Tesla’s 2023 annual shareholders’ meeting was held at the Texas Super Factory. Tesla CEO Elon Musk responded to sharp questions from shareholders on-site and broadcasted them on the internet simultaneously.
As is well known, Tesla has not had a smooth year in the past: financial data has fallen below expectations, global price reductions in exchange for sales, and new car mass production has repeatedly skipped tickets To some extent, this shareholders’ meeting is a “defense” for Musk, and how to cleverly fill in the answer will directly affect the attitude of the capital market towards Tesla in the future. Judging from his response, he clearly came prepared.
Key points:
Tesla is developing two new models, with an expected annual production of over 5 million vehicles. The electric pickup truck Cybertruck, which has repeatedly skipped tickets, will be mass-produced and delivered later this year. Musk predicts that the Model Y will become the world’s best-selling model this year. Musk believes that the economy will improve in about 12 months and Tesla will not be immune to the impact of the global economic environment. In the long run, humanoid robots will become Tesla’s second growth curve. Tesla shareholders voted in favor of implementing the executive compensation plan and will vote annually to determine executive compensation. Tesla shareholders elected former CTO JB Straubel as a member of the board of directors. Hongtu Plan 3: More efficient and sustainable development with less mining. In the future, FSD will be 10 times safer than human drivers.
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New products satisfy our appetite, boasting an annual sales of 5 million vehicles
At this shareholders’ meeting, Tesla faced many “pitfalls”, the first of which was the recently released first quarter financial report. The data shows that Tesla’s revenue in the first quarter was 23.329 billion US dollars, a year-on-year increase of 24%; The total vehicle delivery volume was 423000 units, an increase of 36% compared to the same period last year; The net profit for the first quarter was $2.513 billion, a decrease of 24% year-on-year, and the market expectation was $2.725 billion; The gross profit margin for the first quarter was 19.3%, with a market expectation of 21.2%. After the release of the first quarter financial report, Tesla’s stock price fell in the short term, with a drop of over 6% after hours.
Overall, the most urgent issue is the gross profit margin crisis. Due to sales constraints, Tesla has aggressively lowered prices globally in the first quarter of this year. Although this move has led to an upward trend in sales, the gross profit margin in the first quarter directly fell below 20% to a two-year low of 19.3% due to the fact that sales costs did not decrease in sync with selling prices, Musk also acknowledged in the performance call after the financial report was released that “in the long run, a 20% gross profit margin is still the bottom line Tesla needs to adhere to.” Coupled with the stimulus effect of price cuts on sales, there has been a trend of diminishing marginal benefits, which has exacerbated investor anxiety. In addition, the energy that Musk has dissipated for Twitter has also made investors unable to resist directly questioning Musk’s own energy and health at shareholder meetings. The first thing Musk did in the face of a crisis of trust from the outside world was to reorganize the current situation for investors from the perspectives of products, companies, and industries, in an attempt to prove that Tesla is trustworthy today. At the product level, Musk referred to Cyberrack, which frequently bounces tickets, as “Tesla’s ace”. He also promised that Cyberrack will be delivered this year, and the current progress is very smooth. The annual production of new cars can reach 250000 or even more. For the old model, Musk focused on the Model Y and made bold and optimistic predictions. He said the Model Y will be “the best-selling model in the world this year”. In recent years, Tesla has been making Model 3 and Model Y its flagship models, but both models have been released for more than 3 years. Under the pressure of the global new energy wave, especially in China, competitors are constantly changing, and their functions and prices are soaring together. From market feedback, there is no doubt that the delayed release of new cars has affected Tesla’s sales. Regarding the development progress of the new car model, Musk stated that Tesla is currently developing two new products internally and has included a silhouette. According to his prediction, the total annual sales volume of these two new products may exceed 5 million. Compared to 2022, Tesla’s global production and sales were 1.369 million and 1.313 million, respectively. Therefore, in his opinion, if not unexpected, these two mysterious new products will become Tesla’s main sales force in the future.
Musk’s description of the current product system in the silhouette of “New Product” runs through a main thread, which is the product competitiveness brought by advanced design and manufacturing technology, providing sales assurance for Tesla. This move may seem to reassure investors first, but it also makes the sales slump experienced by Tesla before the price reduction seem indescribable. Here, Musk cleverly avoided this thunder and directly stated that Tesla cannot be immune to the impact of the global economic environment: “I think the global economy will improve in about 12 months, and Tesla will be in a better position. I hope everyone can have some patience and become long-term investors
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FSD and humanoid robots are Tesla’s future
In order to give investors the confidence to invest in the long term, Musk has focused on building long-term value. The first is the FSD (fully autonomous driving function), which has been receiving much attention from the outside world. Musk stated that in the future, the safety of Tesla FSD will reach 10 times that of human drivers, and Tesla will also bring the safest electric vehicle products in the world. Through software updates, FSD can also achieve historical appreciation of existing fleet assets that require manual intervention, which in his view will bring explosive “compound interest”. Speaking of this, Musk’s tone at the scene was clearly uplifting and excited: “Currently, each car is used for approximately 10 to 12 hours per week, with most of the time parked in the parking lot, and the usage rate is only about 10% or 12%. If fully autonomous driving is achieved in the future, a car can be shared among many users, and the efficiency of vehicle use can be greatly improved. According to our calculation, it should be 5 times. It is equivalent to a 5-fold increase in car value overnight But when investors asked about the specific timeline for the implementation of FSD, Musk did not provide a positive response, leaving ample room for maneuver.
Then, there is the ubiquitous AI. Tesla plans to have the humanoid robot Optimus catch up on this train. At this shareholder meeting, Musk boldly predicted that the demand for Optimus in the future may reach 10 billion or more, which may far exceed people’s demand for cars. Therefore, he claimed for the first time that Tesla’s long-term value may come from Optimus. Musk’s latest “judgment” has become a weather vane that affects market volatility again. On May 18th, the robotics sector rose in the morning trading, with multiple stocks such as Fengli Intelligent, Yuanda Intelligent, Zhongda Dede, Huagong Technology, Mingzhi Electric, etc. rising their limit, while multiple stocks such as Haozhi Electromechanical, Zhongwei Electronics, and Jiangsu Leili followed suit. In 2021, Musk presented the rough form of Tesla Bot to the outside world for the first time on Tesla AI Day. Two years later, Optimus has been able to confidently showcase its skills. From the video released at the shareholders’ meeting, it can be seen that Optimus’ motor torque control and environmental perception capabilities have been significantly enhanced, and it has been able to complete some refined actions, such as simulating human hands grasping small and irregularly shaped items. In Musk’s vision, humanoid robots will change people’s lives in the future, and everyone wants such robots, and it is likely that more than one is needed, and the demand is self-evident. Of course, he also didn’t forget to avoid potential hazards. On Tesla AI Day in 2021, Musk promised that people “can escape and subdue humanoid robots. At the shareholders’ meeting, Musk also gave a special reminder: “I won’t let it think about Mars
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To solve the ‘money making crisis’, still need to rely on spending money?
With a vision as an expectation, the most important thing is how to ensure healthy profitability before realizing long-term value.
Musk’s solution is to compare Tesla’s gross profit margin with that of other mainstream automakers. In the screen displayed at the 2023 shareholders’ meeting, we can see that Tesla’s operating profit margin in 2022 is still higher than that of many automotive giants such as Mercedes, BMW, and Stellantis.
The comparison of operating profit margins displayed on site at the shareholders’ meeting is worth noting that the focus of external attention and research on Tesla is still on the “20%” gross profit margin red line. When the gross profit margin is above 30%, Tesla is considered an amazing and legendary enterprise by the outside world; When the gross profit margin is above 20%, the outside world also believes that Tesla’s cost control and profitability can exceed the industry average; But as long as this number drops by 20% and the difference in gross profit margin with other car companies narrows, Tesla feels like it has fallen into the mortal world, and the growth myth is difficult to sustain. As mentioned earlier, Tesla’s gross profit margin for the entire year of 2022 was 25.6%. After launching the “price reduction model”, the gross profit margin directly dropped to 19.3% in the first quarter of 2023. As a comparison, BYD’s gross profit margin in the first quarter of 2023 still reached 17.86%, a year-on-year increase of 5.46 percentage points, despite the impact of price cuts. The ideal gross profit margin for the first quarter of 2023 even reached 20.4%. Obviously, although Tesla has not stopped, its competitors are running faster and faster. The gross profit margin directly affects Tesla’s investment in expansion and research and development, the evaluation of Tesla by the capital market, and whether it can stabilize the situation under the influence of the macroeconomic environment. After the release of financial data for the first quarter of 2023, Tesla’s stock price plummeted from around $180 per share to around $160. So we see that after Tesla’s gross profit margin fell by 20% for a period of time, it suddenly began to rise in price against the trend, in order to stimulate consumers holding coins for purchase, attempting to boost sales and respond to the gross profit margin crisis. Surprisingly, when asked during the Q&A session if Musk would reconsider changing Tesla’s long-term stance on traditional advertising, he changed his tone and said, “We will try to do some advertising and see how it works.” This statement immediately won the support and applause of the on-site audience. Afterwards, Musk added in a follow-up interview on Twitter Spaces that Tesla will be interested in advertising that is informative, aesthetically pleasing, and aesthetically pleasing. Many people expressed that this was the only ‘unexpected’ aspect of the entire Tesla shareholders’ meeting. Because Musk had previously insisted that Tesla had no shortage of demand, there was no need to advertise. Wasn’t it a slap. But in the business world, as long as it can solve problems, slapping faces is not a shame. Due to its continuous efforts in vertical integration capabilities, Tesla has maintained strong profitability. However, in the face of increasingly fierce competition, accelerated market differentiation, and weak sales growth, Tesla is clearly aware of previously insignificant issues. With the expansion of production capacity and scale, Tesla must step into the river that traditional automakers have already crossed, such as accelerating the pace of model updates and upgrades, brand marketing, and advertising. Is it really necessary to spend money on advertising for Musk, who has his own topic and hot search physique? In fact, Musk’s previous “Super Factory” opening day also had a certain degree of advertising color. Within Tesla’s range, the technology focused novice population has been fully covered. Just beyond the previous range, there is a larger number of traditional consumer groups. In the past, they may not even be familiar with Musk’s face, but now, perhaps traditional advertisements appearing on television or even in movies can really help Musk. Musk once said that Tesla does not classify itself as a car company. But from the current situation, in order to gain external trust, Tesla must first address the difficulties that traditional car companies have encountered on the road of gradual expansion, and on this basis, submit more innovative answers. Therefore, in the foreseeable future, we are expected to see Musk fill in the hole, draw a pie, think of some practical and feasible methods, and complete some impossible things in every “defense” facing the outside world.
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