I simply listened to Tesla’s third quarter 2023 convention name for traders, and it didn’t come throughout in any respect like Tesla’s regular quarterly convention calls. It was very low key and Elon Musk even sounded a bit depressed. Naturally, gross margins are down (rather a lot), the Cybertruck is delayed (once more), and Full Self Driving seems to be in the identical place it’s been for some time (give or take). However apart from the tone and vibe of the decision, Musk gave a variety of solutions and statements that I believe he wouldn’t usually give.
He was requested, generally two or 3 times, about plans for increasing manufacturing strains, the Mexico gigafactory, Tesla’s goal of fifty% CAGR, the lower-cost Tesla that’s supposed to return to market after the Cybertruck, and robotaxis and Full Self Driving. Reasonably than giving bold, excited, bullish responses — as is the norm at Tesla, Inc. — Musk was muted, reserved in his expectations, and generally blatantly self-critical.
Almost about the Mexico gigafactory, it’s delayed indefinitely — till rates of interest drop sufficient. And Musk isn’t bullish on that taking place anytime quickly. Another person on the Tesla crew famous that they nonetheless have loads of area within the Texas gigafactory so as to add extra manufacturing strains if wanted. Then they laughed that they really have 2,000 or so acres of land there the place they might develop. A lot earlier within the name, Tesla was requested about when it might be including manufacturing strains at its two latest gigafactories, Giga Texas and Giga Berlin, and when the opening schedule for the Mexico manufacturing unit was. The reply was principally that there was no want so as to add manufacturing strains in the mean time. In different phrases, demand matches manufacturing capability and isn’t rising past that for the foreseeable future. They’re primarily targeted on growing effectivity on current strains, and they’re “laying the groundwork” to start development of the Mexico manufacturing unit, Musk famous. “However, I believe we wish to simply get a way for what the worldwide economic system is like earlier than we go full tilt on the Mexico manufacturing unit. I’m frightened in regards to the high-interest-rate setting that we’re in. I simply can’t emphasize this sufficient, that for the overwhelming majority of individuals shopping for a automotive, it’s in regards to the month-to-month fee, and as rates of interest rise, the proportion of that month-to-month fee that’s curiosity will increase naturally. … If rates of interest stay excessive, or in the event that they [go] even increased, it’s that a lot tougher for folks to purchase the automotive. They merely can’t afford it.”
He then talked extra particularly in regards to the Mannequin Y, in a means that I and others have been doing however which works in opposition to some frequent Tesla narratives. “And we’re monitoring at this level for the Mannequin Y to be one of the best promoting automotive on Earth — not simply in income, however in unit quantity. Should you evaluate that to the opposite automobiles which are, , #2 and #3 and whatnot, they value a lot lower than our automotive. So, we’re simply hitting regulation of huge numbers conditions right here.” That is what Jose Pontes generally calls the “pure limits” of various fashions. Tesla has argued for years — and nonetheless does — that its automobiles actually compete with cheaper automobiles due to the operational and upkeep financial savings. We’ve revealed articles explaining this many instances as properly, together with fairly just lately. However Musk is now conceding that sticker worth is sticker worth, and the Mannequin Y is principally at its ceiling in the interim. “I do know some folks need us promoting. We’re promoting. Um, I believe there may be some, there’s one thing to, there’s a … one thing to be gained on the promoting entrance, I don’t assume it’s nothing. Um. However, informing folks of a automotive that’s nice that they can’t afford doesn’t actually assist.”
However wait a second, isn’t Tesla imagined to be reaching 50% CAGR? Isn’t Tesla imagined to be producing and delivering 50% extra automobiles 12 months after 12 months by means of the 2020s — as much as 20 million automobiles a 12 months? Sure, I do know, it’s not anticipated to be 50% yearly, however relatively a multi-year common of fifty% CAGR. Naturally, that’s what traders requested about subsequent. Probably the most upvoted questions on SAY was, “Present promote aspect consensus assumes that Tesla will ship ~2.3 million automobiles in 2024, representing 28% progress vs. 2023 steering. Is that this progress price achievable with none mass-market launches in 2024, and when does Tesla count on to return to its 50% long-term CAGR?” Elon Musk began off with a response I didn’t count on. “On the threat of stating the plain, it’s not attainable to have a 50% compound progress price of fifty% eternally or you’ll exceed the mass of the universe.” That is smart. That’s what I’ve been saying. However that goes in opposition to the extra frequent Tesla narrative, as Musk himself identified. He additionally talked at size a number of instances on the decision about excessive rates of interest. General, I used to be legitimately shocked by his phrasing in a few of these statements. He sounded extra like a Tesla critic than Tesla’s #1 fan. Briefly, although, 50% CAGR is in limbo in the mean time and seemingly not anticipated in 2024. It’s additionally not anticipated for eternity, imagine it or not.
When it got here to the Cybertruck, and manufacturing being delayed, Musk stated, “we dug our personal grave with Cybertruck.” It’s a bit extra difficult and troublesome to supply than initially anticipated. (Properly, some folks anticipated this.) Excessive-volume manufacturing — Elon is estimating maybe 250,000 models a 12 months — is projected to return about roughly 18 months after the beginning of manufacturing, which is deliberate for the top of 2023. Ramping up manufacturing goes to be extraordinarily troublesome, in response to Musk.
After which there’s the matter of Full Self Driving (FSD). Somebody requested in regards to the estimated timeline for a Tesla robotaxi and another person requested why the value had been lowered when it was imagined to be getting higher day after day. Musk sounded downright depressed to me at that time. When he talked about FSD, you would hear him containing himself, holding again and attempting to not make overly daring and optimistic statements, even referencing his earlier overly optimistic statements. He defined the supply of these and he defined (once more) why he was so bullish on Tesla’s strategy. However there was no “we’ll have robotaxis on the highway subsequent 12 months” this time. Both the objectives have been prolonged rather a lot additional out, he simply has no concept when Tesla can obtain it, or he bit his tongue repeatedly to not make the identical errors of the previous.
Then there was this assertion when requested about FSD being prolonged to nations past the US and Canada: “The extra locations we attempt to make it work, the tougher the issue is. So, the rationale we don’t do it in all nations concurrently is that it might take for much longer to make it work wherever in any respect. That’s why it’s presently simply North America. And likewise, for many elements of the world, you need to get approval earlier than deploying issues, whereas within the US you’ll be able to deploy issues in danger — or, at the least, take legal responsibility for what you deploy.”
It was an odd, sudden convention name. Reflecting on it, I got here to at least one total conclusion: expectations for Tesla have simply gotten too ridiculous. Anticipating 50% CAGR at this stage is … rather a lot. Anticipating to get to twenty million automobiles a 12 months by 2030 is a bit bonkers. Anticipating Tesla robotaxis to reach quickly after years of incorrect forecasts from Elon Musk is … unrealistic. Anticipating the Cybertruck to succeed in one million gross sales or half one million gross sales a 12 months, and maybe even in 2024, is anticipating a miracle. Anticipating Optimus to interchange Tesla manufacturing unit staff within the subsequent couple of years is its personal factor, however the level the place Musk talked about that was actually one thing you need to simply hearken to (28:32 into the YouTube video if that doesn’t soar you there robotically).
Tesla within the 2010s was a tremendous story. Tesla within the 2020s is already a tremendous story. However expectations can get out of hand it doesn’t matter what an individual or an organization is reaching, and I believe expectations for Tesla have simply gotten out of hand.
Tesla working margin was at 7.6%, down considerably from the 17.2% of the third quarter of 2022. Adjusted earnings had been 66¢ per share, a lot decrease than the market’s anticipated 72¢ or 73¢ per share. Whole gross revenue was down 22% 12 months over 12 months.
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