It is sounding likely Tesla will have to make some drastic price cuts next year, not just
to maintain demand, but also to increase demand due to wanting to grow during what could be
a tough recession. The message is clear from Elon, he wants to continue to grow, at any
cost, even if it means making a minor loss, but I would guess that's as far as they will
go, which would be so extreme anyway, that it would be quite a scary economy, worse than
2009. This would be highly extreme and would hope the reserve banks don't push the economy
to that scale.
In this video we are going to try an d predict what price points Tesla may end up selling
their vehicles from all their factories. We will do this by first attempting to assess
how much the cost of goods sold per vehicle is for a Tesla for each model from each factory.
Once we have established that figure, we can then see what the price of the vehicles would
be at various margins. Once we have established those price points we can compare them with
what the competition offer at the same price point, not just for electric but ICE cars
too. Then we will factor in all the other variables such as the cost savings that a
Tesla offers, along with the additional features that are standard in a Tesla. We will use
this an indicator to see just how good a value Teslas are at such a price point, to give
us some idea if they will have enough demand to meet supply.
We will experiment with different price points and see what margins they come out too, and
we will see how the all end up in the financials for 2023, to give us some idea of what 2023
will give us, based on the level of the recession. We can then assign a forward p/e ratio at
todays stock price. We can then try and guess what the stock price might be at the end of
2023 once we have the earnings figure. However, it will be very hard to judge a p/e ratio
in a recession, it will also depend entirely on the extent of how bad the recession is.
However, if Tesla are still producing some decent profits during such tumultuous times,
it has to be a good look for the company, in demonstrating how recession resistant the
company is, even despite autos being a cyclical industry.
Teslas are a deflationary product in many ways, and there comes a time when Tesla hits
an intrinsic value of how much it can potentially save in cost. At least to a level of luxury
and quality that people are looking for. I mean there are still lower forms of transport,
like cycling, a Tesla will never cost less than cycling places. So it will come down
more to comparing what else is available at the same prices.
And all other EV makers are struggling as it is, legacy autos are losing money on their
EVs, as are the new EV companies. Tesla has had huge margins, but this has been during
a boom period, and they became incredibly popular. If they now lower their prices during
a recession, then they will ultimately become the lowest cost EV like for like. Actually
not even like for like, a Tesla should end up with longer range, higher performance and
better equipped, and now potentially at the lowest price point too. We will of course
compare the equivalent in ICE, along with the equivalent in running costs too.
HISTORIC MARGINS AND ASPS Firstly we need to estimate the cost at which
Tesla can manufacturer vehicles, once we work out how much the cost of goods sold per vehicle
is, we can work out what we are dealing with. We know that Tesla have these great margins,
but we don't actually know how great they are unfortunately. There have always been
too many moving parts. We know Tesla raised their prices significantly when they were
already seeing high margins, however due to the ramping of the new factories we didn't
get to see just how significant these really were. So we will look at all the numbers for
the last 2 years and see what we can make of it. Then we will try and take some data
points when we have better ideas of margins.
I have created a table to show Tesla's margins without regulatory credits over the last 2
years, along with the revenue per vehicle sold, to give an indicative idea of ASP during
each period. Now during each of these stages there is often
noise, with moving parts due to various events occurring that were affecting margins, mainly
new production ramping.
We can see that the average prices of the cars continued to lower through 2020, this
was due to Tesla ramping up production in China, with lower cost Teslas. On top of that
through the ramp ups Tesla were losing margin. However we see that in Q3 2021, when the Model
Y was at a production rate of over 30,000 units a month, about double the previous quarter,
that margins went from 20% from when the line started in 2020 Q4, all the way to 28.8%.
With revenue per vehicle still under $50,000. This is a very reassuring number.
As we know Tesla was facing too much demand, so they started raising their prices, but
due to the backlog, these prices didn't kick in until months later. Despite alleged costs
rises due to inflation, that they were feeling at the end of the year. But even in Q4, with
the revenue per vehicle still only at $51,732, Tesla were hitting 29.2%. This is without
many price rises kicking in, and supposedly also feeling inflation. It was a rare time
in Tesla history, a snapshot of all factories running at a decent capacity, over volume
production, and getting all cost benefits of economies of scale, with no factories ramping,
although of course Tesla still managed to ramp the China factories considerably since
then.
Q1 was another similar quarter, except some of the price rises had started to come in
more, now with revenue per vehicle of just over $52,000. And now a margin of 30%, with
3% revenue per vehicle rise. If that full 3% price rise all went into profit, then the
margins should have actually been higher. With now revenue per vehicle at $54,382.
However, Giga Berlin was also operational for 9 days of that month, which would have
cost a fortune with very low production levels, and would have affected margins somewhat.
There may have also been some inflation. However, we are still dealing with good margins. We
also started to see the Model S finally start to ramp up from its line upgrade somewhat.
In the following quarter, we have prices rises all the way to $57,331. Now although this
seems like a high price rise, it was possibly even higher, but as the US dollar strengthened
it was not fully felt. Same for last quarter, the revenue per vehicle dropped to $54,435,
despite not price drops, implying it was the dollar. The dollar has weakened somewhat since.
The margins from two most recent quarters are also completely out of proportion due
to the massive new factories ramping. On top of that we had line upgrades and a lock downs
on top of that. So there is too much noise in those figures.
COGS We want to work out how much we think Tesla
is able to make their vehicles for in Fremont and Shanghai. So we can take the quarters
with the least noise, and check what the prices of the vehicles were that were sold, when
they were ordered, not delivered. We can then apply that percentage of margin, to see what
we are dealing with. Once we have an estimate of the margin, we know how much Tesla can
make these cars for. Of course these were still being made through extreme times, and
were likely suffering from actual transitory inflation, with all the supply chain issues
that were still being faced. But there could be some actual inflation on top of the costs
now. Although if we are preparing ourselves for a recession, then we would equally see
some deflation and these costs should actually come down.
Therefore the two most likely figures are 29% in 2021 Q3 and Q4. So we will work out
what Teslas were selling for then and use that as the margin to calculate a rough idea
of the cost of goods sold per vehicle. After that we will see what price points Teslas
will cost at various margins. We will then compare those prices with what the competition
offers, then analyze it factoring the cost savings of a Tesla, along with the features
that come standard in a Tesla, to give us some comparison. Then we will also consider
the tax credit for the US.
From there we will add these price points into some financial models to try and get
an idea of what 2023 financials might be with these lowered prices. There is a lot to go
through, so I want dont want to just compact it into one video, but make sure we go through
every step carefully, along with all your feedback too. This is what is on my mind most
at the moment, to work out the near future of Tesla, so I imagine it is likely dawning
on the most of you too, so not to be rushed.
The good news is, that I have theory that people don't realize how much margin buffer
Tesla currently have due to the new factories absorbing so much of it, and hurt further
with all the issues Tesla have faced with production down time in Shanghai. Therefore
I am hoping we will be surprised by how large the percentage price drops may be if Tesla
are running at just 20% margin. The other positive is that if Tesla are increasing production
so much, then the operating expenses per vehicle also reduce, and we are already at a much
higher run rate now, than the average of this year, due to the last 2 quarters having various
issues and skewing delivery numbers so much. But as usual we will let the numbers do the
talking. But I am hoping we can come up with a good idea of what Teslas earnings will be
next year, along with a forward p/e ratio based on today's stock price and see what
we can come up with. The issue is, that in a recession its really hard to judge what
the p/e ratio can be, even if we work out the earnings for 2023, it will be hard to
judge what p/e ratio the market might give in such an environment.
However, if Tesla are demonstrating that in such an environment, they are still able to
produce some substantial profit, then investors might see this as a good sign, as an evergreen
company that can still be so profitable during recessions. Along with seeing actual vehicles
sales growth, whilst presumably the competition are doing the contrary.