Tesla’s Q1 2023 delivery numbers are not great under the surface

Every quarter, Tesla releases delivery numbers. There was a anticipation with the Q1 2023 numbers after Tesla launched massive price cuts. The numbers show growth quarter over quarter and year over year. Digging deeper, there is some disturbing news.

From CNBC: Tesla reports 422,875 deliveries for first quarter of 2023

422,875 deliveries were made in Q1, compared to 310,048 in Q1 2022, and 405,278 in Q4 2022. That’s good for delivery growth of 36% and 4% respectively.

Deliveries of the higher margin S and X came in at 10,695 for Q1. In Q1 22, Tesla delivered 14,724 of the same. That’s negative year over year growth of -27%. In Q4 22, Tesla delivered 17,147 S and X. That gives us -37% growth from the prior quarter.

Model 3 and Y had to pick up the pace. 412,180 of those vehicles were delivered in Q1 2023, against 295,324 in Q1 2022 and 388,131. Growth is +39% YoY and +6% QoQ which is excellent. The YoY guidance is below Tesla’s target of 50% average growth over many years.

Tesla’s generous valuation is based on high growth and high margins forever along with Full Self Driving Beta becoming valuable. From Reuters:

The U.S. price cuts on Tesla’s global top-sellers the Model 3 sedan and Model Y crossover SUV were between 6% and 20%, Reuters calculations showed, with the basic Model Y now costing $52,990, down from $65,990.

Reuters (emphasis added)

Similar size price cuts were announced in other international markets. Price elasticity determines how much demand goes up when prices go down. Tesla went down in price between 6% and 20% in the US. Sales grew 4%.

Some simple math to illustrate the change in revenue.

Positive price elasticity, price goes down 10%, sales increase 15% ($100 for each unit x 1000 units is our base scenario).

Old: $100 x 1000 = $100,000

New: $90 x 1150 = $103,500

Tesla experienced negative price plasticity, where sales did not go up enough to offset the drop in price. Let’s see what happens when prices go down 10% and sales increase 4%.

Old: $100 x 1000 = $100,000

New: $90 x 1040 = $93,600

That reduces revenue, fixed expenses will be similar quarter to quarter, and Tesla better have some magical rabbits to decrease costs faster than revenue to sustain their high margins.

What might have happened in Q1?

• US buyers face high interest rates
• Car prices are high
• Affordability due to higher payments is lower
• People are stressed over inflation
• Tesla continues to grow production
• Tesla had to cut prices to move most of its production.
• Some demand got pulled forward into Q1 (like our new Model 3 and several others we know) to take advantage of the tax credit before it expires.

How does Tesla compare to other EV companies?

Tesla’s growth rate year over year is good. I appreciate more people owning an EV, which is better for all of us. Here are some Chinese competitors, with year over year growth.

• BYD: +80%
• Li Auto : +66%
• Tesla: +36%
• Nio: +20.5%
• Xpeng: -47%

Q2 might prove challenging, as credit conditions tighten, banks reduce loan volumes, and central banks continue hiking interest rates. More price reductions may be possible.

Sincerely yours,

smilingdad

Note: We own a few shares of BYD and have a few short call options on Tesla.

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