Tesla had a tough Q3 2023. Its price cuts have maintained high volume deliveries and sales to match production capacity but that has hurt profitability.
Tesla Q3 2023 total revenue is $23.35 Billion which grew 9% yoy but declined -6.7% sequentially from $24.927 Billion last quarter. Net income came in at $1.85 Billion and dropped -44% yoy and declined -46% sequentially from $2.703 in Q2 2023 Billion. Tesla income was negatively impacted by reduction in average selling price (ASP) and negative currency exchange (FX) impact of $.4B. Helping income was growth in Energy Generation and Storage, Services and higher regulatory credit sales. The cost of goods sold per vehicle has gone down to $37,500 Q3 2023 from $39,400 Q3 last year.
Operating income decreased YoY to $1.8B with operating margin at 7.6%.
Cash increased sequentially by $3.0B to $26.1B. Liquidity is healthy. Free cash flow is $0.8B.
Tesla says Cybertruck delivery will happen November 2023. Cybertruck will use high 800-volt architecture which has some cost savings. A post by Throwcomputer in the Cybertruck owners club web site (https://www.cybertruckownersclub.com/forum/threads/cybertruck-vin-decoder-gvwr-vehicle-weight-revealed-only-dual-and-tri-motor-for-2024.9535/) decoded the Cybertruck VIN. He mentions that the law requires car manufacturers to disclose the VIN information 60 days of first consumer sale. The VIN shows Cybertruck will come in two options, Dual Motors – Standard and Triple Motor – Performance.
Solar business declined 49MW from 66MW in Q2 2023 and 92MW in Q3 2022 for a massive -48% decline yoy and a decline of -34% sequentially. This decline was attributed to high interest rates and the end of favorable net metering plan in California.
As the fleet of Tesla cars grow, Services business grow along side. This group includes Supercharging, insurance and body shop and parts. Supercharging is profitable. This part of the business provided $2.166B in revenue and grew 32% yoy from 1.869B and is flat sequentially.
The Energy generation and storage revenue hit $1.559B and grew $40% yoy from $1.1B. and flat sequentially.
Tesla remains on target to deliver 1.8 million vehicles by year end for the year.
Conference Call Highlights
During the earnings call, Elon Musk warned that customers currently are having a tough time affording Tesla cars with higher interest rate since most consumers buy cars through a loan. Elon Musk also suggested that growing 50% CAGR is not sustainable due to law of large numbers. He also said he does not want to aggressively build out the Mexico factory due to uncertain macro economics. His number one priority is to make sure Tesla is profitable and sustainable. With that strategy he does not plan to expand the Berlin Factory and instead want to optimize what it already has to limit capital expenditures. He mentioned that Cybertruck demand is huge but the truck is not expected to be profitable until 18 months later when it hits mass volume. He warned that the path to mass production will be very difficult due to the large number of new things the Cybertruck has that the industry has not had to solve before. Solving these challenges will take time. Elon Musk did not put up a timeline for when FSD v12 will be released although the miles driven with FSD is growing exponentially crossing 500 million cumulative miles. Someone asks what the deliveries will be for 2024. Elon declined to give a number but would update that in Q4.
Stock Reaction to Q3 2023 earnings
Reaction from investor was overwhelmingly negative. On Thursday 10/19/2023 a day after the earnings announcement, Tesla shares opened at $225.95 down from $242.68 and ended the day at $220.11 down -9.3% with above average volume of 170,772,700 shares. The pain continued the next day where it opened $217.01 and finished at $211.99 down -3.7%.
Where is Tesla in its lifecycle?
The price of a stock should reflect the performance of a company. As sales fall and income drop even faster, the value of the company naturally drops to reflect the new reality. Stock price also drops when there is uncertainty. At this junction, there is uncertainty in the wars in Ukraine and Israel and Gaza, the rise in the interest rate and the inflation rate. Specifically of Tesla, there is uncertainty with the Cybertruck production ramp and demand for Model S, X, Y, and 3. The sales decline has to reverse and some of the uncertainty to be cleared up for the stock price to recover. An additional source of the demand decline is from competition at the high end from BMW and Mercedes.
How will Tesla maintain growth?
To grow revenue and income, a company can make a new line of products, create more demand from its existing products and lower the cost of its products. In Tesla’s case, they have the Cybertruck lined up in less than two months. They are selling the refreshed Model 3 China, Europe, and Australia and at some point it will arrive in the US. New model tend to attract new buyers. Tesla’s energy and services business are growing. FSD continue to improve and getting higher usage. Tesla has indicated they are working on lower the cost of its cars. Tesla is doing what it can control and proceeding the near term with more caution.
On Slide 7 of its Q3 report is a chart showing Tesla vehicle market share. At Q3 2023, Tesla has about only 4% of US, less than 3% of Europe, and slightly above 2% in China. It’s very low and would suggests more room to grow. There are still plenty of gas cars to be replaced and the opportunity for EV is still there. The gas car currently still has the acquisition price advantage. EV are better than gas cars and have reached price parity at the high and mid end. At the low end, there is still more R&D work as Tesla average cost is still high at $37,500. Until Tesla next gen car is fully developed , Tesla’s addressable market is limited to the mid and high end. Come in January 2024, the US Tax Credit can directly reduce the purchase price at point of sale instead of waiting until tax time. This can more effective lower the monthly payment and can enable more consumers to afford a Tesla and drive more demand in the US market.