Evaporate 1 trillion yuan in 3 days! Musk panicked

Author | Freddy

Musk, the world's richest man, is unhappy again.

Tesla's earnings report this week continued to decline because the performance was less than expected, and Musk discussed the company's future with a "doomsday" argument at the investor exchange meeting, which caused a sharp fluctuation in stock prices.

This is the first time since the second quarter of 2019 that Tesla's revenue and EPS have both fallen short of expectations, leading a number of institutions to lower Tesla's target price. For three consecutive days, Tesla's market value fell by nearly $140 billion, or more than 1 trillion yuan.

Musk himself has reduced his fortune by more than $27 billion.

Although the company is still up nearly 80% this year, the continuous trend towards "road goods" has put the company's valuation under increasing pressure. Without a solid hardware scale foundation, Tesla's monetization of autonomous driving is difficult to project greater value.

Musk stressed that the current business situation reminds him of the production capacity hell of the past, and "bankruptcy phobia" plagues the entrepreneurial hero.

01

stall

In the third quarter, Tesla's revenue was $23.350 billion, up 9% year-on-year, lower than the average analyst expectation of $24.1 billion. And the net profit was only 1.853 billion US dollars, down 44% year-on-year; Adjusted earnings per share of $0.66 were also below average expectations of $0.73.

As emphasized many times in previous articles, Tesla's strategy of sacrificing profits and exchanging price for volume this year is clearly implemented, in addition to the squeeze on sales due to slowing demand, such as capacity transformation, revision of the car, new car production and automatic driving A large amount of investment has put a lot of pressure on cash flow.

Considering the fourth quarter immediately following the rush to sales, Tesla can do not much except cut prices.

By business, Q3 Tesla's core automotive business revenue was $19.625 billion, a year-on-year increase of 5%. Energy Production & Storage revenue was $1,559 million, up 40% year-over-year. Services and other businesses, including vehicle maintenance, generated revenue of $2,166 million, up 32% year-over-year.

Due to the frequent price cuts over the past 23 years, the decline in gross margin, which is widely feared by the market, continues to materialize.

Gross margin for the third quarter was 17.9%, down from 18.2% in the second quarter of this year and 25.1% in the same period last year. Because the photovoltaic and energy storage business released 4GW in the third quarter, an increase of 90% year-on-year, the increase in gross margin of this business offset the impact of some automotive businesses.

The core gross margin of automobile sales fell 1.8% sequentially from the previous quarter, and although the cost of raw materials for vehicles decreased by about $2,000 in the third quarter, the average bicycle revenue decreased by nearly 17.31% from the same period last year. The ability to provide technical cost reduction on the production side is also limited, and the amortized depreciation cost of the bicycle increased by about $400 compared to the previous quarter.

As the main force of Tesla's production capacity, Tesla's Shanghai plant began a renovation plan in July, and it is expected that the total production capacity can be increased by 36%, and the annual production capacity is expected to increase from 750,000 to 1.1 million vehicles, in order to adapt to the production of the new Model 3, according to previous news, it is expected to start deliveries in October.

Musk himself revealed that in addition to the scheduled downtime in the third quarter, the Shanghai factory has been successfully operating close to full capacity for several quarters, and no significant downtime is expected.

However, the adjustment of production capacity has a certain impact on Tesla's sales in the third quarter, although it has been remedied by reducing prices.

In August, the price of the long-range version and high-performance version of the Chinese Model Y was lowered by about 4% (equivalent to 14,000 yuan), the price of the long-range version was reduced to 300,000 yuan to 299,900 yuan, and the high-performance version was reduced to 349,900 yuan.

Tesla delivered 435,059 vehicles worldwide in the third quarter, about 20,000 fewer than expected. If the target of 1.8 million vehicles is still to be met, more than 475,000 vehicles will need to be delivered in the fourth quarter of this year.

Musk also blamed this on the squeeze on demand for loans to buy cars due to the high interest rate environment, and the reasons are in fact more complex.

Taking the US market as an example, Q3 electric vehicle sales in the United States exceeded 313,000 units, an increase of more than half of last year's sales, and the penetration rate reached 7.9%, a record high.

As Ford, GM and Rivian continued to supply electric vehicles, Tesla's market share fell from 62% in Q1 to 50%. Tesla, which could not stand it, was the first to announce price cuts in the United States in early October.

The average selling price of Tesla's main products in the third quarter was about 25% lower than the same period last year, and sales were mainly contributed by the two best-selling models in the world, Model 3/Y, but due to the delay in production and delivery caused by the transformation of the production line of the facelifted model, it still gave the opponent the opportunity to catch up.

In the first three quarters, BYD's cumulative sales increased by 76.2% year-on-year. And BYD's pure electric car sales in Q3 also reached 431,600 units, only about 3,500 units lower than Tesla, and the gap is getting smaller and smaller.

The good news is that deliveries of the new Model 3/Y will also begin in the fourth quarter.

Tesla's original cost-saving efforts are visible in the interior, compared with competitors are too simple, the new version of Model 3 has made adjustments in the appearance and interior configuration, such as adding ambient lights, rear LCD screens, upgrading the audio system, and further compressing the manufacturing cost of bicycles after using a higher degree of integrated die-casting.

However, the revised Model 3 was not sold at a reduced price, but only gave 8,000 insurance subsidies, a disguised price reduction of 3.5%. In comparison, the new Model 3 renewed-out version (rear-drive version) is 28,000 yuan higher than the 2022 rear-wheel drive version (sold for 231,900 yuan).

The decline was more severe than the gross profit margin of automobiles, and the surge in expenses during the period was mainly due to the company's operating margin.

The company's research and development expenses in the third quarter increased by 58.4% year-on-year, and capacity construction, Cybertruck trial production, Optimus and Dojo's technology development required a large amount of capital investment, resulting in Tesla's operating margin in the third quarter falling to 7.6%, down 9.6% year-on-year.

After sweeping down, sales competition pressure + slow ramp-up of production capacity + unclear new car development constitute three major pressures on Tesla's valuation.

Demand slowdown is the status quo, production capacity climbing speed and new car cycle is related to Tesla 24 years and even the future scale can go up another ladder, and Musk himself has no stable confidence in whether 24 years of sales can continue to grow by 50%, in the increasingly competitive electric vehicle market, Tesla price reduction effect will be worse and worse.

02

Musk was a little panicked

At the investor meeting, all the focus is on whether Tesla's future sales are still growing, not just listening to the slogan of 20 million vehicles, but to understand the specific situation of Tesla's new cars and factories.

Musk has implicitly stated that 50% is a tortuous goal, which does not mean that it can be achieved every year.

In terms of capacity climbing, Tesla once again encountered problems.

First, expectations for new vehicle deliveries face a downward revision. Although Cybertruck's order volume has reached the million-level level, the actual delivery will not contribute much marginal increment in 24 years. Previously, this electric pickup truck had been affected by the heavy body and finally scheduled to start delivery at the end of November.

Musk set the standard tone for Cybertruck, because it is "too innovative", the climbing speed of Cybertruck, which has been in production for 18 months, is difficult to predict, and the goal of annual production of 250,000 vehicles is difficult to achieve in 24 years, and there may be hope in 25 years.

Because Cybertruck uses 4680 batteries, but with the current 4680 climbing speed, it is impossible to quickly increase the delivery speed in the short term, but the battery production line for Cybertruck has been adjusted, and the next stage of new production lines will basically not be put into production until the second quarter of next year.

Secondly, in addition to the Shanghai plant, which has completed the technical transformation, the production capacity of the Dezhou and Berlin factories is facing certain uphill pressure. The company lowered the target of 10,000 units per week for each of the two plants, and the improvement in efficiency was accompanied by rising labor costs.

The latest planned Mexican plant has been delayed again, and even if it can be launched in 24 years, it will not expect to bring any contribution.

Compared with the progress of production capacity, Musk is more worried about the demand suppressed by high interest rates, and the current purchasing power has not been released, and he hopes to increase investment in scale when interest rates are falling.

Although today's bottleneck is not the same as the original production capacity hell, Musk's sense of crisis still exists.

At the end of 2016, Tesla was ready to mass-produce the new Model 3 and needed to build a new production line. During this period, Tesla had a large capital investment to build new factories and production lines. In 2016-2017, Tesla raised $3.7 billion and $4.4 billion to build new plants by issuing new shares and senior bonds, respectively.

But capital investment is not enough to plunge Tesla into a liquidity crisis. One bigger problem has yet to emerge – the slow pace of capacity climbing.

The planned production capacity of the new plant is 10,000 units per week. In fact, after the new plant was completed and put into operation in July 2017, the production capacity in the third quarter was only 18 units per week. Q4 has only climbed to 125 units/week.

At that time, the management gave the expectation that it could reach 5,000 units per week by the end of the year, so the production capacity climb was seriously less than expected. This was also the production hell period Musk said at the time, investing a lot of cash to build factories, and the efficiency of production lines was delayed.

Finally, the situation began to improve in the third quarter of '18, and Model 3 production capacity climbed to more than 5,000 units per week. At this point, Tesla's operating cash flow began to turn positive and began to improve significantly, becoming a self-producing car company, and the risk of bankruptcy was greatly reduced. After this, Musk and Tesla are out of the gates of hell.

Subsequently, the appearance of the Chinese factory brought Tesla to the top of the world. In the third quarter of '18, Tesla finalized the construction of a gigafactory in Shanghai, which is expected to be completed by the end of 19, in fact, the commissioning of the production line began in the third quarter of '19, and the manufacturing cost of Model 3 in China is half cheaper than the Fremont factory in the United States.

Further on, the subprime mortgage crisis in '08 almost brought the cash-strapped Tesla to the brink of bankruptcy, and Musk himself suffered from PTSD, out of fear of crisis and concern about the stalemate in a high-interest rate environment, his statement may be simultaneously an emotional catharsis. It doesn't matter if you are a "general" a little emotional, the problem is to let everyone know, and the market value has also run away.

This year for Tesla, the output is small and the investment is relatively large.

Tesla's capital investment, which has not been released for a long time, began to accelerate significantly, with capital expenditure of 2.5 billion yuan invested in this quarter, and the total R&D and sales expenses exceeded market expectations by nearly 300 million.

Forward volume and margin expectations are likely to face downward revisions in the coming quarters. But gross margins have fallen to 15%-16%, meaning Tesla must rely on technology to find a balance between sales and profits. The actual delivery of the Cybertruck is difficult to surprise in the short term, which will put forward higher requirements for Tesla's next generation of affordable cars, as well as FSD, which really raises valuations.

Therefore, in the next two or three quarters, Tesla's market value may still have little room for a significant increase. (End of full text)