Tesla, Inc. designs, develops, manufactures, sells, and leases fully electric vehicles and energy-generation and storage systems, and offers services related to its products, such as leasing of electric vehicles and sales of automotive regulatory credits. Its automotive products include the Model 3, Model Y, Model S, and Model X. Currently, the company produces its electric cars at gigafactories in the United States, Germany, and China.
Investment Overview
Leading EV manufacturer backed by economic MOATs. Tesla is a leading global EV manufacturer, backed by its firm market leadership with an estimated 20% market share based on global sales, and healthy automotive margins seen in the industry (FY23 at 17%, on top end range of peers between 10-20%) which we believe is a commendable feat given that many legacy OEMs are still witnessing losses in EV production. Tesla's leading market share is backed by its economic MOAT in EV charging infrastructure and supercharger network, which has seen rising adoption by other OEM competitors such as Ford, GM, Mercedes, Nissan, Polestar, Rivian, Volvo and more in North America. Furthermore, ongoing ramp-up and progress in its autonomous driving and other software (e.g., full self-driving aka FSD) could also emerge as another emerging economic MOAT for Tesla, with Tesla often being considered as a leader in autonomous driving (aka ADAS) especially among US OEMs.
1Q24 deliveries were a miss; Potential negative revisions in consensus estimates could be a drag. In 1Q24, Tesla delivered 387k deliveries (-20% qoq, -9% yoy), missing consensus estimates of 448k by 14%, as Tesla faces a challenging EV market amid steep price competition and easing consumer demand, as well as production disruptions from the Red Sea conflict and an arson attack at its Gigafactory Berlin. Tesla's 1Q24 deliveries formed 23% of consensus' full year delivery estimates at 1.979m. Following the latest 1Q24 delivery numbers, we expect potential downward revisions in consensus' full year delivery estimates which currently stands at 1.979m (translating into a +9% growth from 2023's deliveries of 1.8m), which is likely to result in a negative share price reaction. Further, concerns over Tesla's gross margins still persist given that Tesla has seen multiple price cuts in US, China and Germany at the earlier start of the year in Jan 2024, with consensus currently expecting 1Q24 automotive gross margins of 15.3% (versus 4Q23 of 16.6%, 1Q23 of 18.3%), with potential room for downside in our view.
Longer term outlook remains healthy; Catalysts include next-generation vehicle launch in 2H25, Cybertruck ramp, production expansion and more. Tesla has unveiled plans for a next-generation vehicle, set to launch in 2H25. Tesla continues to focus on Cybertruck production ramp-up and on its expansion plans, e.g., a new plant in Mexico. Other growth drivers include (i) further progress on 4680 cell production lines, (ii) ramp up in building capacity for cathode production and lithium refining in the US, (iii) ramp up on FSD, robotaxis, AI and more, which can act as longer term catalysts.
Firstly, weaker-than-expected volume sales can lead to downside risks to Tesla's earnings, especially as EV competition heats up, noting rising competition and impressive EV sales growth from China OEM leaders such as BYD. Furthermore, the weakening macroeconomic environment in global/China markets can also pose headwinds to volume sales. Secondly, margin dilution remains as a risk to Tesla, especially amid the ongoing aggressive price cuts in the OEM industry.
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