Extraordinary Exponential Explosion
Logarithmic charts reveal Tesla's extreme growth compared to other top companies
Revenue Growth
Steady exponential increase for ten years
Trailing Twelve Months (TTM)
Quarterly
181x Increase Since 2012
Net Income Growth
If trends continue, Tesla will be #1 in two or three years
Trailing Twelve Months (TTM)
Quarterly
Tesla’s financials grow with vehicle deliveries
Discussion
Tesla’s vehicle deliveries, revenue, gross profit and net income show up as straight line trends on semi-log scatter plots, which means the growth has been exponential.
If the trends continue for another few years, then Tesla will begin surpassing all of the world’s most valuable companies on revenue, gross profit, and net income.
What has caused this exponential financial improvement?
Three main reasons:
Vehicles delivered grew at 60% CAGR for the last decade
Automotive gross margin has stayed at roughly 30% despite Tesla moving downmarket into cheaper segments
Economies of scale finally started kicking in around 2019 when Tesla tipped past breakeven and gross profit began to outpace fixed operating costs
Can we extrapolate the trend?
To the best of our knowledge, we believe that Tesla will continue to grow deliveries and revenue production at a 50% or greater compound annual growth rate. It might occasionally be a year that is a little less, and then some years would be maybe a little more or a lot more. In some of our out-year planning, we see potential annual growth rates that are in excess of 50%.
Elon Musk, Q3 ‘22 earnings call
Tesla has guided for 50%+ growth for vehicles and 150-200% for stationary storage.
50%+ vehicle growth is in line with historical trend
Giga Berlin and Giga Texas are ramping up right now and have plenty of room to grow and expand with new construction
Shanghai and Fremont are still squeezing out more improvement
Lathrop Megapack factory has 40 gigawatt-hours (GWh) of nominal annual capacity, but Tesla delivered just 2 GWh in Q3 ‘22
Automotive profit margins should continue to improve.
Major price hikes of thousands of dollars per car were implemented earlier in 2022 but have yet to come into effect for deliveries due to the lengthy backlog, but are coming in the next couple quarters
Upcoming growth will be mostly Ys and Cybertrucks
Tesla’s highest-margin vehicles
40%+ gross margins and average selling price of $60k+ are likely
$7500 consumer tax credit for Model Y coming in USA starting in ‘23
The underlying rate of improvement has recently been masked by:
High materials and parts cost due to inflation
Chinese government COVID Zero lockdowns of Shanghai and other areas, affecting some suppliers as well
Berlin and Austin low-rate initial production
Huge clean energy subsidies in the USA will begin in 2023
Operating expenses ate up 31% of gross profit in Q3 ‘22 and this will shrink as deliveries grow
How long will it be until limiting factors drag down the growth rate?
Tesla’s steady exponential growth points toward some kind of dynamic stability, because the same result keeps happening time and time again without much variation from the trend. However, at some point, exponential processes run into limiting factors that slow the growth rate, usually forming an S-curve.
For Tesla, 50% annual vehicle production growth will become harder to maintain as numbers shoot into the millions. That’s ok though, because even a 35% CAGR is sufficient to reach Tesla’s official goal of 20 million in 2030, at which rate Tesla would be raking in hundreds of billions of dollars per year in profits.
Battery raw material supply is the most likely bottleneck by the late 2020s. Tesla has guided that battery cell supply will be the fundamental constraint on Tesla’s growth from 2023 and beyond, and Elon has pleaded on Tesla earnings calls for mining companies and governments to dramatically accelerate the arrival of new lithium and nickel mines.
Vehicle demand will probably continue to keep up with or outpace production growth.
Manufacturing cost improvements and economies of scale will enable Tesla to reduce prices as manufacturing output grows
Slightly lower margins in exchange for major volume growth
Tesla owners educate other people via word of mouth
Most people currently don’t know much about electric cars and Teslas.
More owners = Bigger word-of-mouth army
Charging network coverage continues filling out
Increasing convenience
Decreasing range anxiety
Vehicle range, supercharging speed, performance and features all continue to improve
The recent earnings per share growth has been greatly helped by operating leverage, as earnings have grown much faster than revenue. As Tesla scales production further, earnings growth will rapidly slow down on a percent per year basis. We can’t expect a 350% CAGR forever, but even a 40% CAGR would mean net income doubling every two years.
Tesla still delivers about 6x fewer cars than Toyota. The 2030 goal of 20 million cars would be 11x growth from now. There are more than a billion EVs to sell worldwide in the next few decades, and Tesla is best-equipped to sell hundreds of millions of them. The sky is the limit here.
Do you hear that loud screeching noise?
That’s the sound of the brakes being slammed on Tesla’s growth right now, in the minds and spreadsheets of the institutional analysts covering Tesla.
$7.46/share — Institutional average forecast for non-GAAP earnings in 2024.
$4.20/share — Actual Q3 ‘22 non-GAAP annualized earnings ($1.05/share x 4)
78% — Earnings growth forecast for 2024 over Q3 (cumulative, not CAGR)
This does not make any sense whatsoever. It’s simple math.
Tesla has been doubling profits every couple of quarters since 2020 and it’s not about to slow down yet. Bear in mind, Q3 was a quarter with many unusual factors dragging it down, including factory shutdowns for equipment upgrades and severe foreign exchange volatility, so Q3 is a pessimistic indicator of what’s yet to come.
For illustration, in 2023 Tesla could achieve $30B net income or $8.50/share with:
2.3 million vehicles sold
$17k gross profit per vehicle
$2B gross profit from Energy/Services/Other
$7B operating expenses
12% tax
( 2.3M * $17k + $2B - $7B ) * 88% = $30B
That’s a pessimistic scenario.
2.3 million deliveries could easily come from a split like:
Shanghai: 1.2M
Fremont: 0.6M
Texas + Berlin: 0.5M
Shanghai and Fremont are, right now, already doing about 1.0M and 0.55M respectively. Tesla has stated that Texas and Berlin will probably be at 0.5M annualized combined rate by the end of 2022 and 1M annualized by the end of 2023. So, 2.3M in 2023 would be barely any growth from the roughly 2.0M annualized exit rate from 2022.
Also, Tesla already makes $17k profit per car from Fremont and Shanghai, but unit economics are trending to improve dramatically in the next few quarters.
If either auto gross margin or deliveries substantially exceed these baselines in 2023, then net income can easily leverage to $40, $50 or even $60+ billion.
If Tesla posts $30B income next year and TSLA stays constant at $190 then the TTM PE ratio would be compressed from 59 to about 26 with much more growth on the way. Sooner or later, something’s got to give. The market won’t ignore earnings forever.
I am about 99.9% all-in on Tesla via TSLA stock and call options. These are notes for my model that I’m sharing. I fully believe what I have written and I’ve put all of my money where my mouth is, but this is not advice regarding your personal investment or financial decisions. I'm not a certified professional investment or financial advisor and even if I were one, broad buying or selling advice would be inappropriate because there are so many variables to take into consideration such as your goals, risk tolerance, financial outlook, income, age, tax situation, dependents, and so on. Make your own choices. Thanks for reading.
Great! Can you post updates on Twitter (esp that it's really being cleaned up & revamped v well by EMSK) - Don't even know your Twitter handle .. Thanks