A lot of Tesla investors are pricing in 2 million deliveries for 2023.
This is due to the fact that Elon said on the earnings call that 2 million was possible,
if nothing really goes wrong.
Let's review just how possible 2 million deliveries might be, and what it would take in order
for Tesla to achieve that milestone.
In 2022 Tesla delivered 1.31 million vehicles.
If Tesla hit 2 million then that would be a growth rate increase of 53%, which doesn't
sound too extreme, we have come to expect 50% annual growth for Tesla.
According to Elon demand is the highest it's ever been, due to all the price cuts that
have taken place.
And that even if Tesla do produce 2 million this year, they will also sell every vehicle.
Yet despite such extreme price cuts of about an average of 20% across all markets, Tesla
are still able to good generate gross margins, that we are told are going to be in excess
of 20%.
Then on top of that, we are told that gross margins are not even the margins that are
the most important.
It's all about operating margin, something that I have also explained at length.
The difference between gross margin and operating margin, is the operating expenses that Tesla
incur.
Tesla have done an outstanding job in getting their OPEX as low as it is, but not only that,
it doesn't seem to increase very much, as Tesla's production increase.
In other words, we have two forces working in opposite directions here.
As Tesla increase their supply, they need to reduce prices in order to find the new
demand for the additional supply.
But as OPEX remains a relatively fixed cost, it means that the OPEX per vehicle is reducing
each time too.
So for 2022 we have OPEX at $7.2 billion, and 1.31 million vehicles delivered.
Which is about $5,500 of OPEX per vehicle.
If OPEX remained the same for 2023, and we hit 2 million vehicles then the OPEX per vehicle
reduces to $3,600.
Ok perhaps it might increase somewhat, but even if OPEX was $8 billion for the year,
we are still down to $4,000 per vehicle, a reduction of $1500 per vehicle, additional
operating profit.
Except of course now we have 2 million vehicles instead of 1.3 million.
Anyway, this is the the operating leverage that Tesla has, and as they continue to ramp,
the leverage increases with it.
Hence why 2 million deliveries for the year is such a big deal, as when we start getting
up into the multiple millions, then the OPEX per vehicle starts to really diminish.
Alright then, but Elon says 2 million vehicles for 2023, he actually said produced, and that
there would be enough demand for them too.
Now I estimate that the current capacities of all factories are around 250,000 a quarter
for Shanghai and 150,000 for Fremont, or around 1.6 million annualized.
Therefore to reach 2 million production for the year, we need an additional 400,000 from
the new factories.
If they are at a run rate of 3,500 vehicles a week currently, then thats 360,000 a year
from them.
If we add that on 1.6 million, then we are at 1.96m.
So Elon talking about guidance of 1.8 million is less than the current run rates.
Now as far as the US is concerned, we actually know what the cell situation is there.
We no longer have the Long Range Model 3 with 2170 cells, so its only the Model Y Long Range.
There is 35 GWh a year of 2170 cells coming out of Giga Nevada.
Sure some of them were used for the 20 or so working prototypes for the semi truck,
but I don't believe many more will be allocated to the semi truck.
There are around 250,000 Model Ys a year out of Fremont, which would consume around 20
GWh of 2170 cells.
Leaving 15 GWh of 2170 cells that can be used in Giga Texas.
That would equate to around 180,000 Model Ys a year from Giga Texas, or wouldn't you
know it, 3,500 a week.
However, we also know that the 4680 progress is able to produce 1,000 Model Ys a week too.
Which would mean an additional 50,000 a year, or taking our 1.96 million to 2.01 million
for the year.
That is the pretty much the total cell capacity we have currently.
The same applies for Berlin, Tesla get about 15 to 20 GWh a year from LG, which now mainly
goes to Berlin, and very few in Shanghai.
Again about the same run rate in Berlin as Texas, due to the cells available.
Now we are hearing that Berlin is closing down for a production ramp, but I just don't
know where the cells will come from.
2170 cells do require massive capital expenditure to increase production, it takes a long time.
The only option I would see is potentially BYD's blade batteries which have been rumoured.
If Berlin can make RWD versions of the Model Y, this would reduce the cost significantly,
as it saves in tariffs and shipping costs.
So it will be interesting to see how that factory manifests.
There is of course the chance that the Model 3 lines may be down for a bit of time this
year, with the upgrade of the Model 3 Highland, which could be big, or it could just be a
facelift.
It could be structural battery pack and front and rear castings.
Although if that was the case I would have thought we might have seen some new giga presses,
although they could use the same ones as the Y possibly, as the mold can be altered easily
enough apparently.
But there are some definite cost saving exercises potentially for the Model 3, which might make
sense as the price has come down, it would be good to increase margins again.
But this is one the major highlights for the year.
One other theory I had with the Model 3 Highland, is that if it is a really major upgrade, then
there is a chance that they could be using CATL's new Qilin structural battery pack,
with their M3P cells.
This would mean the Model 3 would have more range and performance, or a smaller battery
with similar range, yet simply lower cost.
This is highly speculative, but you never know what surprises Tesla might throw at us.
I think Tesla's Shanghai factories are pretty much at full capacity now, so I wouldn't expect
any more line upgrades there, and any additional LFP cells they get will likely go into energy
now.
So that pretty much leaves the only increase cell supply for Tesla is going to be 4680s.
The pilot line is at 40% capacity, at around 4 GWh a year out of the potential 10 GWh/yr
capacity.
But the one to watch now, is the new line that is running in Texas.
Texas has 4 4680 lines each with a capacity of 25 GWh a year.
The first one is finally running, and if that can hit a run rate of 40% capacity, then we
are at a further 10 GWh a year, or 140,000 Model Ys.
Obviously I will be keeping my eye on these 4680 lines, as they are kind of a big deal.
And people are talking about potentially 2.5 million units next year, which would only
be about a 25% increase in growth, so it may be higher.
But I think the only way to see any growth in vehicle sales next year, is from Berlin
and Texas, as we have no other factories that can ramp up to these levels.
And the way that will happen will be from the increase in 4680 production.
These factories are barely even at 1/4 of their potential capacity, or possibly even
1/8 if you think they might as efficient as Giga Shanghai.
This is where all the growth is coming.
And I think that might be it for the Model 3 and Model Y factories.
Luckily in Texas we also have another factory for another vehicle, called the Cybertruck.
Although I am only expecting thousands to be made this year, it will not add to any
significant amount for 2023.
Next year Elon says it will hit volume production.
So part of that growth will hopefully be the Cybertruck.
But again that entirely comes down to the 4680 ramp.
Not just the number of cells they are producing, but the energy density.
We are hoping the cells produced at the pilot line in Kato Road was only producing the easiest
chemistry they could, i.e. still using cobalt, and no silicon in the anode.
And that when they start ramping up the Texas 4680 line, we will see some upgrades in energy
density there.
Or else the current energy density is likely only suitable for a single motor Cybertruck
at this stage.
I know its all exciting, but something I often need to remind myself is, that this takes
time, a lot of time.
You can call it a tech company all your want, but it's still a company that manufacturers
the most capital intensive consumer product, and it takes a long time to set up the factories,
and make them efficient enough to make the product.
Not only that, they are all new processes and unproven technologies, that need to be
refined and tested.
Elon will often tell us when he thinks these will occur, but it usually years away from
his estimates.
It requires patience.
Things are happening, but its a slow game, you need to look at the long term, years and
years, not quarters and quarters.
Because once any of them are achieved, then it probably will be the most valuable company
in the world.