Tesla's future is looking significantly more profitable, judging by what we were recently
told on the Q4 earnings call. Why is this? Well it's solely down to demand. It sounds like Tesla's
demand will continue to rise even more, but now supply should also start to increase significantly
also. We are at the point in the exponentials, when the numbers start to get really big.
But yes, judging by what was said by Elon on the earnings call, Tesla has a lot of demand. And then
suddenly their demand is about to increase considerably further, when Tesla offer 4680
batteries, with better specifications, improved handling, longer range and increased performance.
These new 4680 specifications could be outrageous. The Model Y can do 330 miles currently,
well even a 10% increase would take it to over 360 miles. That is a reasonably long range. And if the
batteries can handle full charge to empty, then you have 100% utility of that battery
on a regular occasion. There the car needs less charging cycles, as the battery lasts so long.
Perhaps the instructions will be to charge 4680s as few times as possible to make the battery last
the longest. i.e. run the battery to as low as possible and charge to as full as possible.
Sometimes technology is just not quite as convenient as you would like it, like it currently
with nickel batteries, you really should only be driving with between 20 and 80% charge. However,
other technologies like LFP remove that issue. And I am really hoping that Tesla's 4680 batteries
have also removed that issue. It is a big step if they have. Soon we should hopefully get so much
more information on 4680 batteries. So be prepared for potentially a lot of 4680 battery videos.
Anyway, these specifications will be better than previously, I am hoping, at least initially,
Tesla may charge a premium of around $5,000 for the 4680 version. Which is fair enough if
it gives you over 360 miles of range. I think that could be the longest range SUV available,
if that was the case. And just a small example of how much the 4680 will improve Tesla's vehicles.
Yes, Tesla got their costs down, but it's a better product, so the prices
might go up. Anyway, there is no denying that these specifications are astonishing,
and thus is what will create a lot more demand. We have not yet to see what any of the demand
for the 4680 vehicles will be like yet. But it would be remiss to not expect improved range and
performance too of course. This is a superior product, thus demand will increase. However,
production will increase on an enormous scale too. So we don't know if Tesla will raise the prices
that high, as it wont be long until Tesla supply a million model Y Long Ranges just for the US.
Arlight, so why does this make Tesla more profitable. Well it's because the demand
for the Y is simply so high, Tesla do not need to introduce any lower cost models.
Namely the compact $25,000 Tesla, that vehicle is so far down the totem pole,
I would simply forget about it for sometime. Tesla will continue to make their most profitable cars
for now. There is no need to try and push out some car affordable to the masses, that
was never Tesla's mission. Affordable transport, and affordable vehicles are not the same thing.
This means that just about everyone's 2025 estimates are incorrect. Every single estimate
has a lower ASP, due to the introduction of a $25,000 Tesla. Tesla make products
worth a lot more value than $25,000. Tesla have created a ton of value in these cars.
Just because they can make so many of them, it still doesn't mean the prices need to come down.
These are going to be very essential products to many people. I am talking more about AVs than EVs.
Most forecasts for Tesla hitting 5 million vehicles
generally include a lower cost Tesla. I actually did one recently in a video,
that had shown they don't need the compact Tesla to hit 5 million demand. It had Tesla
at around $25 billion net profit per quarter, excluding FSD break-throughs.
Tesla can now hit this 5m delivery target even earlier, rather than focusing on a compact
tesla or a cybertruck, they can focus more attention on battery production and ramping,
that is the bottleneck, not demand. Even if demand drops,
it would still be far more feasible for Tesla to just drop the prices,
even $5,000 per model, to stimulate more demand for the 3 and Y, if necessary. Rather than making
more models to increase demand. It is best to work on ramping up battery supply as fast as possible.
If Tesla need demand, it may even be more economical to start advertising,
rather than release new models. I think Tesla is going to milk everything
they can out of the 3 and Y and double down as much as possible.
Think of it like this, one part of Tesla is going to do everything they can to produce
as many Model Ys and 3s, whereas another part
of Tesla will be doing everything they can to increase demand for the Y and 3.
As long as demand stays strong, then so will the prices of the Y and 3. I believe that demand will
probably not start to drop until Robotaxis has saturated, which wont be for sometime.
I know a lot of analysts has Telsa's ASP more around a ridiculous $35,000 by this stage. But
what if it's still up around $50,000, and then on top of that perhaps FSD even. So perhaps Tesla's
ASP including FSD could be as high as $55,000. FSD also makes Tesla so much more profitable.
But these estimates with Tesla's ASP at $35 to 40,000, well due to lower prices,
they are likely also reducing margins as a result too, in their estimates. In other words,
as Tesla is not going to introduce any lower cost models, any time soon,
the average selling price should remain high, it could even increase if 4680 vehicles cost more,
and it should increase further with more advances in FSD. If FSD is achieved,
then there will be no more deferred revenue, in other words every FSD order will be
a further $12,000 gross profit per vehicle. Currently the US has about a 20% adoption rate,
but if FSD is this good, then perhaps it will increase to 40%. 40% of $12,000 is $4,800
average extra gross profit for FSD from each Model Y sale in the US.
With a $50,000 ASP, and you add on an extra $4800 in average FSD profit
,then that is a further increase in gross margin of around another 10%.
Judging by Elon, I think he is expecting a much higher adoption rate than 40%.
ARK Invest's 2025 Tesla bull price target has an ASP of $36,000, with 25% gross margin, just to
give you an idea. I am guessing more like $55,000 with around 50% margin. Think about 3 more years
of innovation and economies of scale, focusing all efforts on refining the manufacturing process
of just 2, very similar vehicles. Just imagine the resources, along with rapid expansion. Tesla have
discovered they can get away with just offering these 2 models for quite some time still. They
have pivoted the company around to this idea, and are letting go of some of the ideas of the past.
If Tesla's ASP is nearly twice as high, and Tesla's margins are nearly twice as high, then
that's nearly 4 times as much profit that everyone is predicting for 2025. Wow, can you imagine if
Tesla made 4 times more profit, than everyone's already insane 2025 predictions? No? What did I
miss? This is Tesla Economist, we always find something at the end that we missed right?
Sure, that would be approximately 4 times gross profit, not net profit. Given that OPEX should
be down considerably relative to vehicles sold, then this could actually mean 10 times profit.
You have to remember that 1. Tesla are selling big capital items that cost a lot of money. 2.
Tesla are able to make these items at a very low relative cost. 3. Tesla will continue to reduce
costs. 4. Tesla are adding immense value to these vehicles continually, but FSD will be a huge jump.
This is a future Tesla that has doubled down on their current products,
as in no more extra costs or investments in new models, or uncertainties. Tesla found what worked,
and are not even close to finished being done with them. This means that without
these other distractions the 3 and Y lines and products will improve that much faster,
as that's the major focus of the company, including accompanying battery ramping.
Yes, I really am looking forward to my 2025 price target, hopefully it should be finished
this month. I have a feeling everyone may be quite far off. My price target will be based
off this new roadmap, and likely the first price target to adapt to that. It should
certainly be interesting. I just wish my account offered me call options with a 2025 expiry date.