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Tesla’s Q1 2023 Earnings: The EV Giant Disappoints on Revenue, Free Cash Flow Shrinks, and Automotive Gross Margin Metric Disappears

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by admin April 19, 2023

Tesla Q1 2023 Earnings

When faced with a sustained demand malaise, Tesla had only two options at its disposal as an ephemeral remedy: either preserve its industry-leading margins and sacrifice growth or aggressively axe average selling price (ASP) in the hopes of spurring lethargic demand. The EV giant chose the latter option toward the end of 2022, managing to preserve its growth trajectory but at a hefty cost to its brand image, which has been tarnished lately as the prices of used Tesla EVs have utterly cratered.

Against this relatively morose backdrop, Tesla is gearing up today to announce its earnings for the first quarter of 2023.

Readers can find consensus estimates for key metrics in the tweet above.

The above tweet details consensus estimates compiled by the Tesla IR.

Tesla (NASDAQ: TSLA) Q1 2023 Earnings

Tesla has reported $23.329 billion in revenue for the first quarter of 2023, slightly missing consensus expectations of $23.35 billion (median expectations were at $23.39 billion, as per Tesla’s IR-compiled consensus metrics).

Revenue Comparison
Revenue
0
5
10
15
20
25
30
0
5
10
15
20
25
30
Q1 2022
18.8
Q4 2022
24.3
Q1 2023 Consensus
23.4
Q1 2023 Actual
23.3

(All figures are in billions of dollars)

The following snippet summarizes the EV giant’s production activities during the period:

Tesla reported in early April that it produced 440,808 units during the first quarter of 2023. Moreover, in what constitutes another record, the company managed to deliver 422,875 units during the pertinent period.

At the end of Q4 2022, the company’s Days of Finished Goods Inventory metric stood at 13. For Q1 2023, Tesla’s Days of FG Inventory has increased to 15.

As of Q4 2022, Tesla had an annual production capacity of 1.9 million units. The company continues to aggressively increase its annual production capacity by ramping up its Berlin, Austin, Shanghai, and Fremont gigafactories.

Last quarter, Tesla stated that it expects to produce 1.8 million EVs in 2023, corresponding to a targeted quarterly production run rate of 450,000 units. Prima facie, the company’s Q1 2023 production fell a little shy of this run rate. Tesla continues to maintain that it would grow its annual production by an average of 50 percent per annum over the long term.

Coming back, as a result of aggressive price cuts, Tesla’s average selling price (ASP) metric was expected to decline from around $55,000 in Q4 2022 to just around $48,000 in Q1 2023. In a shock move, however, Tesla has removed the ASP slide from its shareholder deck. The company will likely shed more details on this key metric in its earnings call.

In another shocker, Tesla reported free cash flow of just $441 million in Q1 2023. For reference, this metric was recorded at $1.4 billion in Q4 2022 and $2.2 billion in Q1 2022. Excluding around $500 million in regulatory credits, Tesla actually had a negative free cash flow quarter! Of course, the ongoing Cybertruck retooling and the attendant R&D expenses are expected to have contributed to this cash scarcity.

Moreover, Tesla has removed the information about its Automotive Gross Margin (AGM) from the shareholder deck. The AGM was widely expected to decline from 25.9 percent in the last quarter to just around 23 percent in the first quarter of 2023. Bloomberg’s consensus estimate for Tesla’s ex-regulatory credit automotive gross margin was pegged at 21.1 percent.

Do note that Tesla has continued to maintain that its ex-credit AGM metric would not fall below 20 percent despite the ongoing aggressive price cuts. The company's CFO had noted in the last earnings call:

"So there is certainly a lot of uncertainty about how the year will unfold, but I'll share what's in our current forecast for a moment. So based upon these metrics here, we believe that we'll be above both of the metrics that are stated in the question, so 20% automotive gross margin, excluding leases and credits, and then $47,000 ASP across all models."

Finally, Tesla has reported $0.85 in non-GAAP (adjusted) EPS, matching consensus expectations.

Non-GAAP EPS Comparison
EPS
0
2
4
6
0
2
4
6
Q1 2022
3.2
Q4 2022
1.2
Q1 2023 Consensus
0.9
Q1 2023 Actual
0.9

(All figures are in dollars)

The following snippet summarizes Tesla’s latest guidance:

The tweet below summarizes Tesla's financial results so far:

We'll continue to add more insights from the company's earnings call here.

Tesla’s Aggressive Price Cuts

The Standard Range (SR) version of Tesla’s Model 3 has now lost half of the $7,500 federal EV tax credit owing to stringent battery material sourcing requirements. Bear in mind that this variant is built in Fremont, California, but its LFP battery packs are sourced from China.

Today, Tesla cut the prices of its EVs in the US for the second time in April and the sixth time so far this year.

The Long Range (LR) version of the Model Y was priced at $65,990 in the US at the start of 2023. Today, it is available for $49,990. Moreover, the price of the SR Model 3 has now fallen below the psychologically important $40,000 level.

It is likely that today’s price cuts were enforced in reaction to the persistent increase in inventory across the US. Of course, Tesla has instituted equally stringent price cuts across key international markets, including China, the EU, Singapore, Israel, etc.

What’s more, Tesla is again expected to cut the prices of its EVs in China this weekend.

This situation is prompting even seasoned Tesla bulls, such as the Future Fund’s Gary Black, to flag slowing delivery momentum. As per Black’s calculations, Tesla’s 6-month growth in deliveries now stands at just 33.9 percent, which is the slowest pace since the heydays of the COVID-19 crisis.

Moreover, the relentless plunge in Tesla’s prices is tarnishing the company’s brand image by penalizing customers who recently bought their Tesla EVs at substantially higher prices. Perhaps, a better solution would be to introduce lower-priced variants instead of cutting prices across the board.

Meanwhile, the demand for EVs is not expected to pick up anytime soon.

Written by Rohail Saleem

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