Except I referenced post 68 not 72. Also, what part of the English language do you not grasp? I said it right here:
you may not like it because you work in the industry and probably depend on ICE production, but in Europe the rule is now clear, EV only from 2035 (that's around the corner in manufacturing time) and the competition is on for market share in the space. ICE and horse buggies are out.
I don't work w/ICE and the buggy was out because it could not compete against faster steam power not because the gov. forced it out. At least you've made it clear that you favor anticompetitive practices to make EV's viable. I think adoption is viable w/o them.
I thought that was clear from my last few posts but that is correct, I personally favor the European anticompetitive practices that seek to ultimately benefit consumers and society at large, not the interests of corporations and their dark money used to buy political support. 100% adoption has been decided for Europe by a parliament made of dozens of national representatives each elected by popular vote. That's democracy at work. Adoption in the US will be much slower, much more contentious and much more expensive.
I don't currently cover TSLA, but my summary view is that the stock is in transition and may benefit from (1) resetting expectations w/ conservative guidance and (2) a stable and improving margin story through remainder of the year. I like the industry because EV CAGR through 2035 looks impressive and suggests that a lot of work must be done between now and then (which means peak EV production and revenue growth are still years away). I outline a quick review below, but my thesis on whether to buy or sell would depend on how my expectations roll up into production numbers (driving revenue) and margins (driving EBIT and EPS). I've not done that work yet, so as of now, no view. But hopefully this post will give you a sense as to the kind of research you would do to start building a view on a company (below took me about an hour and a half). Earnings: (Q4 and FY2022 reported on Jan 25) They generated a decent surprise for Revenue and EPS though missed for EBIT. That means their margins shrank a little, which may be due to cost-pressures... Earnings Press Release: AUSTIN, Texas, January 2, 2023 – In the fourth quarter, we produced over 439,000 vehicles and delivered over 405,000 vehicles. In 2022, vehicle deliveries grew 40% YoY to 1.31 million while production grew 47% YoY to 1.37 million. We continued to transition towards a more even regional mix of vehicle builds which again led to a further increase in cars in transit at the end of the quarter. Thank you to all of our customers, employees, suppliers, shareholders and supporters who helped us achieve a great 2022 in light of significant COVID and supply chain related challenges throughout the year. Q4 2022 Production Deliveries Subject to operating lease accounting Model S/X 20,613 17,147 9% Model 3/Y 419,088 388,131 4% Total 439,701 405,278 4% 2022 Production Deliveries Model S/X 71,177 66,705 Model 3/Y 1,298,434 1,247,146 Total 1,369,611 1,313,851 Earnings Call Elon Musk: The most common question we've been getting from investors is about demand. Thus far – so, I want to put that concern to rest. Thus far, in January, we've seen the strongest orders year-to-date than ever in our history. We currently are seeing orders that are almost twice the rate of production. So I mean, it's hard to say whether that will continue at twice the rate of production, but the orders are high, and we actually raised the Model Y price a little bit in response to that. So, we do not – we think demand will be good despite probably a contraction in the automotive market as a whole. Zach Kirkhorn: For Q4 specifically, sequential and annual margin was impacted by ASP reductions as we are managing through COVID impacts in China, uncertainty around the consumer tax credit in the US, and a rising interest rate environment. Note that in 2022, rising interest rates alone had effectively increased the price of our cars in the US by nearly 10%. Additionally, COGS per unit has increased on a year-over-year basis, driven primarily by three factors. First is raw materials and inflation led by lithium prices and discussed at length in previous calls. Second, we are working through the early ramp of inefficiencies of our Austin and Berlin and in-house cell production factories. Third, our vehicle mix over the last year has moved more heavily towards Model Y, which carries a slight cost premium to Model 3. Partially offsetting these impacts, we've continued to execute on Tesla controllable cost reductions in line with the progress we've made in prior years. These improvements include our continued work to gradually move towards a regionally balanced build of vehicles. From Q&A: Zachary Kirkhorn: Yeah, I'll jump in on this. So, there is certainly a lot of uncertainty about how the year will unfold, but I'll share what's in our current forecast for the moment. So, based upon these metrics here, we believe that we'll be above both of the metrics that are stated in the question. So, 20% automotive gross margin, excluding leases and reg credits, and then $47,000 ASP across all models. Question – William Stein: Yeah. It sounds like the 1.8 million units you expect this year is supply, not demand limited, supply, it sounds like, by the lithium batteries. If you were to become demand limited, can you talk to us about your propensity to use price and your relatively high industry margins to grow units and share? Answer – Zachary Kirkhorn: Yeah. To be clear, the 1.8 million is not cell supply limited. That – and yeah. I mean, we did address that number earlier in the call is my answer. Answer – Elon Reeve Musk: Yeah. It's roughly – cell supply is roughly matched with that, and it's 1.8 million cars. If we get lucky, it could be more. And then, the rest would go into stationary storage, the Powerwall and Megapack. So yeah, so true. From their supplemental shareholder deck: Key Takeaways from Earnings They did pretty good last year by beating revenues and EPS-- nicely done! They are guiding 1.8MM cars in FY2023, which is about 40% yoy from FY 2022 (1.3MM) They expect ASPs to stay above $47k with gross margins above 20% Estimates These are estimates, as of today (2/17/2023), of what TSLA will deliver and how it rolls up into revenue and EPS. For now, think about this from a revenue standpoint and how it compares to Tesla's guidance of 1.8M cars: Unit production is slightly higher than guidance, though dispersion is wide at 15% to guidance; blended ASP remains above that $47k threshold Let's see what's driving that divergence. JP Morgan JPM has an underweight (sell) rating on the stock: Notes that softer trend in margins was happening before price cuts -- JPM analyst also believes that longer term, margins should eventually match industry levels (median is about 18.5%) Sees deliveries as a miss, because the guide of 1.8MM was below what TSLA was thinking last year and is POST price cuts Price target of $120 is based upon a blend of DCF and average of 2025 EPS (32.5x), EBITDAP (20x), and Sales (3.5x) multiples Deutsche Bank On the flip-side, Deutsche Bank has a buy rating driven by: A view that guidance was conservative, aimed at being an "expectations reset" and accounting for unforeseen disruptions over the course of the year (that's what Elon also said during the conference call, so this analyst is taking that at face value) Models 1.84MM units based upon the comment from the call about the order book being 2x production -- hedges by saying they expect demand to moderate, but this is clearly driving the analysts upside view Sees Q1 margins as the trough, with margins to incrementally improve through the year; doesn't see ASPs falling as much either as demand remains robust Price target of $220 is based upon averaging: 40x FY 2025 EPS and 10x FY 2023 revenue My takeaways: Revenue estimates for FY23 have dropped since Q3 22 and more rapidly since Q4 earnings, highlighting the mix of lower ASPs and downward guide to production Upside production risk is limited because above 1.8MM and there may be a cell shortage -- this means even an improving economic situation might not have a much bigger impact on TSLA production because marginal unit would not be converted into revenue However, margins have the potential to recover, and that would be the area to explore given the more defined range of production However, automotive gross margin is still above 24%, suggesting margin expectations are still elevated What's the market pricing? I ran some regressions and 2Yr forward EPS and EBIT had the best relationships to the stock price, so those multiples seem like good starts for pricing Multiples halved last year as rates rose and margins peaked -- we also saw Elon selling stock for twitter purchase, seasonality issues, etc. My estimate for current multiples is 43x FY EPS and 38x FY EV/EBIT (baseline is usually post-earnings average to today) Market implied metrics suggest the market is pricing in a pretty substantial beat to production/ASP and margins TSLA's rally is about in-line with peers, though marginally higher than pureplay EV and Auto OEMs -- this suggests that we're not necessarily seeing excessing idiosyncratic betting on TSLA outcomes, and that much of the market-implied variance is due to improving macro conditions (we should observe similar variances vs. Auto OEM and Pureplay EV peers) Upcoming Catalysts Tesla is hosting an investor day on March 1, where new product roadmap and updates to the outlook are expected.
Thanks for the detailed and thorough post. There are a number of YouTubers who go to great length presenting detailed accounting and financial projections. You might check them out to speed up your analysis.
I don’t use non-pro analysts because they do not have access to management or the same level of info as sell side analysts.