Tesla's Comeback?
Electric vehicle manufacturer Tesla (TSLA.US) has experienced a rollercoaster ride in its stock performance this year. After announcing its Q3 2024 financial results after the market close on October 23, 2024, Tesla's stock price surged by over 12% in the after-hours trading, and as of the pre-market trading on October 24, it increased by 11.67%.
Q3 Performance Exceeds Expectations
In Q3 2024, Tesla's total deliveries grew by 6.40% year-over-year, reaching 462,900 units, as shown in the figure below. By October 22, 2024, Tesla achieved the production milestone of 7 million electric vehicles. Musk mentioned that the company's weekly production of smart cars (capable of autonomous driving) reached 35,000 units, while Waymo's entire fleet is less than 1,000 vehicles.
However, due to changes in product mix, pricing adjustments, and financing incentives, the average selling price of its vehicles (excluding currency effects) has decreased. In Q3, Tesla's automotive sales revenue was $18.831 billion, growing by only 1.34% year-over-year; automotive total revenue slightly increased by 1.99% year-over-year, reaching $20.016 billion. Nevertheless, the quarterly revenue from the power and energy storage business, as well as the service and other business segments, grew by 52.41% and 28.81% year-over-year, respectively. The total Q3 revenue increased by 7.85% year-over-year, reaching $25.182 billion, slightly below market expectations of $25.37 billion.
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It is noteworthy that Tesla's profitability in Q3 has seen a significant improvement.
The company revealed that the cost per vehicle sold has dropped to an all-time low of $35,100, equivalent to 249,700 RMB, while the starting price of Tesla's most basic model, the Model 3 Rear-Wheel Drive, in China is 231,900 RMB. This reduction is mainly due to the decrease in raw material costs, freight, tariffs, and other one-time expenses. The per-vehicle production cost at the Shanghai factory continued to improve quarter-over-quarter and has reached the lowest level.
Caijing Society noticed that Tesla's automotive sales gross margin for Q3 2024 improved from 15.75% in the same period last year and 13.86% in the previous quarter to 16.40%.
Furthermore, the company's power and energy storage, as well as service and other segments, have seen a continuous improvement in gross margins, reaching 30.51% and 8.82% in Q3, respectively. Compared to the same period last year, these improved by 6.07 percentage points and 2.86 percentage points, respectively, and compared to the previous quarter, they improved by 5.96 percentage points and 2.41 percentage points, respectively.Interestingly, the CFO revealed at the performance briefing that Tesla's release of FSD and true · Smart Summon (ASS) for the Cybertruck in North America contributed $326 million in revenue in the 3rd quarter, which should be classified under the service and other segments.
Thanks to the improvement in gross margins from both automotive and non-automotive sales, Tesla's consolidated gross margin for the 3rd quarter of 2024 increased by 1.95 percentage points year-on-year and 1.89 percentage points quarter-on-quarter, reaching 19.84%.
The improvement in gross margin, coupled with a 5.55% year-on-year decrease in quarterly operating expenses, has improved the company's operating profit margin to 10.79%, higher than the 7.55% in the same period last year and 6.29% in the previous quarter. Tesla's diluted earnings per share under non-GAAP for the 3rd quarter were $0.72, a 9.09% increase year-on-year and a 38.46% increase quarter-on-quarter, also higher than the market expectation of $0.58.
Deliveries and mass production of affordable new cars in the first half of next year
In terms of production capacity, Caihuashe estimates that Tesla's production capacity should be over 2.35 million units, as shown in the figure below, but Musk revealed that its production capacity could reach up to 3 million units.
Tesla disclosed that the total production of the new Model 3 at the U.S. factories (California, Nevada, and Texas) increased in the 3rd quarter compared to the previous quarter, while the cost of sales decreased compared to the previous quarter. Cybertruck production increased quarter-on-quarter and achieved a positive gross margin for the first time. Preparations for the Semi factory are ongoing and are scheduled to start construction by the end of 2025.
The Shanghai factory recently achieved two milestones: 1) producing its 3 millionth car in October and exporting its 1 millionth car in September; 2) the production cost per car continued to improve quarter-on-quarter and has been reduced to the lowest level.
The operating cost per car at the European Berlin factory improved quarter-on-quarter. As of the 3rd quarter of 2024, the Model Y was the best-selling car in Sweden, the Netherlands, Denmark, and Switzerland in 2024 and was also the best-selling vehicle in Europe in September. In the 3rd quarter, the Model Y was the best-selling electric vehicle in Norway and has now sold 60,000 units in Norway.
The management believes that Tesla is currently between two growth waves: the first phase began with the global expansion of the Model 3/Y platform, and the next phase will be driven by the advancement of autonomous driving technology and the launch of new products, including those based on its next-generation automotive platform.
Tesla expects its full-year 2024 vehicle deliveries to achieve a slight increase. Caihuashe estimates that the company's vehicle deliveries for the first three quarters of this year may be 1.29 million units, a 2.30% decrease year-on-year, which implies that its 4th quarter deliveries are expected to continue to rise.The company anticipates that its energy storage deployment this year will more than double compared to last year, indicating that its energy storage business will continue to grow robustly in the fourth quarter. In terms of profit outlook, Tesla has stated that it will continue to implement innovations to reduce production and operational costs to optimize profits related to hardware businesses. Concurrently, the company will actively expand into AI, software, and fleet-related business profits, generating revenue from services such as FSD and Smart Summon from the third quarter, which may reflect Musk's determination to follow Apple's (AAPL.US) strategy of attracting customers with hardware and retaining them with software.
On the hardware front, Tesla has been maximizing profits through the optimization of manufacturing processes. For instance, Tesla has indicated that its Robotaxi product will continue to employ the innovative "Unboxed" (modular) production strategy, akin to assembling building blocks, thereby eliminating the need to open new production lines for specific models and achieving cost efficiency.
Additionally, Tesla's self-developed 4680 battery is progressing well and is on the verge of becoming the most competitive battery in the United States—considering the costs after subsidies and tariffs, and with a lower cost per kilowatt-hour. Nonetheless, due to the significant increase in future car production and the expansion of energy storage, Tesla will still need to procure a large number of batteries from competitors and cannot rely solely on self-developed batteries.
Regarding new products, Musk has stated that an affordable vehicle model will be delivered in the first half of 2025. He roughly estimates that, barring any unexpected events, the increase in car deliveries next year may be between 20%-30%. He is confident that the Cybercab can achieve mass production by 2026. His goal is to produce at least 2 million Cybercabs annually, not exceeding the production capacity of a single factory, ultimately aiming for mass production of 4 million units (this is his most optimistic estimate).
These new products will be manufactured using a new generation platform as well as the existing platform. The affordable model can be adapted to the production lines of current models, effectively reducing costs and maximizing the use of production capacity.
In terms of software and services, Musk revealed that he expects to launch a ride-hailing service for the public in California and Texas next year. The regulatory approval process in California is lengthy, but he believes it should be approved by next year; Texas will be much faster and will definitely see the launch. Additionally, ride-hailing services may also be launched in other states next year.
In the energy storage business, the Lathrop Megapack factory has reached a weekly production of 200 Megapacks, with an annual operating rate of 40 gigawatt-hours. Tesla built its second energy storage factory in Shanghai in May this year, which is expected to start production in the first quarter of next year, with an initial energy storage capacity of 20 gigawatt-hours, which will then gradually expand. Soon after, Tesla will be able to deliver 100 gigawatt-hours of energy storage annually. According to information disclosed by Tesla's public account, a single Megapack can store over 3,900 kilowatt-hours of electricity, equivalent to the battery capacity of 65 Model 3s, or equivalent to a basic Model 3 traveling over 39,000 kilometers.In summary, Tesla's performance in the third quarter of 2024 exceeded Wall Street's general expectations, and it provided a rather optimistic outlook, which in turn drove the share price of the electric vehicle manufacturer higher after the results were announced. However, Tesla's stock price has fallen by 14.02% year-to-date, and whether its rebound can continue will need to be observed in the performance of the next few quarters.
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