Tesla Q4 Summary: Sales in 2024 fall short of "50%", but expenses continue to rise

Here is a summary of Tesla's Q4 2023 earnings conference call. For an interpretation of the earnings report, please refer to the article "Tesla: Unveiling the Unending Prices and Unstoppable Bloodshed" at 《脱掉 AI 外衣的 Tesla：卷不尽的价格、止不住的血》

I. Review of Key Financial Information:

1. Shanghai factory fully revived, but gross margin is still declining: Group gross margin at 17.6%, lower than expected; Automotive business gross margin at 18.9%, lower than the market's expected 19.7%.

2. Too many price reductions, cost reductions not enough: Average vehicle selling price decreased by more than $1,000 MoM, vehicle depreciation cost decreased by $300, and variable cost per vehicle decreased by $900.

3. High investment for stability: Expenses are not dragging behind.

5. Operating profit lower than expected: $2.1 billion, significantly lower than the market's expected $2.3 billion.

6. Honest outlook: With the depletion of the 3Y dividend, 2024 will be a year of slow growth for Tesla.

2. Detailed Content of the Earnings Conference Call

2.1. Key Points from Management's Statements:

Revenue for 2023 was $96 billion, with free cash flow of $4.4 billion and non-cash income of $5.9 billion, mainly due to tax accounting issues related to deferred assets.

In the vehicle business, the unit cost of CyberTruck is still increasing, making it difficult to predict the gross margin.

3) Capital expenditures for 2024 are expected to exceed $10 billion. (Note: Higher than the revised estimate of $7.9-9 billion in September last year)

The years 2024-2025 will be an intermittent period between two high-growth phases, with sales growth rate lower than 50%.

FSD V12 is end-to-end and is expected to be released in a few weeks.

Production capacity: a) Nevada factory: Expansion plan for an annual capacity of 100GWh, with a total investment of $3.6 billion, for the production of new 4680 batteries and semi-truck assembly lines, which has already started; b) Mexico factory: Plans to build a new factory with a total investment of over $5 billion, possibly for the production of Model 2, currently in the early stages of work; c) Fremont factory: Production volume of 560,000 vehicles in 2023, making it the largest automotive factory in North America.

Energy storage: a) Sales: 15GWh of Megapack in 2023; b) Capacity: Expected to increase by 100% to 40GWh by the end of 2024.

Regarding the North American market, two points were emphasized: a) For eligible customers, we now offer it as a sales incentive for Model Y, with a $7,500 discount at the time of purchase; b) We continue to offer very attractive leasing prices for Model 3 and Y through our leasing program in partnership with leasing companies.

The energy storage business has set a new record, with deployment increasing by more than double and revenue growing by over 50%. The growth rate is expected to surpass the automotive business again in 2024.

2.1 Q&A Analyst Q&A

Q: Will we see the next generation of affordable vehicles in 2025?

A: Our current schedule indicates that we will begin production in the second half of 2025 (expected to be close to the end of next year). During this process, we will be adopting many revolutionary production technologies. At Giga Texas, in order to achieve this revolutionary progress, our engineers will need to live on the production line. I am confident that our production line will be more advanced than any other production line in the world.

Q: Progress on the 4680 battery?

A: The production progress of the 4680 battery is already faster than the ramp-up of the Cybertruck's capacity. We have made many breakthroughs in battery cell technology. In addition to the 10% increase in energy density achieved by Texas Line 1 switching from Model Y to Cybertruck, we are setting up a new production line, and two other production lines are undergoing improvement experiments. In addition, four more production lines will be put into operation in the third quarter of 2024.

Q: Musk said he will not expand AI and robotics research at Tesla. Should shareholders be concerned about Musk's attitude towards AI?

A: It's not about wanting to control it. Institutional investors are a challenge, and there are many activists trying to interfere with how we do things. So my goal is to have some influence in the company, not to completely control Tesla.

Q: Does the company believe it can achieve a 50% compound growth rate in 2024/2025?

A: We will no longer strive to achieve the growth rates of the past. Currently, we are in between two major growth periods. In 2024, we will focus on launching the next generation of affordable vehicles.

Q: Progress on the expansion of the Nevada factory and the progress of the Mexico factory? When will the production of the Semi and the next generation of vehicles begin?

A: The expansion of the Nevada factory has already started, and the Mexico factory is still in the early stages of work.

Q: Is there any progress in licensing FSD to other manufacturers?

A: We have some preliminary discussions. I want to emphasize that it would be a smart choice if manufacturers seek Tesla's authorized driving technology.

Q: Production and challenges of Optimus?

A: Optimus is a revolutionary product with potential that even exceeds the sum of all other Tesla products. The technology we have accumulated in the field of automotive AI has greatly contributed to the development of Optimus. Although I believe we have the opportunity to deliver a certain quantity of Optimus next year, it is difficult to predict accurately. We will announce our latest progress every few months. The difficulty lies in the application aspect. An intelligent robot can perform various general tasks, and while we are improving vehicle technology, we are also constantly enhancing the technology of robots. Optimus Lab is like a scene from the movie "Westworld," full of the charm of future technology.

Q: What is the situation with Cybertruck pre-orders? How long do we expect it will take to fulfill the pre-orders?

A: Based on the current conversion rate of orders, our production schedule for 2024 is quickly filling up. The current challenge is ramping up production capacity, as market demand is not an issue at all. I firmly believe that the number of vehicles delivered in North America each year will reach 250,000 or even more.

Q: Updates on energy storage production and delivery?

A: The demand for Megapack is very strong worldwide. By the end of 2024, production capacity will double from 20GWh to 40GWh.

Q: How is the return on investment for the company's advertising and consumer education?

A: The main message we hope to convey is about our products and addressing certain misconceptions the public may have about electric vehicles, such as safety concerns. We will continue to explore various communication channels and exercise careful control over expenses to avoid excessive spending.

In certain regions, such as Japan, our market share is not high. I believe we should at least achieve the market share level of brands like Mercedes-Benz or BMW in Japan. These are the regions where we need to enhance awareness of Tesla.

Q: The cost per vehicle has been consistently decreasing over the past five to six quarters, which is rare in the automotive industry. What are your thoughts on this trend? Will it continue to decrease or align with industry trends?

A: We have been constantly thinking about how to reduce costs and continuously reviewing our expenses. We do not expect to maintain the same rate of cost reduction as in the past few years, as there are still some limitations. We will focus on every penny of expenditure, such as reducing transportation costs, finding more optimal shipping routes, and negotiating with carriers. In terms of the supply chain, we will negotiate with second, third, and fourth-tier suppliers to lower procurement costs.

Q: With your current product lineup, what is your target market share?

A: The adoption rate of electric vehicles is still relatively low. We hope to gain a higher market share in the electric vehicle market, but specific data cannot be provided at this time. The current adoption rate for electric vehicles is 9%, and it may reach 20% in two years, but the exact situation is still unknown. Additionally, globally popular models like the Corolla are much cheaper than the Model Y.

Q: AI Day?

A: We will cautiously disclose information because we have seen some of our ideas being copied by competitors. We may do something this year.

Q: Chinese manufacturers going global, how do we prevent it? Is cooperation an option?

A: We have observed that Chinese automakers have strong competitiveness on a global scale. I believe that if trade restrictions are lifted, they will be able to achieve tremendous success in the international market and may even pose a challenge to automotive manufacturers in other countries. We are very willing to collaborate in the area of supercharging stations and license our technology to other automakers. Q: Can you go over the company's next-generation platform products? Such as cost, drive system, etc.? Is the Cybertruck a pioneering model?

A: I don't think the Cybertruck is paving the way for the next-generation platform products. However, the 4680 battery will be applied in the next-generation models. If other companies want to copy our products, it will be very difficult for them because they not only need to replicate our products but also our production equipment.

Q: What is the progress of Dojo? When will it become part of FSD? What about the training GPU?

A: Both NVIDIA and Dojo will be used. I believe that Dojo will be a long-term and high-risk project, but it also has tremendous potential for returns.

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