Tesla profit margin compression - investment costs are rising faster than product sales prices: uncertainty breeds opportunity
FSD investment arguments are subject to regulatory approval
As Elon Musk emphasized during the recent FQ1 '23 earnings call,Tesla Inc.(NASDAQ stock code:TSLA) To launch another attack and re-promote the availability of its fully automated driving (“FSD”) technology by 2023:
However, the trend is very clear, towards fully autonomous driving and fully autonomous driving. As most investors are aware, since 2018、2019, 2020, and2021Since Robotaxis, TSLA's CEO has long touted the supposed usability of its FSD technology several times.Unfortunately, considering the 2016 promotional video that was reportedly fake, Optics are bad for automakers, Ashok Elluswamy, TSLA's director of autonomous driving software, said:
The purpose of this video is not to accurately describe what is available to customers in 2016. It describes what can be built into the system. (Technical austerity。）
On the one hand, TSLA's FSD technology has a lot of room for improvement over the past seven years, and the test plan has been reached since October 2020150 million miles of drivingmiles.
The car manufacturer'sFSD update 11.4It's also quite promising, in addition to better predicting pedestrian movements andWeather adaptive speed controlIn addition, it also brings faster response times and improved cornering performance.RECENT VIDEOSIt also showed zero drivers' detachments/takeovers, which indicates that its FSD technology's preparedness on suburban roads and highways has improved.
Therefore,TSLAThe latest update in April 2023 may push its FSD technology closer to “”Consumer Report》(Currently out of date) Top of the list of “Top Active Driver Assistance Systems” released on January 25, 2023.
On the other hand, although General Motors (NYSE stock code:GM)'s Cruise probably only recorded1 million miles of driving, but it has received authoritative approval to operate paid robot taxis in Austin and San Francisco. The automaker is also likely to test its wheelless Origin space shuttle starting in 2023,Waiting for authorities' approval。
Even TSLA's self-driving rival Baidu in China (NASDAQ stock code:BIDU) It has also obtained relevant robot taxis in Beijing, Wuhan, and Chongqinglicense.The company also claims that prior to FQ4'22, it had accumulated more than 50 million kilometers, or 31 million miles, of driving with Level 4 autonomous driving, while each vehicle provided more than 20 trips per day.Whether it actually gets full regulatory approval in 2023 remains to be seen. Especially at this car manufacturer that is still acceptingIn the case of a national investigation, the Highway Traffic Safety Administration,recentlyA car accident in North Carolina seriously worsened the situation.
Margin compression is TSLA's response to growing market share
The FQ1'23 gross margin recently announced by TSLA fell sharply by 19.3% (-4.5 points/-9.8), and the operating profit margin was 11.4% (-4.6 points/-7.8 points YoY), which naturally affected its free cash flow margin to 1.9% (-3.9 pips month/-10 YoY). Revenue in the most recent quarter fell -$0.58B/ -2.4%, operating margin fell -2.1 percentage points, and earnings per share fell -$0.17/ -18.8%.
Additionally, TSLA'sGlobal inventoryIt rose sharply to 15 days (+15.3% QoQ/ +400% YoY) or worth $14.37B (+12% QoQ/ +114.7% YoY) in the most recent quarter. TSLA is likely to cut production or further cut its average sales price, given the continued underutilization of its Gigain Texas/Berlin, and the uncertain macroeconomic outlook leading to a slowdown in demand until 2024.
Although the automaker always wanted”accelerating“The world's transition to sustainable energy”, although sales volume and market share may expand, in the long run, compressed profit margins may cause considerable damage.
Assuming a continued pace in the future, TSLA may eventually report profit margins similar to other traditional automakers, such as Ford Motor Company (NYSE stock code:F) By fiscal year 2026Ford Model e market segmentThe target profit margin before interest and tax is around 8%.Otherwise, by fiscal year 2025, the former may still exceed GM's EV EBIT profit margin target and BYD Co., Ltd. (OTCPK: BYDDY) Current EBIT profit margin target of 4.6%. Last twelve months [LTM].
However, according to the former, a design capacity of 2 million is expected in 2023, and F is expected to have a production capacity of 600,000 in 2023/With a production capacity of 2 million in 2026 and 400,000 GM production capacity, the production capacity gap between TSLA and its competitors may narrow in the next few years. H1'24/1M in 2025. Notably, the potential winner of this match could be BYDDF, which is expectedThe operating rate in 2025 is 3MIt will reach 10M by 2030.
The TSLA situation has become more unstable and willCapital expenditure for fiscal year 2023The upper limit was raised to $9B (up 25.6% year over year), compared to the previous guidance range of $6B to $8B. Based on its annual operating cash of $2.51B (-37% YoY) in FQ1'23, its free cash flow generation for FY2023 is likely to be affected by only $1.04B (-86.2% YoY).
So, while chasing market share may be a good idea in the short term, due to uncertain macroeconomic prospects, this may also lead to itsbalance sheetThe final decline, with $22.4B (+24.3%) in cash/equivalent reported in the most recent quarter and -$21.1B (+33.8% YoY) in net debt.
Only time will tell how TSLA has evolved:
As Elon Musk emphasized during the recent FQ1 '23 earnings call,Tesla Inc.(NASDAQ stock code:TSLA) To launch another attack and re-promote the availability of its fully automated driving (“FSD”) technology by 2023:
However, the trend is very clear, towards fully autonomous driving and fully autonomous driving. As most investors are aware, since 2018、2019, 2020, and2021Since Robotaxis, TSLA's CEO has long touted the supposed usability of its FSD technology several times.Unfortunately, considering the 2016 promotional video that was reportedly fake, Optics are bad for automakers, Ashok Elluswamy, TSLA's director of autonomous driving software, said:
The purpose of this video is not to accurately describe what is available to customers in 2016. It describes what can be built into the system. (Technical austerity。）
On the one hand, TSLA's FSD technology has a lot of room for improvement over the past seven years, and the test plan has been reached since October 2020150 million miles of drivingmiles.
The car manufacturer'sFSD update 11.4It's also quite promising, in addition to better predicting pedestrian movements andWeather adaptive speed controlIn addition, it also brings faster response times and improved cornering performance.RECENT VIDEOSIt also showed zero drivers' detachments/takeovers, which indicates that its FSD technology's preparedness on suburban roads and highways has improved.
Therefore,TSLAThe latest update in April 2023 may push its FSD technology closer to “”Consumer Report》(Currently out of date) Top of the list of “Top Active Driver Assistance Systems” released on January 25, 2023.
On the other hand, although General Motors (NYSE stock code:GM)'s Cruise probably only recorded1 million miles of driving, but it has received authoritative approval to operate paid robot taxis in Austin and San Francisco. The automaker is also likely to test its wheelless Origin space shuttle starting in 2023,Waiting for authorities' approval。
Even TSLA's self-driving rival Baidu in China (NASDAQ stock code:BIDU) It has also obtained relevant robot taxis in Beijing, Wuhan, and Chongqinglicense.The company also claims that prior to FQ4'22, it had accumulated more than 50 million kilometers, or 31 million miles, of driving with Level 4 autonomous driving, while each vehicle provided more than 20 trips per day.Whether it actually gets full regulatory approval in 2023 remains to be seen. Especially at this car manufacturer that is still acceptingIn the case of a national investigation, the Highway Traffic Safety Administration,recentlyA car accident in North Carolina seriously worsened the situation.
Margin compression is TSLA's response to growing market share
The FQ1'23 gross margin recently announced by TSLA fell sharply by 19.3% (-4.5 points/-9.8), and the operating profit margin was 11.4% (-4.6 points/-7.8 points YoY), which naturally affected its free cash flow margin to 1.9% (-3.9 pips month/-10 YoY). Revenue in the most recent quarter fell -$0.58B/ -2.4%, operating margin fell -2.1 percentage points, and earnings per share fell -$0.17/ -18.8%.
Additionally, TSLA'sGlobal inventoryIt rose sharply to 15 days (+15.3% QoQ/ +400% YoY) or worth $14.37B (+12% QoQ/ +114.7% YoY) in the most recent quarter. TSLA is likely to cut production or further cut its average sales price, given the continued underutilization of its Gigain Texas/Berlin, and the uncertain macroeconomic outlook leading to a slowdown in demand until 2024.
Although the automaker always wanted”accelerating“The world's transition to sustainable energy”, although sales volume and market share may expand, in the long run, compressed profit margins may cause considerable damage.
Assuming a continued pace in the future, TSLA may eventually report profit margins similar to other traditional automakers, such as Ford Motor Company (NYSE stock code:F) By fiscal year 2026Ford Model e market segmentThe target profit margin before interest and tax is around 8%.Otherwise, by fiscal year 2025, the former may still exceed GM's EV EBIT profit margin target and BYD Co., Ltd. (OTCPK: BYDDY) Current EBIT profit margin target of 4.6%. Last twelve months [LTM].
However, according to the former, a design capacity of 2 million is expected in 2023, and F is expected to have a production capacity of 600,000 in 2023/With a production capacity of 2 million in 2026 and 400,000 GM production capacity, the production capacity gap between TSLA and its competitors may narrow in the next few years. H1'24/1M in 2025. Notably, the potential winner of this match could be BYDDF, which is expectedThe operating rate in 2025 is 3MIt will reach 10M by 2030.
The TSLA situation has become more unstable and willCapital expenditure for fiscal year 2023The upper limit was raised to $9B (up 25.6% year over year), compared to the previous guidance range of $6B to $8B. Based on its annual operating cash of $2.51B (-37% YoY) in FQ1'23, its free cash flow generation for FY2023 is likely to be affected by only $1.04B (-86.2% YoY).
So, while chasing market share may be a good idea in the short term, due to uncertain macroeconomic prospects, this may also lead to itsbalance sheetThe final decline, with $22.4B (+24.3%) in cash/equivalent reported in the most recent quarter and -$21.1B (+33.8% YoY) in net debt.
Only time will tell how TSLA has evolved:
Currently, Tesla has broken through the $164 support level in the first quarter of '23 and has re-tested the $150 level in the fourth quarter of '20, if not the $110 level of January 2023.
Compared to the high in November 2021, although this decline looks attractive, the compression in profit margins so far and the uncertainty of a possible recession have made forward execution more unstable. Especially considering Elon Musk's growing distraction with Twitter and ChatGPT, artificial intelligence also led to an increase in capital expenditure in FY 2023, although this may be due to FSD's ambitions.
The automaker's investment story probably won't hold up anytime soon, also due to the end of its dominance in the electric vehicle market. Since the beginning of the year, its in the USmarket shareIt has dropped to 58%, compared to 72% in 2022, Tom, S&P's VP of Global Mobile Industry AnalyticsLibby expects a further decline below 50% by mid-2023.
Tesla'sGlobal market shareIt also declined from 14% in 2021 to 13% in 2022, while BYDDF grew 9 percentage points year over year to 18.4%. This pace may be a result of strategies from other electric vehicle manufacturers that prefer to operate with increased losses and/or minimal profit margins while chasing sales growth.
Assuming Tesla's stock loses Elon Musk's hype, it's not overly pessimistic to expect its NTM/PE valuation to slowly but surely drop 41.87 times, close to the average of its automotive peers of 8.28 times. Market analysts have predictedFY 2031It might happen. According to market analysts' predictions for the 2024 EPS of $5.04, these levels could point to the painful target of $50. Only time will tell.
The above analysis is for reference only and should not be considered professional investment advice. Please do thorough personal research and due diligence before investing as trading involves many risks, including loss of capital
Compared to the high in November 2021, although this decline looks attractive, the compression in profit margins so far and the uncertainty of a possible recession have made forward execution more unstable. Especially considering Elon Musk's growing distraction with Twitter and ChatGPT, artificial intelligence also led to an increase in capital expenditure in FY 2023, although this may be due to FSD's ambitions.
The automaker's investment story probably won't hold up anytime soon, also due to the end of its dominance in the electric vehicle market. Since the beginning of the year, its in the USmarket shareIt has dropped to 58%, compared to 72% in 2022, Tom, S&P's VP of Global Mobile Industry AnalyticsLibby expects a further decline below 50% by mid-2023.
Tesla'sGlobal market shareIt also declined from 14% in 2021 to 13% in 2022, while BYDDF grew 9 percentage points year over year to 18.4%. This pace may be a result of strategies from other electric vehicle manufacturers that prefer to operate with increased losses and/or minimal profit margins while chasing sales growth.
Assuming Tesla's stock loses Elon Musk's hype, it's not overly pessimistic to expect its NTM/PE valuation to slowly but surely drop 41.87 times, close to the average of its automotive peers of 8.28 times. Market analysts have predictedFY 2031It might happen. According to market analysts' predictions for the 2024 EPS of $5.04, these levels could point to the painful target of $50. Only time will tell.
The above analysis is for reference only and should not be considered professional investment advice. Please do thorough personal research and due diligence before investing as trading involves many risks, including loss of capital
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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