Source of the head image: Visual China
Author | Cui Qiuyang
Edit | Wang Yan
In the past quarter, after sweeping the global market with an average decline of about 10%, Tesla, which has always been proud of its ability to make money, finally fell off the altar.
On April 20, Tesla released its first quarter 2023 earnings. Among them, global deliveries in the first quarter exceeded 422,000 units, a year-on-year increase of 36%, and total revenue increased by 24% to reach 23.33 billion US dollars. However, the overall profit margin and the gross profit margin of bicycles both fell below the 20% mark.
Tesla CEO Elon Musk said in the earnings call after the earnings conference that in the long run, 20% gross margin is still the bottom line of Tesla's performance, but in the short term, scale is more important to Tesla than profit.
However, Musk still plans a new imagination for Tesla's profits, first delivering cars in large quantities at lower gross margins, and then profiting from automatic driving, and even mentions, "Theoretically, Tesla can sell cars at zero profit." ”
However, when the bitter fruit of price reduction appeared, the capital market was the first to react. As soon as the earnings report was released, Tesla's stock price fell 9.75%, and its market value evaporated by 380 billion yuan overnight.
For Tesla, which started the scale war, although it is currently being eaten back by price cuts, the price war may continue. But before full autonomous driving can not arrive, Tesla still urgently needs to find new growth points from its existing business.
Price reduction is a double-edged sword
Looking specifically at Tesla's first-quarter financial data, there are many bright spots.
In the first quarter of 2023, Tesla's total operating revenue was US$23.329 billion, a year-on-year increase of 24.38%, and automotive business revenue was US$19.963 billion, a year-on-year increase of 8.40%, of which the revenue of automobile sales business and leasing business was US$19.399 billion and US$564 million, respectively, and the sales business achieved a year-on-year growth of nearly 20%.
In terms of production and sales, thanks to the price reduction strategy of the terminal, the two factories in Berlin and Texas have made efforts to climb production capacity, and Tesla's production and delivery reached 440,800 and 422,900 vehicles respectively in the first quarter, both hitting quarterly highs.
Obviously, the effect of Tesla's large-scale price reduction strategy around the world is very significant, and after revealing in January that the rate of harvesting orders is twice the production volume, Musk once again emphasized in the earnings call that the number of orders has now completely exceeded production, and the implication is also to express optimism about the goal of delivering 1.8 million to 2 million vehicles this year.
However, Tesla's gradually eroded profit margins cannot be ignored. The first quarter was a quarter in which Tesla's net profit, overall gross margin and bicycle gross margin fell across the board.
Among them, the net profit was 2.513 billion US dollars, down 24% year-on-year; Overall gross margin was 19.3%, well below 29.1% in the same period last year and 23.8% in the previous quarter; The gross profit margin of bicycle sales was only 18.3%, less than the 20% expected by the market, and a year-on-year decrease of more than 10 percentage points.
It is worth noting that this is the first time since the fourth quarter of 2020 that Tesla's overall gross margin has fallen below 20%, and it is also the first time since the second quarter of 2019 that the gross profit margin of a single vehicle has fallen below 20%.
Tesla is proud of its much-emphasized overall decline in earning power has also affected its stock price. On the second day of the earnings report, Tesla's U.S. stock price fell by more than 8% just after the opening.
The reason for this is consistent with the reason for record production and sales: price reductions.
In early January, Tesla opened its first price cut in 2023 in the Chinese market, and then Tesla followed up the price reduction strategy in North America, Europe, Hong Kong and other regions, of which in the United States has completed six consecutive reductions, Model Y and Model 3 The North American price of the two main models is 13% and 11% lower than the beginning of the year, respectively, and this year, the decline rate of these two models in the Chinese market is also about 10%.
The double-digit decline in Tesla's two major markets has the most direct impact on the financial data is the price of bicycles. According to financial report data, Tesla's bicycle price has fallen to $47,100 in the first quarter, down $4,900 from the fourth quarter of 2022.
Although since the launch of the Model 3/Y, reducing the price has been a general trend, but in 2023, the frequency is so intensive, and the price reduction action is so large, it is obvious that it has exceeded the cost reduction speed of Tesla's own production and manufacturing.
At the investor conference in March, Tesla specifically dismantled how its next-generation platform completed the goal of halving existing production and manufacturing costs, including reducing the use of expensive rare earth elements, climbing the 4680 battery production line, and upgrading the final assembly line and heat pump production line, involving raw material selection, production process updates, large-scale production and other aspects, not overnight.
Source: Tesla
Source: Tesla
The cost reduction work of the next-generation platform still needs to be accumulated over time, and the cost reduction work of the existing Model 3/Y platform has obviously encountered a bottleneck. On the one hand, the supply chain of the two main models has been relatively fixed, and it is unrealistic to completely change the selection of raw material supply, which leads to the most effective way to reduce costs through larger scale production.
However, as Tesla's most important production and delivery center in the world, its Shanghai Gigafactory has an annual production capacity of more than one million vehicles after several production line transformations and upgrades last year, and there are signs of excess capacity, and even during this year's Spring Festival, the factory extended the holiday of employees to control output in disguise.
From an internal point of view, the road of changing the selection of raw materials or pursuing larger scale benefits in the short term may be difficult to follow, and Tesla can only hope that the price of battery raw materials will fall more sharply.
At the end of the first quarter of this year, the price of battery-grade lithium carbonate has fallen to about 250,000 yuan / ton, less than half of last year's high.
However, after dolphin investment research, the decline in the price of battery raw materials only brought Tesla a cost reduction of $1,200 / vehicle, which was far from making up for Tesla's $4,900 bicycle price reduction, which also led to its bicycle gross profit falling to $8,600, officially entering the era below 10,000 yuan.
If according to the above data, every 200,000-300,000 yuan / ton decline in upstream lithium mines can bring Tesla a $1,200 production reduction, then even if the price of lithium carbonate falls below 100,000 yuan / ton, it cannot completely catch up with Tesla's price reduction.
This also means that the pressure on profit margins caused by Tesla's price cuts will continue.
Who fills the hole?
The impact of concentrated price cuts on Tesla's profitability in the first quarter is huge, and the bad news is that the pressure from the automotive business to cut prices will continue in the future.
After entering 2023, Musk has expressed his view that he is more concerned about sales and order demand than bicycle gross margins on many occasions, such as Twitter, investor days and earnings calls, "If the price of bicycles is higher than the price people can afford, then no amount of demand from the mass market will help." In the first quarter earnings conference, Musk even admitted that after the large-scale landing of FSD, it is possible to sell vehicles with zero profit.
Obviously, after opening the Pandora's box of price cuts in the fourth quarter of last year, he firmly chose the latter between profit and sales.
It is foreseeable that even if Tesla delivers an average of more than 500,000 vehicles per quarter in the next three quarters, the economies of scale formed by Tesla will not make Tesla's gross profit margin return to the peak level of 30%.
Tesla CFO Zachary Kirkhorn wants the market to focus more on operating margins rather than gross margins per vehicle, "Operating margins are our main management goals at the moment. ”
But as the pillar of Tesla, the current decline in profits of its automotive business has cut a hole in the company's overall profitability: Tesla's operating margin in the first quarter of this year was only 11.4%, down 9.8 percentage points year-on-year and 4.6 percentage points month-on-month.
To compensate, Musk gave three answers: Cybertruck, energy storage business and autonomous driving.
Musk revealed that the team is currently working on the installation of the Cybertruck mass production line at the Texas plant, and is expected to hold the first vehicle delivery events in the third quarter of this year, "[Cybertruck] will be a Hall of Fame-level product." ”
Cybertruck production line under commissioning Source: Tesla
Musk is so sure that Cyberturck will inject new growth impetus into Tesla's business because of the volume of orders. According to foreign media statistics, by the end of 2022, Cybertruck's orders have exceeded 1.6 million, and Tesla even closed the booking channel for a time due to the pressure of the accumulation of orders.
In addition to holding a large number of orders, the mass production of 4680 batteries is also one of Musk's strengths, which revealed that the production of 4680 batteries in the first quarter of this year has reached 50% month-on-month.
The battery has been able to meet the demand for 1,000 Model Y per week at the end of 2022, and then as Panasonic, LG New Energy and other manufacturers have started supplying Tesla this year, Cyberturck was able to reduce production costs a lot in the early stage of delivery, "The use of 4680 batteries and structural battery packs has reduced capital expenditures by 50% and reduced the size of the factory by 66%. ”
As for the energy storage business, Musk is also full of confidence. In the first quarter of this year, Tesla Megapack shipments reached about 4GWh, a year-on-year increase of more than 3 times. The entire energy segment also generated $1.529 billion in revenue for Tesla, an increase of nearly 150% year-over-year, "This was the strongest quarter in history, and it generated the highest gross margin to date." ”
In addition, Tesla will also build a new 40GWh annual energy storage plant in Shanghai, which is scheduled to start construction in the third quarter of this year and start production in the second quarter of 2024.
Mgeapack Energy Storage Factory in California Source: Tesla
And the last point is Tesla's high-profile FSD business. At present, Tesla has pushed the FSD beta version to 400,000 monthly car owners in North America, and has driven 150 million miles in total. When it comes to how to use FSD to achieve more profits, Musk said that the FSD price can be understood as an autonomous driving option, and its final cashable value will be very high.
In addition, Musk also talked about the internal use of FSD to develop the next generation of vehicles, internal code name Robotaxi, "I believe that all vehicles equipped with HW 3.0 will achieve full autonomous driving, the relationship between the car and FSD is similar to razors and blades, and there will be robot taxis similar to Model 3/Y to ensure profitability." ”
It is not difficult to see that Musk's layout of Cybertruck, energy storage business and autonomous driving from the perspective of manufacturing and research and development is all to prepare for the future revenue of tens of billions and hundreds of billions.
But all of this imaginary space for profit will take time to appear. The first deliveries of Cybertrcuk will not wait until the third quarter of this year, and the initial capacity climb will also occur. In contrast, the cash-in period of energy storage and FSD businesses is longer.
Even if the installed capacity and revenue maintain triple-digit year-on-year growth, the specific revenue generated by Tesla's energy storage business is only 7.7% of the automotive business, and it will not be able to become a pillar that can support Tesla's operating turnover in a few years.
Finally, although the news of Tesla FSD's entry into the Chinese market is frequent, in the domestic high-speed and urban NOA environment, Tesla's first-mover advantage in the field of automatic driving is gradually being eroded, coupled with policies and regulations, it still takes time for large-scale production of FSD to land.