Tesla: Material miss on gross margins in 2Q23?
Tesla's deliveries very materially beat expectations in the second quarter, which proved they can grow in the 50% region this year. This came at a cost, though, with entry prices falling 15-25% since their peak of the last fall.One thing sell-side analysts seem to overlook is the prolonged impact of these price cuts on gross margins. In the first quarter, Tesla was still delivering a lot of cars ordered in 2022, at more favorable prices. This goes away in the second quarter and we expect a significant miss on gross margins as a result.
On the brighter side, we also expect 2Q23 to be the trough, and cost improvements should be steady for the rest of the year, and if prices stabilize, we should see gross margins back above 20% by year end. Most importantly, these price cuts were the right thing to do, boosting volumes and boosting Tesla’s ability to produce cars at a material cost advantage. We model 2025 earnings 40% above consensus.
Tesla designs, develops, manufactures, sells and leases electric vehicles and energy generation and storage systems, and provides services related to its products. The company operates as two reportable segments: automotive, which includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of automotive regulatory credits; and energy generation and storage, which includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products, services related to such products, and sales of solar energy system incentives.
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