January 24, 2024, Tesla released its Q4 2023 earnings. Revenue was $25.167 Billion increased 3% yoy. Net income was $7.928 Billion up 115% yoy. The yoy comparison has one time non cash tax benefit of $5.9B. Gross margin is 17.6% -612bp yoy. So despite higher volume of cars in 2023, its revenue only rises 3%. This is because of the huge price reductions Tesla implemented in its effort to increase volume. This hurt revenue, net income, and margins and results show.
Tesla’s projection for 2024 is for volume to grow slower than 2023. This is bad because volume produces revenue and income. Low volume growth will mean revenue will not grow much for 2024.
Tesla stock price dropped over 10% the following trading day. It finished 182.63USD -25.2(12.13%). The intelligence and wisdom of the global investment community repriced Tesla based on its current near term growth rate. That grow rate will be slower in 2024 than 2023. Stock price drops to reflect the slower growth.
Tesla also did not issue a specific volume projection for 2024. Projecting for one year accurately is not easy. This may benefit Tesla as they will not have to drastically cut prices just to meet volume projection.
Tesla’s reason for lower growth rate is they are working on the Cybertruck production ramping. They are also developing the next gen low cost Model 2. That next gen vehicle is likely to be production ready by end of 2025. In order to achieve low cost, Tesla is having reinvent the production process and that takes more effort. That leaves no new vehicles for 2024. This announcement puts Tesla in a penalty box until mid 2024 when there may be some announcement on the next gen car.
There is good news and bad news on the cost side. Tesla’s Q4 2023 earnings releases posted its average cost of goods per vehicle at little over $36,000, a drop of over $1,000 from prior Q3 of $37,500. That great but going forward it may be harder to get more cost savings. Tesla Q4 earnings report stated they may be nearing the limit of the cost reduction but they will continue those efforts. Any further price reductions in the future will reduce margin more since there is now less cost reduction to offset it.
The EV market for early adopters may have been saturated earlier than Tesla expected. Their next gen Model 2 vehicle targeted at the lower price, mass market is still in the R&D phase.
Tesla can reverse this stock drop once they begin to increase revenue growth rate again. Unlike a matured, saturated business, Tesla’s business still has more room to grow. It has a couple of projects they are working on to increase future volume and revenue growth.
1. Cybertruck volume ramp to installed capacity of 125,000 annual units.
2. Complete the next gen, low cost mass market vehicle design and go to production.
3 Improve FSD capability and increase uptick rate.
4. License FSD to other OEMs.
Projects further out is the Robotaxi business once FSD perfected. Youtube reviews from Whole Mars Review using V12 show it is capable of curbside to curbside trips. Certainly FSD v12 still need work to achieve beyond human capability. The review shows that there is a path where Robotaxies is possible. Wall St. is very conservative and can’t assign value to Robotaxies until it is complete and start generating revenue.
What can also help Tesla is if interest rate in US and Europe begin to drop. This effectively lowers monthly payments of car buyers and increases the addressable market or potential customer base.
One highlight is Model 3 refresh is now available globally. This will help that segment be competitive and hold its market.
While automotive volume is stalling, Tesla reported progress for FSD and Optimus robot.
FSD Beta V12 is coming out to majority of owners in coming weeks. FSD V12 uses trained neural net for driving, replacing 300k lines of code that narrowly implements driving rules. The neural net solution has an advantage of being more generalized driving capability and able to handle more cases that are encountered in real world situation. Neural network solution can also improve at a faster rate by having large fleet providing driving video clips of edge cases where FSD did poorly and caused a disengagement. The rate of progress is faster than writing more C++ code. FSD Beta is still work in progress but there’s path to improvement. When V12 is ready for release, more Tesla owners can use it and give feedback.
Progress on FSD is important as it will attract more paying customers and increase take rate as they see the value in FSD. FSD being more mature can also increase revenue as Tesla indicated they want to license this to other OEMs. OEMs currently don’t believe in FSD and therefore are in no hurry to sign license deals. Once FSD is ready, OEMs might license it similar to how OEMs have embraced using Tesla’s Supercharger network. OEMs will not want to invest the billions of dollars needed to achieve FSD parity on their own.
Optimus robot is progressing and there was recent video showing it can fold cloths likely using a tether to a human. The training methodology for Optimus will be same as what Tesla uses to train FSD. A human will be “driving” a robot to perform an action. A person may wear a suite with sensors to record body movement along with video. When a person moves, the motion on the robot is mirrored. For example, in the case of FSD, it is steering wheel and for Optimus, it would the hand, arm, finger positions and what force is applied. https://twitter.com/elonmusk/status/1746964887949934958
To summarize, 2023 went well, meeting production volume and growing revenue and income. 2024 growth rate will be slower than 2023. Many see that as reason to reprice the stock but the interesting thing is growth rate can pick up again in future year. Tesla is slowing for 2024 but it is not a dying company. It generated $3.0 Billion cash and has $29.1 Billion at end of Q4 2024. Unlike EV startups who are not yet at the volume where they are profitable, Tesla runway is quite long. The slower 2024 does not necessarily mean an even slower 2025 or the end of EV. The world is not going back to pre EV. The next gen Model 2 will be a large volume vehicle designed to be lower price to address a much larger base of customer. A lower priced vehicle increases the total addressable market (TAM) and would be revenue growth opportunity for Tesla and is inline with typical new technology trend. Near term, the Cybertruck volume will be slow in 2024 but as the production line is fine tuned, volume will pick up as 2024 progress. Tesla has indicated Cybertruck is production limited and demand is large. Tesla has path to increase growth rate. It will take a lot of work and time.