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Is This The End Of Tesla's Dominance?
Elon's catastrophic Q3 earnings call is just the beginning of Tesla's problems.
Unless you have been living under a rock for the past decade, you will be aware of the behemoth that Tesla has become. Not only did they kick off the EV revolution, but they have been utterly dominant in the EV industry ever since. This top-dog status is well-earned, as their cars have consistently had longer ranges, faster charge times, cheaper price tags, and better performance than anyone else. But, over the past few years, their lead has shrunk dramatically. In fact, some manufacturers now offer a better price-to-performance ratio than Tesla, even after Musk’s vast price cuts. This came to a head in Tesla’s recent Q3 earnings call, which wiped billions off Musk’s net worth and painted a grim picture for the future of Tesla. So, the question has to be asked: have we reached peak Tesla?
This bombshell earnings call revolved around two key topics: Tesla’s earnings and Cybertruck production. Both were exceptionally bad news. What is more telling is the stuff which Musk didn’t talk about.
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Let’s start with the earnings. Musk announced that Tesla’s profits slumped 44%, or $1.85 billion, this quarter (2023 Q3) compared to the same period last year. That is despite Tesla’s revenue growing by 9% compared to their 2022 Q3. This means Tesla fell well short of analysts’ predictions. But why? Well, despite Tesla’s dramatic price cuts this year, they failed to sell enough cars. Their July-September sales figures are nearly 30,000 units short of what was predicted.
Why are these sales figures so bad? Well, Tesla’s competition worldwide has followed suit with the price cuts, and many, such as VW, Polestar, BYD Hyundai, and Kia, are now selling cars with better specs at lower prices than Tesla and are stealing from Musk’s potential customers.
Unsurprisingly, this has had a massive impact on Tesla’s stock. After the call, Tesla’s value shrank by $69 billion!
Now, it takes more than just a bad quarter to impact Tesla stock this much. Tesla has had bad quarters in the past but has always had a project that would remedy the situation in the near future. For example, during the challenging Model 3 production scale-up, the multiple factories being built worldwide kept Tesla’s stock buoyant, as investors were optimistic about the future.
Currently, that upcoming project is the Cybertruck. With more than a million reservations, if Tesla can start production of this futuristic vehicle, it can significantly increase their sales and profitability. But, Musk utterly deflated that notion during this earnings call.
Now, before we dive into what was said about the Cybertruck, let’s quickly recap what this vehicle is. Announced back in 2019 and slated for a 2021 release, the Cybertruck is a ludicrous full-sized pickup that is meant to be the best of Tesla. With a slated starting price of $39,900 and rising to $69,900, the Cybertruck is capable of up to 500 miles of range thanks to its 200 kWh battery (cheaper variants have a smaller battery) and charge rates of 1 MW. That means 0% to 70% charge in only 30 minutes despite that massive battery. The top-of-the-line Cybertruck can also go from 0 to 60 mph in only 2.5 seconds and tow over 14,000 lbs! Its PS1 graphic-like design isn’t a horrid aesthetical choice either. Instead, the car is made from stainless steel, which is far more robust than ordinary automotive steel and can’t be moulded. Instead, it must be intricately folded and welded, leading to this boxy shape. This shape, combined with much stronger material, will make the Cybertruck far more rugged and robust than anything else on the road.
In other words, this is meant to be the EV that could dominate the large and powerful pickup-obsessed US market.
But, production has been mired in delays, and customers are yet to receive a single Cybertruck. Now, Musk did announce that the first customer cars will be delivered on November 30th. Still, he said on this call that he wants to “temper expectations” around the Cybertruck, as the production ramp-up is turning out to be extremely difficult. In fact, you have probably heard already that Musk went as far as to say, “We dug our own grave with the Cybertruck.” He went on to say, “Cybertruck’s one of those special products that comes along only once in a long while. And special products that come along once in a long while are just incredibly difficult to bring to market to reach volume, to be prosperous” and “So, I just want to emphasize that one. I think this is potentially our best product ever. And I think it is our best product ever, but it is going to require immense work to reach volume production and be cash flow positive at a price that people can afford.”
Now, Musk has always had a brilliant way of wording things way too optimistically. Some might even say he is a hypeman or a b******ter. So, let me translate these statements. Musk and Tesla have bitten off far more than they can chew with Cybertruck and can’t deliver on what they promised any time soon; in fact, they might not ever be able to deliver on it.
On this call, it was revealed that Tesla currently only has the capacity to produce 125,000 Cybertrucks per year, a far cry from their 250,000-per-year target. But Musk predicted they could hit this production target in only 18 months.
But, as always with Musk, you can’t trust his deadlines. For one, it was announced that the customers receiving the first Cybertrucks will not know how much they will cost until delivery! Moreover, they don’t even know what specs they will get! So, the truck they get could be far less impressive than the one they thought they reserved. With the production issues we have seen with the pre-production cars (more on that in a minute) and Musk saying that production will start as only a tickle, it is within the realm of possibility that these first trucks will cost well over $100,000. This also suggests that their current “125,000 production capacity” is simply a fabrication.
So, why is the Cybertruck production so tricky? Well, Tesla made a rod for their back with the design.
Firstly, the price point and drivetrain specs rely on a full-scaled 4680 production. Only then can a 200 kWh, 1MW charging battery pack be possible at such a low price. But as it stands, Tesla’s 4680 is still too expensive with too small of a production capacity and doesn’t use the pure silicon anodes necessary to meet some of these specs. So even if they managed to nail the vehicle production, Cybertruck’s price tag would have to drastically inflate and specs to come down, which could make many of those million reservations disappear.
Secondly, the stainless-steel chassis and body are turning out to be a disaster. However, anyone who knows the story of the DeLorean could have told you that was always going to happen.
Stainless steel is a lot more springy than regular automotive steel. This means it can’t be stamped into shape, like a typical steel sheet can be, as it will want to return to its original form, leading to colossal tolerance issues. It also requires special and expensive welding techniques to correctly bond the chassis’ different parts together. Moreover, the price of stainless steel has increased recently, as the alloy relies heavily on nickel, which has increased in price thanks to the battery boom and the war in Ukraine.
Now, Tesla has been incredibly tight-lipped on how it plans to consistently make a high-quality stainless-steel truck at such a cheap price. In fact, some recently leaked photos show the chassis is mainly made of giant cast aluminium parts, which is not what Musk promised back in 2019. The prototype and pre-production Cybertrucks currently being tested on the US roads do still have stainless steel body panels and doors, but they look terrible! Surface finishes vary dramatically from panel to panel, and the shutter lines between panels are all over the place, suggesting that Tesla has yet to get tolerances nailed down with their stainless-steel production.
Many have now called into question if Tesla can make the Cybertruck with decent enough quality at all with their stainless-steel design, let alone make it at scale at such a low price. In fact, this is probably why the first Cybertrucks will cost so much and have such a restricted production, as the scrappage rate of parts might be sky-high thanks to issues with the stainless steel.
But expert’s concerns don’t just end there. Stainless steel is far more rigid than regular steel; as such, the crumple zones of the Cybertruck might be useless, meaning it could struggle to pass safety tests. Moreover, the pre-production trucks are significantly smaller than the prototypes Musk used to launch the vehicle in 2019.
This is why Tesla’s share price slipped so much. The Cybertruck was meant to take Tesla to the stratosphere! But instead, thanks to the moronic design choices, its production probably won’t ramp up adequately for a few years, and customers will likely get short-changed in quality and specs. As such, Tesla’s future seems a lot less prosperous, as Cybertruck and the profit it would bring in was a vast part of their future plans.
But, if you are a regular reader of mine, you will know that Tesla is also facing some serious challenges that Musk didn’t even touch on during the earnings call.
As I mentioned earlier, Tesla isn’t winning the EV price war it sparked earlier this year. This isn’t surprising, as the price cut war wasn’t really started for the reasons you might think; it was more to keep production large enough to justify Tesla’s rapid worldwide production expansion. As such, Polestar, VW, BYD, Zeekr and MG now have cheaper models than Tesla with similar specs. What’s more, companies like Toyota, BMW, BYD, Porsche, Nissan and CATL are preparing to launch their own batteries, which are cheaper and have higher performance than Tesla’s 4680 ever could be, meaning they (and their battery customers) could soon dramatically undercut Musk. Tesla still has no answer to this, and their sales figures are set to continuously miss expectations going forward unless they can either dramatically cut costs or increase performance.
But Tesla can’t do that, as their 4680 is still not what Musk promised back in 2020. Their production capacity is still miles off where Musk wanted them to be, their charge rates are far off what was promised, and their energy density is actually worse than Tesla’s previous cells! The battery pack cost has been reduced to around $104 per kWh, but only by simplifying the pack construction, not reducing cell cost. As it stands, the 4680 is twice as expensive as Tesla wanted it to be, doesn’t perform as they expected it to, and they can’t produce enough of them. Unless Musk can solve these issues, they will continue to be further undercut by their competitors.
But Tesla is far more than an automotive company; they are leading the autonomous driving revolution, which is why its stocks are valued so highly.
Well, sadly, that statement isn’t true any more.
Audi, Mercedes, BMW, Ford and even GM now have autonomous driving systems with a higher level of automation than Tesla! With these cars, you can take your hand off the wheel and, in some circumstances, even take your eyes entirely off the road. Despite all the hype, Tesla is actually far from leading the autonomous vehicle race.
But that doesn’t mean their self-driving system is free of controversy, oh no!
You see, thanks to Musk’s overhyping of their autopilot, Tesla is being criminally investigated by the DoJ. It turns out that customers thought their Tesla was far more capable than they actually were, as Musk said things like “the driver is only there for legal reasons,” leading to people misusing the system and causing dozens of fatal crashes whilst using autopilot. As such, the charges of criminal negligence, fraud and potential manslaughter hang over Tesla. To make matters worse, Musk’s hard-line lawyers have been able to throw out class action lawsuits against autopilot from customers who have experienced incidents with the system. For anyone remotely interested in autonomous driving safety and ethics, this is a massive red flag! It also suggests that Tesla has some serious barriers to getting governmental approval for a fully autonomous vehicle.
But possibly the best bit of controversy around Tesla’s autopilot is the redacted safety data. You see, for years, Tesla published annual safety statistics around their autopilot, allowing them to demonstrate to the world that their self-driving AI is getting better and better year after year. But this stopped in 2022, and we have not seen any recent safety data around autopilot. Curiously, this coincides with Tesla’s 2021 switch to “visual-only” autopilot. This was a cost-saving move by Musk, and it meant that Teslas built since 2021 aren’t fitted with radar or ultrasonic sensors and only use cameras to drive themselves. However, many autonomous experts, including Tesla engineers who were overruled by Musk, were worried this would reduce the redundancies in the system and make it far less safe. Some even said that a fully autonomous car will always need more sensors than just cameras to function safely. As such, this redacted data could easily be hiding how poorly Tesla’s vision-only autopilot is fairing up after this dramatic hardware change.
It’s no surprise that Tesla has redacted this data either, as Musk has gone on record saying that their self-driving AI is why Tesla is valued so highly. Such damning data could tank the stock value and potentially turn away buyers in droves.
With all of this in mind, the question has to be asked: have we reached peak Tesla? Is it just downhill for them from here?
Well, as I have said numerous times, only a fool underestimates Musk. Despite his constant overhyping and b******t, he can pull results out of the hat even in dire situations. However, his strengths lie in growing startups with distant yet narrow visions incredibly rapidly, not in managing established sprawling companies with multiple challenges like Tesla now is. As such, I wouldn’t be surprised if, over the next few years, Tesla loses its EV crown and becomes just another automotive company. I, personally, think we have reached peak Tesla. It will continue to be a force in the EV industry for years to come, but in a few years, I don’t think they will be leading it.
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