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Tesla Q3 2023 reported only 9% YoY growth, and a decrease in profits. Should investors be concerned?

Updated: Oct 20, 2023


Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 

Tesla's recent Q3 2023 figures revealed that YOY revenue growth is only 9%,

  • when it is expected to be able to maintain sales growth figures of more than 22% for these next few years up till 2027 (refer to my estimation calculation here).

  • and their gross profit figures has reduced by 22% YOY.


Should this be a concern for long-term Tesla investors?

In short, no.


  • Reason: Tesla's vehicles deliveries actually increased by 27% YOY, which is still a very healthy figure.


  • However the selling prices of their cars have been reduced significantly since the past year,

    • particularly Model 3 & Y's which are both high selling vehicles.

Model

Price decrease in past year

S

-8%

X

-19%

3

-14%

Y

-27%

  • source: googlebard

  • Reason for price decrease strategy = customer acquisition strategy

    • especiallyhelpful in a time where consumers' spending have decreased and their attitudes towards the economy is poor. Here are some indicators:

      • i) Inflation in U.S is at 40-year high.

      • ii) The Conference Board's Consumer Confidence Index fell to 98.7 in September 2023 from 103.2 in September 2022. This is the lowest level of consumer confidence since February 2021.

      • iii) Consumer Sentiment Index fell to 59.1 in September 2023 from 67.5 in September 2022. This is the lowest level of consumer sentiment since 1980.

  • And since Tesla's profit margin is considered to be one of the highest amongst other auto manufacturers.

    • almost double the amount of the next highest one (Toyota).

    • it makes sense for them to reduce their price to continue to capture market share at times of bad economy.

Tesla's price cut strategy will make it difficult for other large auto-manufacturers (who usually carry a lot of debt) to compete
Tesla's price cut strategy will make it difficult for other large auto-manufacturers (who usually carry a lot of debt) to compete. (source: genuineimpact)

  • One thing to look forward to as a long-term investor for Tesla is this chart, it implies there is still huge market for Tesla to grow in the auto industry.

  • Assuming if Tesla's cars technology, pricing & marketing strategies remain intact, and they are well position to take over the position as the market leader (over Toyota).

    • there is a huge room for them to grow still, and this is a sign that Tesla's is still in a rather early stage.


Toyota is the market leader in automotive market share as of 2022 (source: statista).
Toyota is the market leader in automotive market share as of 2022 (source: statista).

  • And Tesla's main models Y & 3 are quickly gaining popularity to be 2 of the best selling cars in the world.

  • And this is merely from their automotive segment, and not yet included their other segments like energy generation and storage which is showing huge signs of growth.

Tesla Energy Storage deployments (GWh) increased 90% YoY.
Tesla Energy Storage deployments (GWh) increased 90% YoY.


  • In conclusion, I still deem Tesla to be a fundamentally strong company with promising growth prospects in the upcoming years.

    • and the market's overreaction could actually be a good opportunity for long term investors to buy some of its stocks at a further discounted price,

  • just like how they have been pricing their cars in the past year.

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