I simply listened to Tesla’s third quarter 2023 convention name for buyers, 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 except for the tone and vibe of the decision, Musk gave quite a few solutions and statements that I believe he wouldn’t sometimes give.
He was requested, generally two or thrice, about plans for increasing manufacturing traces, the Mexico gigafactory, Tesla’s goal of fifty% CAGR, the lower-cost Tesla that’s supposed to come back to market after the Cybertruck, and robotaxis and Full Self Driving. Relatively than giving formidable, excited, bullish responses — as is the norm at Tesla, Inc. — Musk was muted, reserved in his expectations, and generally blatantly self-critical.
On the subject of the Mexico gigafactory, it’s delayed indefinitely — till rates of interest drop sufficient. And Musk isn’t bullish on that occuring anytime quickly. Another person on the Tesla crew famous that they nonetheless have loads of house within the Texas gigafactory so as to add extra manufacturing traces 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 could be including manufacturing traces at its two latest gigafactories, Giga Texas and Giga Berlin, and when the opening schedule for the Mexico manufacturing facility was. The reply was principally that there was no want so as to add manufacturing traces in the meanwhile. In different phrases, demand matches manufacturing capability and isn’t rising past that for the foreseeable future. They’re primarily centered on growing effectivity on current traces, and they’re “laying the groundwork” to start building of the Mexico manufacturing facility, Musk famous. “However, I believe we need to simply get a way for what the worldwide economic system is like earlier than we go full tilt on the Mexico manufacturing facility. I’m apprehensive 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 automobile, 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 larger, it’s that a lot tougher for folks to purchase the automobile. 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 towards some widespread Tesla narratives. “And we’re monitoring at this level for the Mannequin Y to be the most effective promoting automobile on Earth — not simply in income, however in unit quantity. In the event you examine that to the opposite autos which can be, you understand, #2 and #3 and whatnot, they price a lot lower than our automobile. So, we’re simply hitting regulation of enormous 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 autos actually compete with cheaper autos due to the operational and upkeep financial savings. We’ve revealed articles explaining this many occasions as effectively, together with fairly lately. However Musk is now conceding that sticker value is sticker value, and the Mannequin Y is principally at its ceiling in the intervening time. “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 automobile that’s nice that they can’t afford doesn’t actually assist.”
However wait a second, isn’t Tesla presupposed to be attaining 50% CAGR? Isn’t Tesla presupposed to be producing and delivering 50% extra autos yr after yr by the 2020s — as much as 20 million autos a yr? Sure, I do know, it’s not anticipated to be 50% yearly, however quite a multi-year common of fifty% CAGR. Naturally, that’s what buyers requested about subsequent. One of the crucial upvoted questions on SAY was, “Present promote aspect consensus assumes that Tesla will ship ~2.3 million autos in 2024, representing 28% progress vs. 2023 steerage. 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 danger of stating the plain, it’s not doable to have a 50% compound progress price of fifty% perpetually or you’ll exceed the mass of the universe.” That is sensible. That’s what I’ve been saying. However that goes towards the extra widespread Tesla narrative, as Musk himself identified. He additionally talked at size a number of occasions 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. In brief, although, 50% CAGR is in limbo in the meanwhile and seemingly not anticipated in 2024. It’s additionally not anticipated for eternity, consider 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 sophisticated and tough to supply than initially anticipated. (Nicely, some folks anticipated this.) Excessive-volume manufacturing — Elon is estimating maybe 250,000 items a yr — is projected to come back about roughly 18 months after the beginning of manufacturing, which is deliberate for the top of 2023. Ramping up manufacturing goes to be extraordinarily tough, based on 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 diminished when it was presupposed to be getting higher day after day. Musk sounded downright depressed to me at that time. When he talked about FSD, you may 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 yr” this time. Both the objectives have been prolonged rather a lot additional out, he simply has no thought 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 could take for much longer to make it work anyplace in any respect. That’s why it’s presently simply North America. And in addition, for many components of the world, you must get approval earlier than deploying issues, whereas within the US you possibly can deploy issues in danger — or, at the very 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 autos a yr by 2030 is a little bit bonkers. Anticipating Tesla robotaxis to reach quickly after years of incorrect forecasts from Elon Musk is … unrealistic. Anticipating the Cybertruck to achieve 1,000,000 gross sales or half 1,000,000 gross sales a yr, and even perhaps in 2024, is anticipating a miracle. Anticipating Optimus to switch Tesla manufacturing facility 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 must simply hearken to (28:32 into the YouTube video if that doesn’t soar you there mechanically).
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 attaining, 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% yr over yr.
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