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To understand Tesla’s current situation, start with the following technical aspects.

Author | Cao Siqi
edit| Jingyu

Tesla’s Q2 2024 financial report is a bit miserable.

Net profit fell by 45%, and total revenue was basically the same as the same period last year, and it was mainly supported by the points of "selling carbon". In terms of sales, Tesla has experienced a year-on-year decline for two consecutive quarters for the first time since it began publishing production and sales data in 2015. In the first half of this year, Tesla sold 58,000 fewer vehicles than in the same period of 2023.

Although Musk released good news at the earnings conference that FSD is expected to enter the Chinese and European markets this year, it did not prevent the market's pessimism.

On the day Tesla released its financial report,The stock price fell 12%, the market value evaporated by more than 100 billion US dollars, and once fell below the 700 billion US dollar mark。

Worse still, Musk recently admitted that the Robotaxi, originally scheduled to be released on August 8, was delayed again until October. This is the second major delay in Tesla's key business this year, following the media's report in April that the development of the next-generation cheap car was suspended. These two delays correspond to Tesla's two most important business bases: the automotive business and the autonomous driving-related business.

For the automotive business, Musk has issued an "ultimatum" to the battery team. Breakthroughs in battery technology are considered to be a key issue in the mass production of new models. Once this problem is solved, the new models should be able to drive sales in multiple markets.

In Musk's self-driving business, people are looking forward to more than just Tesla's technical capabilities.I also hope to see what solutions the top technical students in the industry can come up with in the new business models related to autonomous driving.。

01

Gross profit margin,

Direct driver of stock price decline

The first dimension that deserves special attention is Tesla's "cash cow" business, that is, selling cars. The indicator that investors pay most attention to is not sales volume, but gross profit margin.

In October 2021, Tesla's market value exceeded one trillion US dollars for the first time, and its price-to-earnings ratio at that time had reached 192 times. The core reason is that Tesla's single-vehicle gross profit margin reached 30% in that quarter.

This week, when Tesla released its 2024 Q2 quarterly report, its stock price fell 12% that day, and its market value fell back below $700 billion. Compared with three years ago, Tesla's deliveries this quarter increased by about 1.5 times, but its per-vehicle profit margin has dropped to 14.6%.

The gap between these two numbers directly pulls Tesla's cash cow business back from an industry myth to the average level.

The automobile industry is not a highly profitable industry. Compared with Apple, another Silicon Valley company in the consumer hardware field, Apple's hardware business gross profit margin can reach 40%, which is 10% higher than the highest point of Tesla's single-vehicle gross profit margin. In the automobile industry, the average level of this data is only around 15%.

Therefore, Musk's saying for so many years that "Tesla is not a car company, but a technology/AI company" is not only a marketing rhetoric, but also a path Tesla must take for the future. Musk's life ideal is not to become an ascetic like Akio Toyoda, and he does not expect himself to become the richest man in the manufacturing industry.

Tesla's gross profit margin per vehicle in recent years | Image source: Analyst Troy Teslike

Compared with three years ago, Tesla has not seen drastic changes in production. The Chinese super factory is running smoothly, the supply chain has smoothly survived the impact of the epidemic under vertical integration, and there has been no major innovation such as integrated die-casting. The most direct reason for the decline in Tesla's gross profit margin per vehicle is the adjustment of the terminal selling price, which is often referred to as the "price war".

Taking the Chinese market as an example, at the end of 2021, the entry-level prices of Tesla's two mainstream models, Model 3 and Model Y, were 265,600 yuan and 301,800 yuan respectively; this month, the prices were reduced to 231,900 yuan and 249,900 yuan (with slight adjustments to products and configurations).

There are different perceptions and opinions about price wars around the world. If we look at it from Tesla's own perspective, we can conclude that one important reason is that Tesla's product pace is too slow, which is an important reason why it must cut prices to cope with competition.

Nowadays, when many domestic brands release new cars, they will directly use Model 3 and Model Y as benchmark models. Compared with Tesla, the biggest advantages of the new cars are reflected in the comfort configuration and intelligence level. And their pricing is also bolder and more aggressive. To some extent, Tesla, which took the initiative to overturn the table and initiate a price war a few years ago, now seems to have been hit by the "boomerang" of its own slow product iteration.

Regarding Tesla's thinking on product iteration and in-car comfort configuration, . In his opinion, Tesla takes "efficiency" as the starting point of design and does not want to blindly pile up comfort configurations and functions, which will affect the vehicle's energy consumption, weight and handling.

There is nothing wrong with this logic itself. As a company with strong technological attributes, Tesla can also take a product path that is different from the mainstream. But the key issue is that a certain frequency of playing cards must be guaranteed. Consumers have a saying that "buy new, not old, buy old and enjoy discounts". This saying was first used in mobile phones and consumer electronics, and now it also applies to the mentality of some smart electric car consumers.

In 2020, Musk introduced the 4680 battery at Tesla Battery Day | Image source: Live screenshot

For quite some time, people pinned their hopes on Tesla's automotive business on the "25,000 (US dollars) cheap car" (also known as "Model 2"), which carried the important mission of Tesla's annual sales of millions to the tens of millions market. Unfortunately, in April this year, the media revealed that the Model 2 project was shelved, triggering a round of Tesla's stock price plunge.

An important technical reason for the delay of "Model 2" is the difficulties Tesla encountered in the research and development of the new generation of battery technology.Musk has always hoped to install the self-developed 4680 battery in new cars to provide a larger capacity and charging rate than ordinary batteries, and significantly reduce battery costs by 15%-30%. However, at present, the performance of the 4680 battery is only comparable to that of ordinary batteries.

In 2020, Tesla used integrated die-casting technology on the rear floor of Model Y for the first time, which greatly optimized the production and manufacturing links, helped Tesla move beyond the production capacity region, and Model Y gradually became the world's single best-selling model.

The research and development of 4680 battery technology is a key technological innovation as important as the integrated die-casting technology in 2020. To some extent, it will directly affect the mass production rhythm of the most critical Model 2.

According to media reports, Tesla plans to launch a simplified version of Model Y in the first half of next year. This model is positioned as a transitional product and is developed based on existing products. The latest news shows that Musk has given the 4680 battery team an ultimatum, requiring cost reduction and scale expansion by the end of the year.

02

Robotaxi，

More than just autonomous driving

The second dimension of discussion about Tesla revolves around autonomous driving technology.

In UBS's view, Tesla's automotive business valuation has remained stable between $200 billion and $300 billion (about 20 times PE). Therefore, Tesla's valuation, which is much higher than that of the automotive industry, is supported by new businesses related to autonomous driving.

Specifically, businesses related to autonomous driving technology can be divided into three different models: FSD software services, self-operated Robotaxi business, and the most extreme Tesla+Robotaxi "shared fleet" model.

Technically speaking, FSD is undoubtedly in the leading position in the industry. Tesla is one of the first companies in the world to explore the "end-to-end" technology route - this route can greatly improve development efficiency and the system's generalization capabilities in different scenarios. More importantly, due to Tesla's mass production advantages and pre-embedded hardware, they have taken the lead in the most critical data link in "end-to-end" development, which is a valuable resource that other manufacturers must spend time and money to catch up.

Therefore, for FSD, I believe that the focus at this stage is no longer on the technology itself, but the more core issue should be on the details of implementation.

The first aspect is regulation. At present, policies are changing in a direction that is favorable to Tesla. Musk said at this earnings conference that FSD is expected to enter the Chinese and European markets before the end of the year.

The second aspect is commercialization. The current buyout price of FSD in China is 64,000 yuan, which is not only more expensive than other domestic manufacturers, but more importantly, domestic manufacturers currently adopt a "trial" policy, and no one has completed the closed loop of intelligent driving software commercialization. In the domestic market where the software payment rate is already low, commercialization may become a test after the technology is implemented.

The price of Tesla's advanced intelligent driving service in China | Image source: Tesla China official website

Robotaxi is a completely different business. It relies on the autonomous driving technology brought by FSD, but the technology and operational support required are far more than just autonomous driving technology.

To give the simplest scenario, if we start deploying Robotaxi now, the most basic operation of plugging and unplugging the charging gun still needs manual operation (Tesla has not yet used and deployed wireless charging technology). In addition, the planning of operational links such as power, distance, and order acceptance also requires a system that is not closely related to the automobile production link to support the operation of this business. At present, the Robotaxi business in most parts of China and abroad has adopted a strategy of restricting the operating area.

There is no reliable source to limit the specific design of Tesla Robotaxi. In the biography of Elon Musk, it was mentioned that Musk hoped that this would be a car "completely without pedals and steering wheels". However, considering the specific operation scenario, this approach may be a bit too radical - after all, if the system breaks down, the simplest manual driving to get out of trouble will not be possible. Musk recently postponed the Robotaxi, which was originally scheduled to be unveiled on August 8, to October 10. I don't know if these details are being discussed and traded off.

Finally, Musk's proposal to allow Tesla owners to join the Robotaxi fleet, "let your car help you make money when not in use", represents Musk's beautiful vision. After all, compared with mass production of Robotaxi prototypes, this is obviously a sexier light asset operation model, but compared with self-operated fleets, the co-operation model requires a higher level of precision in operation and deployment capabilities. It may be difficult to achieve in the short term.

Compared with the traditional automobile manufacturing and sales business, the new business model related to autonomous driving is not a propositional essay. All technologies and business models are brand new.

The entire industry is looking forward to Musk’s press conference on October 10th, because everyone wants to see what the best companies in the industry think about the future.

*Header image source: Visual China

This article is an original article from Geek Park. For reprinting, please contact Geek Jun on WeChat: geekparkGO

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