With Tesla’s proud gross profit margin declining, can Musk’s grand vision still be realized?
On May 17, Tesla’s 2023 shareholder meeting was held at the Austin Gigafactory in Texas, USA.
CEO Musk attended the conference and disclosed the company’s future plans for production and sales, new cars, autonomous driving, marketing, etc., and made it clear that he would not step down as Tesla CEO.
“Tesla plans to produce 20 million cars a year in the future.” Musk reiterated this goal at the shareholder meeting, which is also the capacity target he mentioned at the investor conference in March, which is planned to be achieved in 2030.
In order to achieve this goal, the production capacity of the Austin plant will be increased by three times to achieve a weekly production capacity of 5,000 vehicles, and the Mexican super plant is also in the foundation stage.
Is it possible to realize the “pie” Musk drew for shareholders?
As of the end of 2022, Tesla has seven major factories around the world with a total production capacity of over 1.9 million vehicles, of which five produce cars. The Shanghai Lingang Gigafactory has the highest production capacity, with an annual production capacity of over 750,000 vehicles. To reach the target of 20 million production capacity means that in the next 7 years, Tesla’s overall production capacity needs to expand by about 10 times.
Regarding the planning of star products, Musk said, “In 2023, Model Y will become the best-selling model in the world.”
It is reported that Model Y delivered about 747,000 new cars last year, and it was already the best-selling model in the field of electric vehicles that year. Looking at the entire auto market, according to data from overseas research organization JATO Dynamics, the best-selling car is the Toyota RAV Rongfang 4, with sales of about 1.016 million units. This means that if Model Y is to become the best-selling model, it may need to break through the million threshold.
In Musk’s vision, Tesla is not only a car company, but also a company that improves resource sustainability. He revealed the “Grand Plan 3” at the conference, saying that Tesla will triple the use of solar energy and wind energy in the future, and talked about the global shortage of lithium mines. It is more important to improve the refining efficiency of lithium ore.”
At the shareholder meeting, Musk released information related to three new cars.
The electric pickup Cybertruck, which is regarded as the “ace product”, announced that it will be delivered this year, with an expected output of about 250,000 vehicles. The model was released as early as 2019, but it has not been delivered for a long time. Musk said that the quality of this product is better than expected, “it will be my daily driving car.”
According to Musk, Tesla will have two new products. No more detailed information was introduced at the conference, but Musk was full of confidence in it and made a bold statement, “If released, the annual sales of the two new products may exceed 5 million.”
The market speculates that Tesla’s total global delivery in 2022 will be about 1.31 million vehicles, of which Model 3/Y will account for about 95%. The two new cars officially announced may replace Model 3/Y as Tesla’s main volume model , the pricing may be more friendly to the people.
It is worth mentioning that there are media reports that the remodeled Model 3 is in the final preparations for trial production at Tesla’s Shanghai Gigafactory. Musk hopes that this remodeled model will compete more effectively with Chinese car companies.
In addition, the next-generation pure electric sports car Roadster will complete engineering and design this year, postpone production until 2024, and may provide an optional Space X package.
“People don’t know the features and functions of Tesla. We will try to advertise and see how it works.” Faced with investors’ questions about whether Tesla would consider advertising, Musk gave a completely different answer from before. manner.
Musk had previously resisted advertising. “Tesla is in short supply, there is no need to advertise” and “Marketing is like deceiving people to buy bad products”, such statements emerge in endlessly. Compared with other automakers’ marketing costs of hundreds of millions, Tesla’s “zero advertising budget” has become a special case in the industry.
This change in attitude may be related to Musk’s experience as Twitter CEO. “(I) didn’t use advertising before, and now I have a company (Twitter) that relies heavily on advertising, and I think advertising is great.” Musk said at the conference.
In addition, there is a view in the market that as competition intensifies, Tesla’s market demand is not as good as before, so it is necessary to use advertising to promote demand. According to the statistics of Troy Teslike, an analyst who has been tracking Tesla’s production and sales data for a long time, as of April 30, Tesla’s global order reserve was 68,000, the lowest value in nearly half a year. According to Bloomberg, with the sharp increase in production capacity, Tesla’s inventory is still increasing. In the first quarter of this year, the inventory supply was 15 days, which is relatively healthy by industry standards, but this figure is the highest since the epidemic.
At the shareholder meeting, Musk stated that Tesla is the electric car company with the highest profit margin in the world.
However, after multiple price cuts around the world, in the first quarter of this year, Tesla’s proud gross profit margin declined, and Musk’s plan to place advertisements may further increase costs.
At the moment when the auto industry is “reducing costs and increasing efficiency”, Tesla, which is constantly cutting prices and considering advertising, may reduce the profitability of single vehicles. How can it make money in the future? Musk said at the shareholder meeting that he would hand over profit growth to FSD (Full Self-Drive), a self-driving subscription service. Tesla has previously stated that the long-term gross profit margin of FSD can reach 90%.
“At present, a car is used for about 10-12 hours a week, but if people can realize automatic driving, the vehicle utilization rate can be increased by 5 times.” In addition to improving vehicle utilization, Musk also believes that autonomous driving is safer, ” In the future, FSDs will be ten times safer than human drivers.”
Combined with previous financial reports, FSD currently has beta version subscriptions in the North American market, with a monthly fee of US$199 (approximately RMB 1399), and the number of subscribers by the end of 2022 will be about 400,000.