We have a video that goes over Tesla's financials and analyzes whether Tesla will take a hit to its margins now that prices have been cut drastically.
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Tesla Numbers and 2022
There are some surprising results with Tesla's numbers and margins that may surprise you when Tesla reports its earnings for Q4, 2022 and for Q1, 2023.
The total production for Q3, 2022 was 365,923 vehicles, a 54% increase year over year. This is about 8 days if supply. This was about 32,000 of inventory at the end of Q3, 2022. 439,701 vehicles were produced at the end of Q4, 2022.
That's another 34,000 units of inventory, creating 66,000 inventory units at the end of 2022. That's about 12 days if inventory when you look at how many deliveries Tesla is doing per day.
This puts Tesla's inventory of 12 days at best in class among all auto makers with 12 days of inventory and Toyota being at about 25 days of inventory. A healthy supply is considered 60 days of inventory.
Tesla's price decreases put it in a position to be able to increase demand. Model 3 and Model Y inventories were about cut in half the last couple days due to the price cuts.
Tesla has outlined their capacity and right now, it's about 1.9 million units per year or 36,538 per week. Tesla's production was about 440,000 units in Q4, 2022. From Q4 to Q3, that's a 20% production growth. Tesla is looking to push production to its maximum.
A Q1, 2023 delivery target should be about 475,000 units. February is 28 days and there is also a Shanghai New Year holiday which will remove some days from Giga Shanghai production. There is 66,000 units in inventory that it can use to make up this difference. The cars are being sold at much lower prices.
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Will Tesla Margins Take a Hit?
The average selling price for Q2 to Q3, 2022 was a 5% drop in average selling price. Costs also went down 5%. For Q4, 2022 we should expect the same drop in average selling price and costs. For Q1, 2023, we can assume a 12% drop in average selling price. The Model Y long range had a huge drop at 20% and the Model 3 RWD had a lower price drop at around 6%.
There are lots of options, higher trims, newer shoppers, a price drop on Model S and Model X and we might have an increase in the FSD take rate for Tesla's vehicles. Just because prices dropped 20% doesn't mean a 20% hit to margins.
The costs may drop around 6% in Q1, 2023. The costs seem to drop inline with the reduction in vehicle price and increased production. Deflation is in full force right now and supplier contracts are cheaper. Giga Austin and Giga Berlin are reaching volume production which will reduce cost. There is also a fixed cost structure which means if you can maximize production, per unit cost goes down. There's also a $30 per kWh credit from the IRA.
These are difficult variables to gauge, so a 6% drop in cost is assumed for Q4, 2022 and Q1, 2023. This equals about a 23% gross auto margin for Q1, 2023 and about a $5.2 billion profit from the auto business in Q1, 2023.
I'm looking forward to an updated model on this after Q4, 2022 earnings. What do you think of this model and Tesla's margin being about 23% for Q1, 2023? Will Tesla's margin take a bigger hit?
For more information, see this video from Farzad Mesbahi:
In Related News: Tesla FSD Finishes 2022 With 285K Users
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.
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