That first line after the chart is the big takeaway in my opinion. The backlog of orders increased this quarter which is both good news, since it shows demand is not a problem, and bad news, since Tesla still can't produce cars fast enough.
Model 3 is cannibalising sales of the S and X models. Which means their ARPU and gross margin has rapidly decreased causing impacts to their revenue and profit.
I'm sorry for being pedantic here - but your final sentence does not necessarily follow from the previous.
Lowering ARPUs and tightening gross margin % are an issue - yes. But the single most important factor here is gross margin in absolute terms. If sales volume increases to offset decreasing ARPUs, this doesn't make 'Tesla's fiscal position simply unsustainable'.
Looking at it, it is revenue, gross profit and net income are all increasing by double digit percentage, every year.
Still Tesla is spending a lot more, but less every year compare to the revenue. They are expanding quite quickly (new factory in China starting to produce this month), maybe too quickly ?
It would be interesting to see during the next 6 months, how the production in China affects Tesla results.
Ask yourself: how much does a $5 Billion factory affect net-income.
Answer: a $5 Billion factory costs $0 in terms of profit. Its a capital-expenditure, affecting Cash Flow (not profits). Depreciation is how factories "wear out" in the income statement.
Tesla is not selling enough cars to make up for its $5 Billion investment in the Gigafactory. After many years, Tesla will only have made ~$4 Billion from a $5 Billion factory, by the time it has to replace all the equipment and pay $5 Billion again. (Made up numbers to roughly estimate what is going on here).
Tesla needs to make more cars out of the factory it has already built if they want to be able to rebuild the factory by the time all the parts wear out.
The Chinese Gigafactory cost $5B and should eventually produce 500,000 cars (less than 10,000 a week like its counterpart in US). If it takes 5 years to wear out, then Tesla would have to make ~$2k per car produced to pay the factory. I am curious to see how this Chinese factory would perform in the next 6 months. Clearly the plan has been to produce more per factory, and it did not happen yet. But I have faith in automation to eventually improve the factory's output.
> But I have faith in automation to eventually improve the factory's output.
Tesla's CapEx has been disappointingly low. Any kind of improved automation will require new equipment. Unless Tesla can scrape together more cash to improve their CapEx figures, its basically impossible for them to get "Better equipment".
IMO, Musk is spending too much money on unnecessary projects (ex: Cuphead ported to Tesla. Full-self driving custom designed chip. Etc. etc.) and not enough money on simple & boring stuff like better factory equipment.
Yes, I agree Tesla might have spent money on non essential (more video games), or at least non-trivial return (self driving custom designed chip). But Tesla did acquire Grohmann (automation), which is kind of boring stuff like better factory equipment. On a side note, I have been bullish on automation for a couple years, and it did not pan out, both Fanuc and KUKA had a rough past year... so no revolution on the automation/robot so far.
At the end of the previous quarter Tesla had 4 billion in the bank, its highest ever. It also has a new factory in China that is about to go into production, and several new models that will be coming out. And its efficiencies of production keep improving.
People like you have been predicting every quarter for the last 10 years that Tesla was on the verge of going out of business, and yet it keeps going from one success to another.
Honestly, unless they're doing really stupid things, they were announced dead every month during the previous years. Incapable of scaling etc etc.. Now they do. I think they'll do fine. (unless they do stupid things)
S and X models are just the model 3 chassis with a different body & trim. Those are the parts of the car that are easy to change. Effectively they are selling the same product at 3 different price points. That's retail 101.
Well let's see. They use the same range of Tesla batteries. They use the same motors. The same brakes (Brembo), same transmission, similar suspension. Neither have an ic engine, fuel tank or radiator. The difference in the wheelbase between the Model X (116.7) and Model (116.5) is 0.2 inches. As I said a different body. If I'm incorrect tell me how.
Well, none of it is correct. S and X are mostly aluminum, Model 3 is mostly steel. S and X use AC induction motors, Model 3 uses PM motor (yeah, Raven and all, but historically this is true). S and X use 18650 cells, Model 3 uses 21700 cells with a different cooling architecture. Your definition of "the same" covers almost every electric made, not just Tesla. It's a stretch too far.
I said the body was different. Tesla standardizing on Raven is not really a counterexample.
These other differences (eg. a few extra battery cells) are so chickenshit that if a factory level product engineer was making these changes 99% of the time it would be signed off by max one other engineer. I know because I used to be one of those engineers. The gist of what I'm saying is totally true. It's not like they are using different battery chemistries on their different models. All their big stuff has moved or is moving to a common platform.
I would be surprised if gigafactory 3 cars are exported from China.
From what I understand, most domestically produced, internationally branded vehicles are sold within the county. (Audi, VW, Mercedes all manufacturer cars in China for domestic consumption)
They absolutely will not be exported from China. They will sell every single TM3 they can make in GF3 in China locally, taking advantage of all the cost savings, tax savings, and incentives along the way.
But GF3 is what will push them from 8,500/wk ultimately to above 10,000/wk, and depending on exactly how quickly that ramp happens in Q4 will determine whether they end the year with 360k, or 380k cars sold.
They will head into 2020 at or close to an annualized production rate of 500k, which is what Elon predicted back in February. [1]
Assuming no further increases at Fremont, this requires GF3 to be producing at a rate of ~2,250/wk. Tesla has stated they expect to be producing between 1,000 - 2,000 cars per week at GF3 by the end of the year, rising to 3,000/wk in 2020. So more likely there are still some gains to be made in Fremont before the end up the year in order to hit 500k annualized.
By comparison Fremont was making 2,250/wk roughly 1 year after the first TM3 was produced (July 2017 - July 2018). This goes to show how much faster the production ramp can be the second time around. Unlike the first time when Tesla had never mass produced s vehicle before and was expecting “production hell”.
