Extreme Daily (ID: rancaijingapp) original
Author | Lv Jingzhi
Edit | Hui Peng Quan
On the morning of April 20, Beijing time, Tesla announced its financial data for the first quarter of 2023 and held an earnings conference, which can be said to be an "information explosion".
From the perspective of business performance, Tesla achieved revenue of $23.329 billion in the quarter, a year-on-year increase of 24%, and gross margin fell to 19.3%. With strong expense control, Tesla still achieved a net profit of $2.513 billion in the quarter, and the net profit margin remained at 11%.
After investor days talked about how to achieve effective cost control, Tesla delivered a gross margin of 19.3%. Obviously, this is not a satisfactory outcome for investors. This was immediately reflected in Tesla's stock price performance.
As of 10 p.m. on April 20, Tesla was down 7% premarket. Although on April 21, Beijing time, Tesla edged up 1.28% to close at $165.08 per share, its stock price still performed poorly overall. Colin, director of overseas investment, said that this was mainly affected by Tesla's gross margin level being lower than expected, and of course, the failure of the Space X launch was not ruled out.
On the evening of April 20, Beijing Daily reported that the launch of SpaceX Starship failed. However, judging by the SpaceX team's tweets, the team seems very optimistic. They posted that "we are very excited about this launch", "success is learning from experience", "we will continue to track the data we collected this time and prepare for the next launch"...
Photo: SpaceX team's Twitter after the failed launch Source/Twitter Screenshot of Extreme Daily
Colin said that this time SpaceX has put the "starship" into orbit, but the final disengagement failed, which does not mean that future launches will fail, "I think this promotes Musk's determination to do a good job in the rocket business." He added.
As we all know, Musk's ambitions go beyond electric cars, but in this earnings report, this information seems to be amplified.
For example, Tesla's energy storage business revenue in the quarter was $1.529 billion, a year-on-year increase of 148%. The energy storage plant in Shanghai will also start construction in the second half of this year. This is also the next step in the "grand plan" shown by investor Musk earlier.
In addition, Musk expressed his layout for the commercialization of autonomous driving at the earnings conference. This also seems to herald a shift in Tesla's marketing strategy - seizing the automotive market with a sustained low-price strategy, profiting from self-driving subscription revenue, and fully autonomous robo-taxi.
However, whether it is energy storage or autonomous driving, it is difficult to achieve revenue and profit growth in the short term, and the delivery growth rate brought about by price cuts has slowed down, and the decline in gross margin level caused by its "backlash" has appeared.
Tesla, which has ambitious goals, seems to be slowing down.
Maintain sales and lose gross margin
In the first quarter of 2023, Tesla delivered 422875 finished vehicles, setting another all-time high. But if you taste this achievement, you can see the price Tesla paid and the hidden dangers buried for the future.
In terms of year-over-year growth in delivery data, Tesla's deliveries in the quarter rose 36% year-over-year, up from 31% in the previous quarter. But month-on-month, Tesla's delivery data growth has slowed down for two consecutive quarters. Growth slowed from 35% sequentially in Q3 2022 to 4% in the quarter.
Data source/Tesla earnings report Extreme Daily collated the chart
This may indicate that Tesla's price reduction strategy is not as effective as before.
Since the beginning of 2021, Tesla has had three major price cuts, in the second quarter of 2021, the third quarter of 2022 and the first quarter of 2023. The delivery data for these three quarters increased by 12% and 7% year-over-year and 7%, 15% and 53%, and 5% and -14% sequentially, respectively. Whether year-on-year or month-on-month, even if Tesla cut prices very sharply at the beginning of this year, the stimulus effect on its delivery was not as good as before.
In fact, in the previous release of Extreme Daily, "Tesla is not "recruited"? The article compares the changes in the ratio of delivery to capacity in each price reduction quarter, and concludes that starting in 2022, Tesla will continue to decline even if it continues to reduce prices. According to the latest data this quarter, Tesla's delivery capacity ratio was 96%, an increase from 92% in the previous quarter, but it did not return to the hot stage of short supply.
Data source/Tesla earnings report Extreme Daily collated the chart
While the effect of Tesla's price reduction strategy is not as good as before, the "backlash" brought about by the price reduction has jumped on paper - the loss of gross margin.
Data source/Tesla earnings report Extreme Daily collated the chart
This quarter, Tesla's gross margin has slipped to 19.3%, below the 20% forecast by most analysts. This is mainly because under the influence of price cuts, Tesla's average car price has been reduced from $4.7-64,000 to $45,000 this quarter. Tesla's cost controls, on the other hand, may not be as easy as they were at previous investor meetings.
It is not difficult to see from the relationship between Tesla's average car price and gross profit margin that in the first quarter of 2022, Tesla's gross profit margin reached a peak of 29.1%, and since then, even if its average car price has increased, the gross profit margin is generally in a downward trend. In other words, Tesla's average vehicle production costs are growing faster than selling prices. Under the successive price reduction strategies, Tesla's gross profit margin is more difficult to maintain.
In the case of less than expected gross margin, Tesla can still maintain a net profit margin of 11%, which means that Tesla's marketing, research and development, management and other expenses account for almost 8% of total revenue. This expense control is quite "explosive" compared with peers - for example, the R&D and marketing expenses of the new domestic force "Wei Xiaoli" accounted for 20-55% of the total revenue in the fourth quarter of 2022.
Data source/Tesla earnings report Extreme Daily collated the chart
In this quarter, Tesla's R&D expenses achieved a year-on-year decline of 10.87%, and marketing expenses showed a year-on-year decline throughout 2022, with only a slight increase of 8.47% year-on-year in this quarter.
Strong expense control has allowed Tesla to maintain profitability despite declining gross margins, but it also raises concerns about whether the reduction in marketing and R&D expenses will have a negative impact on the brand in the long run.
Analysts contacted by Extreme Daily believe that the current control of expenses will not negatively affect Tesla products.
Colin said that Tesla can achieve super expense control because its platform and model technology and brand influence are relatively mature, so the strong control of expenses will not have a negative impact on future sales in the long run. Wang Ke, an analyst at the Auto Travel Industry Center of Analysys, added, "Even if Tesla's expenses account for a relatively low proportion of overall revenue, the absolute value of its expense investment still exceeds that of its peers. ”
Want to do "zero dollar purchase"?
The super cost control ability also gives Tesla enough confidence. In this quarterly earnings conference, Musk even said, "If FSD can be realized in the future, I may even sell vehicles with zero profit." ”
This sentence reveals Tesla's next strategic inclination, to occupy market share in the amount of cars used, and then achieve profitability with FSD self-driving function subscriptions. In other words, Tesla needs to switch from selling hardware (cars) to selling software (FSD). This is almost exactly the same as the prediction in the article "Tesla "Sinking" released by Extreme Daily last year.
But the question is, can the transition from hardware to software work as hoped?
FSD is undoubtedly a business with high gross margins, so there is nothing wrong with the blueprint of making money from software, the question is whether FSD can have enough penetration.
From the available data, the FSD penetration rate is not as expected. According to CITIC Securities, Tesla's FSD's global penetration has been in decline since it peaked in the third quarter of 2019. By the third quarter of last year, it had fallen back to 2016 levels.
Image source/CITIC Securities Screenshot of Extreme Daily
In addition, according to the information revealed at the earnings conference, Tesla's FSD cumulative mileage is 150 million miles, and Min Zhijian, executive director of Shenzhen Shuoguo Investment Management Company, said that this data has reached 120 million miles in January this year. "Only 30 million miles of cumulative growth in a quarter, which is lower than analysts expected." Min Zhijian said.
On the other hand, CITIC Securities has also calculated that Tesla FSD penetration rate in high-end models Model S and Model X has reached 45-50%, much higher than Model Y's 12-13% and Model 3's 5-7%. This may be related to the higher selling price of FSD. In January 2023, FSD raised the price again to $12,000, which is equivalent to a quarter of the price of a Model 3. Therefore, consumers who buy high-end models have more strength and willingness to subscribe to FSD.
However, the bad news is that Tesla's high-end model deliveries showed a downward trend this quarter.
In the quarter, Model S and Model X delivery data fell 27% year-over-year, in fact, since the third quarter of 2022, the year-over-year growth rate of Model S and Model X delivery data has slowed continuously. Moreover, Model S and Model X account for almost only 1-5% of Tesla's overall deliveries.
Data source/Tesla earnings report Extreme Daily collated the chart
To sum up, Tesla wants to expand sales with a sustained low-price strategy, and then make money on FSD subscriptions. However, consumers attracted by the low-price strategy may not be willing to spend a lot of money to buy FSD, and under the influence of the low-price strategy, the sluggish sales of high-end models may be contrary to their future blueprint.
Penetration is not the only problem with the commercialization of FSD, nor is globalization.
Colin said that autonomous driving involves data security issues such as high-definition maps, so almost most FSDs are currently listed in North America, and there are still a series of challenges if they want to be listed in other important regions such as China. He added, "Even if FSD were to be marketed in China, its product stability would be questionable. At present, FSD collects almost all North American road condition data, and domestic road conditions are much more complex, so the security of its algorithm is also a challenge. ”
Moreover, intelligence is almost the main strategy of domestic new energy vehicles, not only "Wei Xiaoli" and other new forces are actively self-researching, Huawei, Baidu led by the three suppliers are also secretly competing, so if Tesla wants to "enter" the autonomous driving circle in China, the competitive pressure should not be underestimated.
To sum up, Tesla wants to rely on the "zero yuan purchase" of vehicles to pave the way, plus the plan of self-driving purchase to make a profit, there is still a long way to go.
It's not just car companies
In addition to autonomous driving, the energy storage business is also a business that Tesla has high hopes for.
In the quarter, Tesla's energy storage business revenue reached $1.529 billion, a year-on-year growth rate of 148%. In the past four quarters, the year-on-year growth rate of Tesla's energy storage business has been rising. In the earnings report, Tesla revealed that energy storage installations increased by 360% year-on-year to 3.9 GWh in the quarter, and that California energy storage plants still have room for full production.
Data source/Tesla earnings report Extreme Daily collated the chart
At the same time, the second 40GWh Shanghai energy storage plant will start construction in the second half of this year. For why Tesla chose Shanghai to establish an energy storage factory, Colin analyzed that Tesla has maintained a good cooperative relationship with the Shanghai government through the first car-making super factory, and Tesla's energy storage factory located in Shanghai can also drive local employment, so this is also a win-win cooperation that is welcome.
Wang Ke added that the overall quality of Chinese workers is higher than that of Southeast Asia or Eastern Europe and other countries and regions, and the overall cost performance is higher in terms of labor costs, and Shanghai's business environment is also more friendly to Tesla, so Tesla is more willing to choose Shanghai.
For the development of Tesla's energy storage business in China, most analysts contacted by Polar Daily also expressed optimistic views. Min Zhijian said, "Tesla's current energy storage business in North America is mainly for ternary lithium batteries, while in China we can use lithium phosphate batteries and even sodium batteries." This can improve the gross margin of the energy storage business. As long as the delivery volume of China's battery projects can be guaranteed, I think the advantages of China's battery industry chain are greater than those of North America. ”
Colin also agreed, "The mainland energy storage industry chain is very mature or even excessive, and after Tesla builds the Shanghai energy storage factory, the gross profit margin of the energy storage business will be greatly improved." In the long run, it is even possible to hedge the decline in the gross profit margin of the automotive business by raising the gross profit margin of the energy storage business. ”
Whether it is automatic driving or energy storage factories, Tesla's ambition is far more than being a "secure" car company, which may also be seen from Tesla's lack of participation in the 2023 Shanghai Auto Show.
Colin analyzed that Tesla missed the Shanghai Auto Show, firstly, because there were no new models on display, and secondly, it was also expressing an attitude, "Tesla no longer wants to continue to 'roll around' on the 'muscle show'." Large-scale production and delivery of vehicles is already just Tesla's 'basic plate'. Energy and technology are the focus of the future. This is also fully consistent with Musk's "grand plan" and the information released by this earnings report. ”
However, neither autonomous driving nor energy storage business can achieve profitability in the short term. Selling cars as a "basic market" is also challenging - Tesla's delivery target for this year is 1.8 million vehicles, and if it maintains this quarter's deliveries, the full-year target cannot be achieved, so Tesla still faces sales and capacity challenges next.
However, in the absence of Tesla's new model launches, can demand remain strong in the second half of the year? With deliveries below capacity for several consecutive quarters, will Tesla cut prices further to clear inventory? At that time, will its gross margin level and inventory impairment losses further deteriorate? These are all issues that cannot be ignored.
In short, the pace of progress seems to be slowing markedly compared to Tesla's distant ambitions. With such a "small broken step", when will Tesla reach the "other side of the dream"? See.
*The title image is from Visual China.
*Colin is a pseudonym in the text.
*Disclaimer: Under no circumstances does the information in this article or the opinions expressed constitute investment advice to anyone.