Nothing Has Changed About Tesla
Companies tend to be pretty blatant about their plans. Tesla is no different.
On January 2nd, 2024, Tesla posted its Q4 2023 production results and released total production numbers for last year:
In 2023, vehicle deliveries grew 38% YoY to 1.81 million while production grew 35% YoY to 1.85 million.
Even though the news is nothing short of phenomenal, the company has lost over $230 billion in market cap since the beginning of the year. The automaker also reported their Q1 results last Tuesday. This tumultuous earnings call comes after an announcement on April 15th that the automobile company would lay off more than 10% of their workforce. In hindsight, it appears as though this was expected:
For the last few months, it has looked like Tesla might be preparing for a round of layoffs. Tesla told managers to identify critical team members, and paused some stock rewards while canceling some employees’ annual reviews. It also reduced production at Gigafactory Shanghai. - Electrek
With at least 14,000 employees departing and gloomy news about missed delivery estimates over the past 3 months, the results were expected. Standing out in the earnings release was a $2.5B decline in revenue from Q1 2023 and a staggering cash outflow of $2.5B for expenditures in AI infrastructure, production efficiencies, and new products lineups. But wait, there’s more:
Tesla shares surged 12% on Wednesday after CEO Elon Musk said the electric-vehicle company plans to begin production of new affordable EV models by early 2025.
Did I read that right? What in the world could Elon have said to rocket the share price? Let’s break down the state of the car market and determine if Tesla is due for a comeback.
The Struggling EV Market
The sharp decline in Tesla sales highlights a broader trend in the EV Space. Over the past year, the industry has seen a steep drop-off in consumer buying after a flood of early adopters drove up valuations of pure-play electric automakers.
Many attribute this demand vacuum to the lack of a cost effective car and a limiting charging network, but is this truly the reason? Take a look at the graph showing the change in EV prices between February 2023 to February 2024.
The graph makes it pretty clear to assume that the price of electric cars is almost nearing that of their ICE engine counterparts. Still, given the numbers from Tesla and numerous announcements from legacy automakers pulling back their EV ventures, common wisdom would indicate the EV days are over. Let’s double-click on what’s happening here.
Here's a fun fact: batteries make up almost 40% of the cost of a vehicle. According to the US Department of Energy Efficiency, battery prices are at an all-time low. Elon even chimed in on this during the earnings call, emphasizing that a big part of Tesla’s 4680 program (internal battery production) was a hedge against possible high prices among suppliers.
Obviously, less demand for EVs has led to lower prices in the battery industry - but this is good for Tesla! Any pure-play automaker has a an opportunity to take advantage of low cost of goods by dropping prices and gobbling up market share as competitors stay complacent.
Overall, long term prospects continue to look strong. Alfa-Romeo, Jaguar Land Rover, Volvo, GM, and Honda as well as others all have their sights set on an exclusively EV world. Think of the adoption curve in the lens of the Toyota Prius. When the car came out, skeptics pointed out the terrible pickup and clunky look of the car. Fast forward to today, the struggling EV environment over the past year has allowed hybrid’s to flourish - hybrid sales soared 65% in 2023.
Tesla: The AI Robotics Company
If someone doesn’t believe Tesla will solve autonomy, they should not be an investor in the company. - Elon Musk On Tuesday’s Q1 Earnings Call
This is what Elon had to say during the earnings call on Tuesday. It’s rather perfect timing that Elon is shifting the focus to AI and robotics. It is as if Tesla was never making cars in the first place. While car production is concrete numbers, AI and robotics are kind of the opposite - it’s fairy dust!
Unfortunately for the haters, Elon has been on the AI and robotics train for quite a long time. On July 20th, 2016, Elon posted an article on the Tesla website titled “Master Plan, Part Deux” - a sequel to a post he wrote earlier outlining the plan for Tesla in the short, medium, and long term. Here’s what he had to say about Tesla’s roadmap at the end:
Create stunning solar roofs with seamlessly integrated battery storage
Expand the electric vehicle product line to address all major segments
Develop a self-driving capability that is 10X safer than manual via massive fleet learning
Enable your car to make money for you when you aren't using it
Ok, so far we’ve seen solar roofs and battery storage with their energy play. We’ve witnessed the launch of sedans, SUVs, trucks, semis, and even super-cars. We can confidently say Tesla is on pace to become a leading carmaker in tomorrow's world. However, will they be triumphant in the AI and robotics play?
Just in the past few years, we’ve seen the launch and development of dojo - Tesla’s supercomputer. Elon confirmed that Tesla currently has 35,000 Nvidia H100s already in use for training applications for FSD. Speaking of FSD, Tesla launched FSD 12 last month and taken the massive leap to reduce both one-time costs and subscriptions significantly.
And then there’s the robotaxi - Tesla CyberCab. Tesla finally released some mockups of how the autonomous ride-hailing service would look. You get to summon a Tesla, see how far away it is, control air conditioning, and customize your music.
When it comes to the future of Tesla, look no further than the potential of Tesla CyberCab and FSD. Combining both Uber and Airbnb, Tesla aims to allow owners to volunteer their car to the system - setting controls on passenger quality and preference - and earn a bit during the process. And that’s why it's crucial to corner the affordable car market. Remember a few weeks ago when Reuters reported that Tesla is canceling their low-cost Model 2? Musk himself refuted this on Tuesday, highlighting that Tesla has updated their future vehicle lineup to accelerate the launch of new models and expects an affordable class by early next year.
You see, companies tend to be surprisingly honest. It only gets confusing when you see an article downgrading Tesla’s price target, a YouTube video about how FSD is the next best thing, and news about how Elon’s stock comp package is going to doom Tesla. Market conditions lead to uncertain expectations, but the macro picture for EVs has never been more clear. As far as I see, Elon’s vision in 2006 has come to fruition and we’re just waiting for his 2016 vision to become concrete. Stay tuned for an update in 2026.
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