Tesla still needs a “cardiac”

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Text/Wang Huiying Editor/Zhou Xiaoqi

“Tesla’s market value is expected to exceed the combined market value of Apple and Saudi Aramco, and I expect Tesla’s market value to be twice that of Saudi Aramco!” On October 20, Tesla CEO Elon Musk said at Tesla 2022 At the Q3 financial report meeting of the year, he boasted about Haikou.

What concept is this? As of press time, Apple’s market value is $2.31 trillion, Saudi Aramco is $2.09 trillion, and the two companies with the world’s most valuable companies have a combined market value of $4.4 trillion. In contrast, Tesla’s market value is about $644.77 billion, a difference of more than half a point.

In the new energy vehicle circle, it is not unusual for the market to “talk big” to car companies, especially the very personal Musk and Tesla behind him.

Musk really needs to give the capital market confidence, because the just released third-quarter financial report is mixed.

The financial report shows that in the third quarter of this year, Tesla’s revenue was 21.45 billion US dollars, a year-on-year increase of 56%, a record high; net profit attributable to common shareholders was 3.292 billion US dollars, a year-on-year increase of 103%.

But as a “superior student” of new energy vehicles, its revenue was lower than Wall Street’s forecast of $22.09 billion. It was the first time since the third quarter of 2021 that Tesla’s revenue fell short of Wall Street expectations.

Compared with revenue, the outside world is more concerned about Tesla’s production capacity and sales. Affected by the supply chain and market demand, Tesla delivered 343,800 vehicles in the third quarter, which was lower than market expectations of 358,000 vehicles. The longer-term impact is that Tesla’s annual delivery target of 1.5 million vehicles may be difficult to meet.

This is what investors are most worried about. Reflected in the stock price, Tesla’s after-hours decline reached 6.28%, and this stock price decline has lasted for nearly half a month.

In addition, Tesla’s profitability is also facing challenges and impacts due to factors such as rising raw material costs and ramping up new factory production capacity. There are less than two months until the end of 2022. If Tesla wants to complete this year’s KPIs and restore confidence in the capital market, it must accelerate the pace.

1

Earnings numbers are good, but not up to expectations

In the third quarter of this year, Tesla’s results were not bad.

In terms of revenue, in Q3 2022, Tesla’s total revenue will be $21.45 billion, a year-on-year increase of 56%, and its adjusted net profit will be $3.65 billion, a year-on-year increase of 75%.

Despite the record growth, the result was slightly below the consensus estimate of $22.1 billion due to Tesla’s previous strong performance.

In the financial report, Tesla reported $207.28 per share, down more than 6%, and its market value evaporated by $46.1 billion overnight. Since Tesla released lower-than-expected third-quarter delivery data on September 28, its stock price has fallen by more than 20%, and its market value has also evaporated by about $1.4 trillion in two weeks.

Specifically, Tesla’s automotive business revenue was $18.69 billion, energy storage business revenue was 1.12 billion yuan, and service revenue was 1.65 billion yuan.

Among them, as the mainstay of Tesla’s revenue, the automotive business increased by 55% year-on-year. A Tesla related person said that the increase in revenue was mainly due to the increase in vehicle deliveries and the year-on-year increase in the average selling price of vehicles, as well as the growth of other businesses. “In the second quarter of this year, the production of the Shanghai Gigafactory was limited, and the average selling price of vehicles also decreased month-on-month.”

Also below market expectations is Tesla’s gross profit margin. In the third quarter of this year, Tesla’s gross profit margin was only 25.1%, which was lower than the market expectation of 26.6%. Among them, the gross profit margin of the automobile business was 27.9%, which was also lower than the market expectation of 28.4%. This is the second time that Tesla’s gross profit margin has fallen below 30% after the second quarter of this year.

Not only was it lower than market expectations, but its gross profit margin also showed an overall downward trend compared to the same period last year. Tesla’s overall gross profit margin fell 1.5%, and its auto business gross margin fell 2.6%.

This means that Tesla’s profitability has been put on the table. In this regard, Tesla pointed out that rising raw material prices, inefficiencies in production at new factories in Berlin and Texas, and ramping up 4680 battery production have all contributed to the decline in profitability.

Among them, Tesla’s “carbon sales” revenue declined, which had a considerable impact on the lower-than-expected revenue. In the third quarter, Tesla’s revenue from the sale of carbon emissions credits was $290 million, down 17% from the previous quarter, setting a new low for revenue in a year.

At the same time, Tesla’s most invested production capacity is still its “heart disease”. Musk has said that the high cost and low output of the two new plants in Berlin and Texas will cost the company billions of dollars.

The biggest problem at the Berlin plant is the capacity of the 4680 cells. Affected by the protests of local environmental protection organizations in Germany, the energy crisis sweeping the European continent, and the imperfect motor dry process, this battery, which Musk sees as “changing the battery industry”, has been slow to pass the mass production level.

This directly led to the stretched production capacity of the Texas Gigafactory. Musk has said the number of cars being made at the plant is “very small” because the car uses the company’s new 4680 cells, which the company has faced challenges ramping up capacity.

Under the action of multiple factors, Tesla’s vehicle delivery has been directly affected. Data show that Tesla produced a total of 365,000 vehicles and delivered 343,000 vehicles in the third quarter, a year-on-year increase of 42.4%. But it fell short of the 358,000 expected by Wall Street. According to Reuters, Investing.com senior analyst Jesse Cohen believes that “Tesla’s poor quarter is the latest sign that macroeconomic uncertainty is having some impact on its electric vehicle demand.”

It is worth mentioning that Tesla’s energy storage business is gaining momentum. The financial report shows that in the third quarter of this year, Tesla’s installed energy storage capacity increased by 62% year-on-year to 2.1GWh, the highest level Tesla has achieved so far.

At the same time, Tesla still has a decent “money capability”. The financial report shows that in terms of cash flow, Tesla’s cash, cash equivalents and short-term marketable securities increased by $2.2 billion sequentially in the third quarter to $21.1 billion, mainly due to free cash flow of $3.3 billion. Debt service offset of $900 million.

Although compared with itself, Tesla has achieved good results. But for investors, the results were not good enough.

As mentioned above, Tesla’s revenue, gross profit margin, and delivery volume have not reached the pass line. In fact, as early as half a month ago, Tesla gave the outside world a “vaccination”. At that time, Tesla announced the final delivery volume and related data for the third quarter in advance, but this did not prevent the stock price from falling.

Now, the outside world is starting to pay attention, can Tesla’s 1.5 million annual deliveries be achieved?

2

Year-round KPI, hanging?

“I hope to achieve 1.5 million annual deliveries this year.” Last quarter, the optimistic Musk talked about this year’s goal more than once.

Compared with the past, Tesla’s target for 2020 is 500,000 vehicles and 1 million vehicles in 2021, which are basically completed. However, this year’s new energy vehicle market is changing, and it is easy for Musk to set up a flag, but it is difficult to achieve KPI.

Judging from the current performance, in the first three quarters of this year, Tesla has produced more than 900,000 pure electric vehicles. million pure electric vehicles.

This is not a small amount. In the fourth quarter of last year, Tesla only produced more than 300,000 pure electric vehicles. Tesla Chief Financial Officer Kirkhorn said a 50% increase in full-year deliveries is unlikely this year due to transportation bottlenecks. This is precisely what investors and the market worry about most.

On October 3, after Tesla reported lower-than-expected third-quarter sales figures, Morgan Stanley lowered its full-year delivery forecast for Tesla to 1.31 million from a previous forecast of 1.37 million. The forecast dropped from 2 million to 1.8 million.

In particular, this time Tesla’s production-sales ratio gap has increased. In the third quarter, Tesla produced 365,000 pure electric vehicles and delivered 343,000 vehicles. The sales volume was 6% lower than that of production. The problem of slowing Tesla’s market demand also quietly surfaced.

In this regard, Tesla explained that the reason for the lower-than-expected delivery in the third quarter was logistics problems, which led to an increase in vehicles in transit at the end of the third quarter, and Tesla was also transitioning to a smooth delivery rhythm.

Such rhetoric did not convince the market, but raised doubts. Some analysts bluntly stated that if this situation cannot be improved, it may mean that Tesla is facing weak demand, which will seriously affect the company’s future performance growth.

It should also be noted that in the Chinese market, despite Tesla’s shortened lead time, what worries the market is the fierce competition Tesla faces in China. Shorter delivery times mean that the Shanghai factory is increasing its production capacity, but if market demand is not high, the number of vehicles delivered is ultimately a number.

RBC Capital Markets said: “The most worrying thing at the moment is the demand in China, because the delivery cycle seems to be shortening.” Tesla’s official website shows that the delivery cycle of the rear-drive Model Y is 1-4 weeks; while the Model Y other Both versions and Model 3 have lead times of 4-8 weeks.

Faced with concerns about market demand, Tesla said in a statement that all of the cars the company produced in the third quarter have been ordered by customers.

In the earnings report, Tesla stated its goal to increase supply chain production in the fourth quarter. “Increase production efficiency as soon as possible, overcome logistics and supply chain bottlenecks. Especially the battery supply chain, it will be the main limiting factor for the electric vehicle market in the medium and long term.”

In order to increase production capacity, Tesla continues to invest in building factories. During the earnings call, Musk confirmed that Tesla is moving forward with plans to build a lithium refinery on the Texas Gulf Coast to gain more control over the electric vehicle battery supply chain. Among them, there are three factories that Tesla has high hopes for: the Austin Gigafactory in Texas, the Berlin Gigafactory and the new production line of the Shanghai Gigafactory.

In addition, Tesla also revealed that although the climbing speed was lower than expected, the productivity of the two new factories has reached a new high in Q3. Among them, Tesla’s Berlin factory produced more than 2,000 Model Y using 2170 batteries in one week. .

In order to achieve more new product deliveries, Tesla is targeting new models of electric trucks. “I will personally deliver the first Tesla electric semi-trailer Tesla Semi to PepsiCo on December 1,” Musk said at the earnings conference.

In addition to PepsiCo, other companies within United Parcel Service, Walmart, JB Hunt Transport Services and food service distributor Sysco Corp have booked Tesla’s Semi trucks. For the North American market, Tesla is “very keen to produce 50,000” semitrailers in 2024, a Tesla executive said.

In any case, the optimistic Musk still expects Tesla to deliver record levels in the fourth quarter, saying that demand in the fourth quarter was very strong and that all cars produced are expected to be sold. But whether the KPI can be achieved in the end will have to wait until the end of the year to reveal the answer.

3

Will low-priced new products be a “stimulant”?

The high-growth myth has gradually faded, and market competition is visible to the naked eye. Tesla, which has always been arrogant, has begun to seek to expand its customer base.

At the earnings conference, after talking about his ambitious goals, Musk added: “I know it’s difficult, it requires us to work very hard, demand creative new products, manage expansion, and good luck.”

Among them, the most concerned by the market is the new product mentioned by Musk.

One of the questions in the Q&A, which was voted on by shareholders, was: “Upgrading from Tesla’s first Model S/X platform to the second Model 3/Y platform, COGS (cost of main business) reduction 50%. When did Tesla release the third platform, what level of COGS reduction?”

In response to this, Musk responded that although Tesla did not disclose the exact date, the main focus of Tesla’s car development team is the next generation of cars. Musk estimates that the next-generation vehicle platform will cost half as much as the second-generation platforms (Model 3 and Y) and will likely produce more than all of the company’s current products combined.

As we all know, Tesla’s sales pricing is proportional to production costs, and Musk will put pressure on the future “half-price Tesla”. However, will low prices be a powerful tool for Tesla to boost sales?

According to Musk’s estimate of halving the cost of the new platform, the price of the new model will be half the price of the Model 3, which is about 150,000 yuan. This price range is already full of competitors. BYD, Leapmotor, and Nezha are all on the list. Among them, BYD is the most troublesome opponent for Tesla.

On October 3, following Tesla, BYD announced its vehicle sales data for the third quarter. Data show that in the third quarter of this year, BYD’s cumulative sales of new energy passenger vehicles were 537,200 units, a year-on-year increase of 187.01%, of which the monthly sales in September exceeded 200,000 units, reaching 201,300 units, a year-on-year increase of 151.2%.

This is the third consecutive month that BYD has topped the global sales of new energy vehicles.

Looking at the domestic market, there are not only a group of new car-making forces such as “Wei Xiaoli”, but also independent car companies like BYD entering the market, and the pressure on Tesla in the Chinese market will only increase. According to the latest research report of Guosheng Securities, from October 3rd to October 16th, Tesla China has accumulated a total of 3,942 insurance vehicles, a year-on-year decrease of 84% and a month-on-month decrease of 89%.

In the United States, the base camp, Tesla is also “highly cold.” Traditional car companies such as GM and Ford are all deploying electric vehicles; in the European market, not only are they under pressure from rising raw materials and supply chains, but Volkswagen’s electric vehicle sales have grown significantly, and Tesla is not the market’s first choice.

As S&P Global Ratings put it bluntly in a recent report, Tesla needs to expand its product range by 2025 to become more competitive against a range of new and old rivals.

It’s just that “half-price Tesla” and electric trucks have just started, and it is still unknown how much sales Tesla’s new products can add to Tesla.

But Musk is hopeful for the future. Looking ahead to the fourth quarter, Musk said, “It seems like we’re going to have an epic year-end.”

From production capacity to market value, Musk has continued the “big mouth” style. In any case, production capacity and delivery volume are the symbols of the hard power of new energy vehicle companies. Before Tesla can realize its dream of becoming the world’s largest market capitalization, it still needs a “stimulant”.

(The header image of this article comes from Tesla’s official Weibo.)

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