Tesla 2023 Earnings Will Be At Least 30% Lower Than 2022 – Shortseller

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Stanphyl Capital’s commentary for the month ended January 31, 2023, discussing their short position in Tesla Inc (NASDAQ:TSLA).

Margin-Destroying Price Cuts

Tesla kicked off 2023 with massive, margin-destroying price cuts worldwide (on top of large cuts in Q4 2022), and while this will undoubtedly generate more sales, 2023’s roughly 12% ASP cut vs. Q4, combined with 2023 production (and, we’ll generously assume, delivery) guidance of 1.8 million cars mean 2023’s earnings will be at least 30% lower than 2022’s, and perhaps as much as 40% lower.

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In other words, Tesla is no longer a “growth” company unless you like your “growth” to be profitless!

Most disturbingly for Tesla bulls, despite those 12% average price cuts vs. Q4, at 1.8 million units the company is only guiding to 11% more delivery volume vs. Q4’s 405,000 annualized run-rate of 1.62 million.

It’s also only guiding to 2% more production than Q4’s annualized rate of 1.76 million, so where will the “volume savings” to support price cuts come from? And what will Tesla do for its next “growth trick”? Sell cars at a loss?

As Tesla slashes prices it will undoubtedly sell more cars, but any other auto company can do the same thing. Goodbye “story-stock tech company” and hello “low-margin, cyclical car company” in an industry with single-digit PE ratios!

For some valuation perspective, BMW (with a market cap of around $68 billion) sells around 2.5 million cars a year with higher net margins than Tesla will have in 2023, and it makes the best electric SUV now on the market (the new iX), the best luxury EV (the new i7), and among the best small luxury EVs (the new i4).

If Tesla sells 1.8 million cars this year (and remember, that would be just 11% growth over Q4 annualized), it would be 72% the size of BMW with only slightly higher growth but with lower net margins.

A proportionate-to-deliveries 72% of BMW’s market cap would value Tesla at just $49 billion, which would be only around $15.50 share vs. this month's closing price in the $173s! (And please don’t lecture me about Tesla’s “battery business,” which nets almost nothing and is in an extremely competitive, low-margin industry for every participant.)

(By the way, I generously assume that 2023 Tesla earnings will include some combination of quarterly environmental credits equal to Q4’s obscene $467 million, with emission credit sales gradually being replaced by various new battery production and alternative fuel-derived credits.

I also credit Tesla for the full $324 million in quarterly so-called “Full Self-Driving” profit it recognized in Q4, even though this is a fraudulently named product that’s likely to be recalled by the NHTSA, thereby presenting Tesla with a massive multi-billion-dollar liability.)

Loss Of Product Edge

Meanwhile, Tesla has objectively lost its “product edge,” with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. (Tesla ranks near the bottom of Consumer Reports’ reliability survey while British consumer organization Which? found it to be one of the least reliable cars in existence.)

Thus, due to competitors’ temporary production constraints, waiting times are now longer for nearly all of Tesla’s direct EV competitors than they are for a Tesla.

In fact, Tesla is likely now the second, third or fourth choice for many EV buyers, and only maintains its volume lead though a short-lived edge in production capacity that will disappear over the next 12 to 36 months as competitors rapidly increase the ability to produce their superior EVs.

Tesla’s poorly-built Model Y faces current (or imminent) competition from the much better made (and often just better) electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Volvo XC40 Recharge, Chevrolet Blazer EV & $30,000 Equinox EV and Polestar 3.

And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, the great new BMW i4, the upcoming Hyundai Ioniq 6 and Volkswagen ID.7, and multiple local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan (the base model of which is now considerably less expensive than Tesla’s Model S) outsells the Model S, while the spectacular new BMW i7, Mercedes EQS, Audi e-Tron GT and Lucid Air make it look like a fast Yugo, and the extremely well reviewed new BMW iX, Mercedes EQS SUV and Audi Q8 eTron (as well as multiple new Chinese models) do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as by the time it’s in mass-production in 2024 it will enter a dogfight of a market vs. Ford’s hot-selling all-electric F-150 Lightning and GM’s fantastic 2023 electric Silverado (which already has nearly 200,000 reservations), while Rivian’s pick-up has gotten excellent reviews, and Ram will also be out with a great electric truck in 2024.

Tesla Is Netflix

Indeed, for years I’ve said “Tesla is Blackberry”—the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions; now I can provide a much more recent analogy: Tesla is Netflix.

For years Netflix had an absurd valuation based on its pioneering position in streaming media, but once it proved that such a market existed myriad competitors swarmed all over it, and in 2022 the stock collapsed.

I believe Musk knows that Tesla is “the next Netflix” (hence his recent “Twitter buying distraction”), with VW Group, Hyundai/Kia, Ford, GM, Stellantis, BMW, Mercedes, BYD & other Chinese competitors and, in a few years, Toyota & Honda, being the Disney, HBO Max, Amazon Prime, Peacock, Hulu, Paramount+, etc. of the electric car market, stealing Tesla’s share and eventually pounding its stock price into low double-digits, where it would be valued as “just another car company.”

Meanwhile, the NHTSA’s investigation of Tesla’s deadly Autopilot is now proceeding “really fast,” the last required step before (finally!) demanding a full recall, and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck), and that the DOJ is investigating him for it and so is the SEC.

The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of “full self-driving.”

And, of course, there will be a massive “valuation reappraisal” for Tesla’s stock as the world wakes up to the fact that its so-called “autonomy technology” is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors’ systems (behind Ford, GM, Mercedes, BMW, Toyota and Volkswagen). Meanwhile, the NHTSA continues to report a slew of Autopilot-related deaths, yet Tesla has sold this trashy software for over six years now:

Tesla Self Driving

...and still promotes it on its website via the aforementioned completely fraudulent video! (For all Tesla-related deaths cited in the media—which is likely only a small fraction of those that have occurred—please see TeslaDeaths.com.)

Want to see another Elon Musk/Tesla fraud summarized in a simple bar graph? In this recent Consumer Reports test, note which of these cars never comes close—in any environmental conditions—to meeting its claimed EPA range:

Tesla EV Range

Nothing Proprietary

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars.

And if new-format 4680 cells enter the market, even if Tesla makes some of its own, other manufacturers will gladly sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called “Autopilot” system; God only knows how many more people this monstrosity unleashed on public roads will kill despite the NTSB condemning it.

Elsewhere in safety, the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and Tesla has been hit by a class-action lawsuit in the U.S. for the same defect.

Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen. In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate.

So Here Is Tesla's Competition In Cars...

(note: these links are regularly updated)

And In China, Where Tesla's EV Market Share Is Now Declining...

Here's Tesla's Competition In Autonomous Driving; The Independents All Have Deals With Major OEMs…

Here's Where Tesla's Competition Will Get Its Battery Cells...

Here's Tesla's Competition In Charging Networks...


And Here's Tesla's Competition In Storage Batteries...


Mark Spiegel

Stanphyl Capital