- A new leaked email from Elon Musk suggests
that Tesla might make a profit in Q2.
Let's see how that would work.
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An email from Elon to all Tesla employees reads
as of yesterday, we had over 50,000 net new orders
for this quarter.
Based on current trends, we have a good chance
of exceeding the record 90,700 deliveries in Q4 last year,
making this the highest deliveries/sales quarter
in Tesla history.
In order to achieve this,
we need sustained output of 1,000 Model 3s per day.
Almost all parts of the Model 3 production system
have exceeded 1,000 units on multiple days, congratulations,
and we've averaged about 900 a day this week,
so we're only about 10% away from 7,000 a week.
If we rally hard, we can do it.
Thanks for your great work, Elon.
So before we dive in and see what that would mean for Q2,
let's take a jump back to understand
what he was talking about when he said Q4 of 2018,
that record quarter for Tesla.
In Q4 of 2018,
Tesla had just under 91,000 vehicles delivered.
It was a record quarter for them,
and their second consecutive profitable quarter
with a net income of $139 million.
Now, the mix of the vehicles being delivered
was an interested one,
with 70% of all Teslas delivered being the Tesla Model 3,
15% being the Model S, and 15% being the Model X.
In Q1 of 2019, the most recent quarter we have data on,
deliveries were down from the previous quarter,
but still up 110% year over year,
and the mix between the Model 3s
trended heavier towards the Model 3,
which accounted for 80% of their overall sales.
The Model S and X did get a big update
in terms of battery tech, pushing their range up sharply,
making them both more compelling just recently.
Notably, the Model S now has an estimated 370 miles
of driving on a single charge,
achieving near parity with gas cars,
a first for any electric vehicle.
Given those updates,
my suspicion is that demand for S and X increased,
however, the Model 3 will still likely account
for around 70% or more of the sales in Q2 of 2019.
So if we use those estimates and plug the numbers in,
this is what we'd see in terms of their delivery.
So what we would see is a pretty big jump up
from Q1 of 2019 to Q2, if they were able to beat it.
Now, this estimate, I just put them at 91,000,
literally just 300 cars more than they did in that Q4,
that record quarter.
But if we look back at 2018,
we did see a jump of 36% from Q1 to Q2,
and in 2019, if these numbers hold,
that would be a 44% jump.
So not only a record quarter
but also the rate of increase would also be up dramatically
over last year's Q2.
And here's what that would look like
if we put it on just a continuous timeline,
quarter over quarter, year after year.
You would see a big drop in Q1 of 2019,
which is the data we already have,
and then a spike back up just above that Q4,
which was just two quarters ago,
kind of like a blip in the data here
where it just dropped and then jumped back up.
This is likely due to that transition
from delivering those cars locally here in the US
and then in Canada, so in North America,
and starting to ship them overseas to Asia and to Europe.
Apparently, there were a bunch of logistics there.
Previously, they had already been shipping Model S and X
but in significantly lower quantities.
So there were a lot of logistical challenges here,
and that's why in the last 10 days
or seven or so days of Q1,
Tesla delivered about 50% of the overall vehicles
that they've delivered for the entire quarter.
Now, when they measure a vehicle being delivered,
the owner or the buyer of the car has
to actually take ownership of it.
They have to have all the paperwork done,
all the keys and everything,
the actual delivery experience completed
in order for them to check it off
and log it as a delivered vehicle.
There were also a tremendous amount of vehicles
in transit at the end of Q1,
so that does lend some credibility
to this leap that we saw.
Now, whether or not they can actually turn a profit
is a different question,
but selling a lot of cars certainly helps that.
And as Mark Cuban likes to say--
- [Mark] Number one, sales cures all.
There's never been a company in the history of companies
that's ever succeeded without sales.
- But let's talk just briefly about making a profit
versus making sales and kind of what goes into that.
So to be profitable as a company,
the way it works is you have operations,
which for Tesla is the main thing
and the main way that they generate revenue.
The basic idea is what we think of
when we think of is a company profitable?
To make a profit from operations,
Tesla simply needs to sell the car
for more than it costs to produce.
Simple.
You'll also hear people say per-unit economics.
This is what they're talking about.
The units themselves, was that a profitable sale?
Did they sell that for more than what it costs to make it?
So you may be thinking well,
what else is there besides the per-unit economics?
Well, for Tesla, there are a lot of things.
They actually have to spend a ton of money
to continue growing and even delivering their vehicles.
They need locations to deliver their cars
and trucks to get them there.
They need to have sales people and service centers
to service the existing owners that have any issues.
And they have lots of other things
that they have to invest in,
such as new lines to build out the Model Y,
the semi-truck, the roadster,
as well as things like the Gigafactory
to support their continued growth,
and, of course, the Supercharger network,
which is a huge investment
that kind of makes this whole thing possible.
So you bring in money from selling the cars,
and the last time they made a profit,
they had about a 20% margin on their auto sales.
Then from there you pay for everything else,
and at the end of the day,
if you have money left over, you've made a profit.
Otherwise, you have a loss.
So when you look at a company like Tesla
and you say are they profitable or are they not,
what you're really talking about is overall,
you know, not just the operation side of things,
not just the per-unit economics,
which have been stellar for them,
you look at, you know, the investments,
the capital expenditures, the SG&A it's called,
the cost of sales, as well as things like R&D.
We just saw them unveil
these new full self-driving computers
that they designed themselves,
and without them doing that and making those millions
and millions of dollars in investments,
they wouldn't be on the brink
of really changing transportation as we know it.
So Tesla, to become profitable overall,
really needs either they are just selling
just hand-over-fist with huge margins
and they're still growing and doing those things,
they're just making way more money than they can even spend,
or they are really focused on growing
and really making a difference in furthering their mission.
And so this is where I think
a lot of people have this dissonance.
From the investor side, yeah, make a profit.
That means I get more money.
I get paid.
That's very short-sighted.
But as somebody that cares about the mission of the company,
which I think a lot of us do, or I hope you do,
then you would actually not really care
too much about profit as long
as they can sustain what's in the bank account,
which they've proven isn't really an issue,
and even if there was an issue there,
someone would easily step in, as Chamath said,
people would come out of the woodwork
to support this company and make sure that they keep going.
So really, there's very little risk on that side,
but the profitability side, it doesn't matter
as long as you're continuing to grow
and as long as you're doing right by your customers.
Now, there's still a question
about the validity of this email
because this obviously wasn't a public statement by Tesla,
but these things tend to make their ways out in the open
no matter how hush-hush they try to keep things.
And of course, Tesla can't comment on this
because this would constitute material information,
which would definitely move the stock, funding secured,
and if they did that,
then there would be all kinds of other ramifications.
And I think we can all agree
that they've had enough kind of dealings
with the SEC for a lifetime here.
So if this turns out to be real and accurate
and these numbers do work out this way,
Q2 could be a tremendous quarter for Tesla.
It could be literally one for the record books for now.
But even if it doesn't,
it still probably doesn't make that big of a difference
because the China factory's coming online soon,
and with other changes,
like the lowering of the prices of the Model 3,
demand is absolutely gonna be increasing.
So really, the longevity of the company
I don't think is in question whatsoever.
It's more just right now you hear
a lot of kind of dissonance out there
by the people trying to make a buck
by buying and selling their stock,
which if you're in this for the long-haul
isn't something that should concern you.
But I am curious what you think.
Do you think if this number works out
that it's gonna be a big deal and the stock will jump up
and everything will return to, you know,
the rosy picture it was before?
Or do you think that people are still gonna try
to find ways to punch holes in this and all that?
Because this is definitely one
of the most controversial companies out there.
So I'm curious what you think.
Leave me a comment down below.
And don't forget,
when you free the data, your mind will follow.
Thanks for watching,
and I'll see you guys back in the next one.
(upbeat music)
Thanks for watching the video.
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