demand forecasting difficult. For example, an established promotion was canceled and then reinstated; free supercharging was canceled and then reinstated. These adjustments have a direct impact on consumers’ willingness to buy. When demand fluctuates too much and is too frequent, demand forecasting is not accurate enough, which in turn affects the delivery cycle.

Apparently Tesla is tired of such uncertainty.

“Whether we like it or not, we have to deliver cars smoothly within the quarter”. Musk said so after the third-quarter earnings report. He also mentioned, “We’re trying to make deliveries run smoothly instead of having crazy deliveries at the end of each quarter. In fact, we don’t have enough boats, enough trains, enough trucks to support this surge. , because it’s too big.”

It seems that smooth delivery and completion of the annual delivery target are likely to become a multiple-choice question. After all, Tesla has to complete 35% of its full-year delivery tasks in the fourth quarter, and it may be difficult for Musk to have both.

As for the task of delivering 490,000 vehicles in the fourth quarter, China, the fastest growing region, obviously has to shoulder the heavy responsibility. Price reduction is the most effective pulling strategy. Although this will make many old car owners who have just bought a car unhappy and suspect that they are being treated as leeks, from the manufacturer’s point of view, price reduction is always effective.

Tesla can only count on the Chinese market.

In Europe and the United States, which are suffering from inflation, it would be good for Tesla to maintain no price increases. In fact, in June this year, Tesla has raised the price of its entire line of electric vehicles in the United States, with some models increasing by as much as $6,000. In contrast, the Chinese market with less inflationary pressure and a high growth rate has become the best choice for Tesla’s impulse.

However, frequent price adjustments will inevitably affect terminal demand, which is obviously contrary to the goal of “creating a smooth delivery cycle”.

Heavier pressure will fall on China’s local new energy vehicle companies. Tesla took the lead in becoming a price butcher, and the domestic car companies that were struggling to survive in the sea of ​​losses have an even bigger head.

Tesla isn’t afraid to cut prices. Although the price reduction of some models this time exceeds 9%, combined with Tesla’s continuous net profit margin of more than 10% in recent quarters, it is not difficult to infer that Tesla can still maintain profitability even after the price reduction. But the new forces have no such confidence.

Not only is there a long way to go before profitability, but all kinds of crises are emerging one after another. For example, WM Motor, which is sprinting for an IPO, recently had a debt problem. Executives “actively” cut their salaries by 50%, and grassroots employees only paid 70% of their salaries. Stronger storms may already be approaching. And Tesla’s price cut is just the most insignificant bit of bitterness in the wind letter.

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