Tesla released its third-quarter financials yesterday and, as is often the case with Tesla, the results were inverted from what people expected with margins coming in better and revenue coming in lower. CEO Elon Musk also made it extremely clear that a $25,000 affordable car with a steering wheel ain’t happening.
It’s been a while since we’ve kicked off a Morning Dump with Tesla and I feel like poor Carlos Tavares, not pictured above, probably needs a break. While Tesla will likely be the biggest mover among automotive stocks today, don’t sleep on Renault, which also posted a strong Q3 performance.
You know who didn’t perform well? Graham Rahal. The IndyCar driver had a bad season this year, failing to deliver a championship to his team. His company, Graham Rahal Performance LLC, also failed to deliver a $1.2 million car to a customer and now he’s getting sued.
Also on the back row, at least when it comes to electrification, is Stellantis. Will a solid-state battery help the automaker achieve Alex Palou-type performance?
A $25,000 Car ‘Would Be Completely At Odds With What Believe’ Says Musk
Every quarter Tesla’s Elon Musk comes out and makes it clear that his car company is really an autonomous driving company and that all of this talk of cars is kinda silly. After the Q1 financials were released, I wrote: “Elon Musk Clearly Doesn’t Want To Be CEO Of A ‘Car Company’ Anymore.” My Q2 wrap-up was: “Elon Musk Sounds Bummed Tesla Still Has To Make Cars.” Are you sensing a pattern?
Elon Musk keeps telling investors and reporters that the company is not really a car company and focusing on it being a car company is stupid. Over and over again Musk tells people this and, yet, the first questions investors wanted to ask last night were about the $25,000 car.
I’ll get to that, but first some context. Yesterday, Tesla released its Q3 numbers and they were sort of the opposite of what the market had expected, which is probably why the stock is going up today. Here’s what I wrote yesterday:
Tesla will report its third-quarter financials later today and the expectation is that the company will remain profitable, albeit with lower margins due to the incentives being pushed to sell cars.
Nope!
Revenue was expected to reach $25.6 billion and non-GAAP earnings were predicted to hit $0.60 per share. Instead, revenue came in slightly lower at $25.2 billion, but non-GAAP earnings were way up at $0.72 per share. The reason? Gross automotive margins were up to 17.1% excluding carbon credits, and higher if you include those credits.
How did the company do it?
Our cost of goods sold (COGS) per vehicle came down to its lowest level ever at ~$35,100. In order to continue accelerating the world’s transition to sustainable energy, we need to make EVs affordable for everyone, including making total cost of ownership per mile competitive with all forms of transportation.
While I suspect there are numerous factors that contributed to this, Tesla laid off a ton of people this quarter. Is this related to the issue Tesla customers are having with service? Musk, in the Q3 earnings call, kinda dodged this by saying that the goal is to not need any service because “The car doesn’t break.” That’s a good goal, albeit a difficult one.
Musk also adds that:
Sustaining these margins in Q4, however, will be challenging, given the current economic environment. Note that we are focused on the cost per vehicle, and there are numerous work streams within the company to squeeze out cost without compromising on customer experience.
You can only pull the “we fired a bunch of people” trick so many times so we’ll see how it pans out next quarter.
Still, the numbers are impressive and, as mentioned yesterday, no other major automaker outside of China seems to be able to come close. You’d think this would mean that Tesla could be the first Western automaker to crack the $25,000 car, but Elon Musk doesn’t want to do that. Here’s what he said in that same call:
So, I think we’ve made very clear that we’re — the future is autonomous. I mean, it’s going to be — I’ve actually said this many years ago, but that in my strong belief and I believe that is panning out to be true, very obvious retrospect is that the future is autonomous electric vehicles. And nonautonomous gasoline vehicles here will be like riding a horse and using a foot bone. It’s not that there are no horses.
Yes, there are some but they’re unusual. They’re niche. And so, everything is going to be electric autonomous. I think this is like it should be, frankly, blindingly obvious at this point, that is the future.
So, a lot of automotive companies, most of the companies have not internalized this, which is surprising because we’re shouting from the rooftops for such a long time.
Maybe he’s right? If Tesla can achieve a highly accurate self-driving EV that costs under $30k using only cameras and AI that you can rent out when you’re not using it then this might reduce the need for regular cars. I don’t understand the bit about the foot bone, though. Does he mean no one will ever need to walk again? Someone please explain this to me.
In light of that, producing a $25,000 car just seems like a waste of time:
So, anyway, basically, I think having a regular 25K model is pointless. It would be silly. Like it would be completely at odds with what we believe.
The regulatory hurdles of getting these cars out there when Waymo has fewer than 1,000 cars seem so high to me, though this does support my theory that part of what Musk wants out of a Trump administration is the ability to release thousands of robotaxis. I can’t imagine the current government in Texas or a Trump admin stopping him.
Renault Also Had A Strong Quarter
In all the talk of how screwed the European car industry is, I’ve tended to ignore Renault because Renault is the odd case. Since its divorce from Nissan, Renault has managed to pump out some decent new products and meet the market where it is. Having less exposure to China helps, as does Renault’s ability to make cheap cars under its Dacia brand.
The company put out its Q3 earnings report and it looks pretty good to me. Revenues beat expectations at $11.6 billion for the quarter, up over last year in a challenging market. While sales were down, they were in line with the general trend, and the company has managed to maintain a reasonable margin.
Renault also benefits from having both hybrids and EVs, which accounted for 47% of the company’s sales this quarter according to Reuters. I’m excited about a lot of the new products, especially the Renault 5 E-Tech. I also think a Dacia Spring or Dacia Duster would do well over here if Renault ever decided to bring cars to the United States.
It’s almost like making affordable cars is a good strategy!
Graham Rahal Sued For $1.2 Million Over Project ONE
It feels like we’ve all been waiting forever for the F1-inspired AMG Project ONE to reach production, but it’s probably gonna feel a lot longer if you were the person who asked race car driver Graham Rahal to secure you one.
Rahal’s side gig is the owner of a dealer/broker for high-end performance cars called Graham Rahal Performance LLC. This is separate from Rahal Letterman Lanigan Racing, his dad’s IndyCar team, although both are located on the same street.
According to a lawsuit, an individual gave $1.2 million to Rahal’s company in order to get a Project ONE and it’s never happened and now that individual wants the $1.2 million back. From the Indianapolis Star:
In the lawsuit, IRB says it and GRP committed to a purchase and allocation agreement for GRP to deliver a limited-edition Mercedes Project One, also known as a Mercedes AMG-One, in March 2019. Mercedes-Benz only planned to make 275 of that specific vehicle, according to the lawsuit, and IRB paid GRP $1.2 million of a deposit to secure the car and deliver it to the Montana-based company.
Over five years later, IRB says in the lawsuit that Graham Rahal’s company has not gotten the vehicle promised and has no plan to secure it at this time.
Rahal’s attorney denies any wrongdoing. Also, this appears to be separate from the FBI raid at RLL’s offices last month. What the hell is going on in Zionsville?
Stellantis Will Do Us A Solid (State Battery)
Stellantis was the last major holdout in the EV space in North America and its only current electric product is the new Fiat 500, though the Dodge Charger Daytona is coming. Having been slow to electrify, the company seems like it’s going to at least try and skip ahead of the current liquid lithium chemistries at some point and try to deploy solid-state batteries early.
The promise of solid-state batteries is that they’ll deliver twice the range for half the weight in a safer package that’s also easier to charge. As soon as 2026, Stellantis says it’ll have a fleet of Charger Daytonas with experimental solid-state batteries from its partner Factorial Inc.
“This demonstration fleet is an important milestone in our partnership with Factorial,” said Ned Curic, Stellantis’ chief engineering and technology officer, in a statement. “By integrating Factorial’s innovative battery solution into the STLA Large platform (which the Charger is built on), we are validating its potential to enhance our electric vehicle lineup, ensuring customers benefit from improved performance, longer driving ranges and faster charging times in the coming years.”
It would be hilarious if Stellantis leap-frogged everyone, though that’s far from certain. Every car company is trying to get a solid-state battery to market before the end of the decade and it’s not clear who is capable of getting it right or that it’s even possible to produce solid-state batteries at a huge scale yet.
What I’m Listening To While Writing TMD
I think we’ve done Wet Leg here before, but not with “UR MOM.”
The Big Question
What if Elon Musk is right?
Top Photo: Real Time/YouTube
Yeah man, RENAULT! Especially my beloved Dacia. It’s a perfect mirror world between US and France, hyper capitalism and slight socialism, between the Cybertruck and the Duster.
On a side note, aside from the NHTSA in his pocket, Musk also wants NASA and the Pentagon for SpaceX. It’s gotta be super effervescent in his brain right now. And yeah, he stands to win so big, his 100M investment would be peanuts. And we’re going to have to live with the consequences driven by a guy who offered his sperm for advancing a Mars colony.
Can’t make this shit up.
from a certain point of view Elmo is right, “The car doesn’t break.”
They crash and/or burn and otherwise end up totaled.
First thing that came to mind when I saw the headline about Tesla unexpected profits is “Creative Accounting”
Because some of the legal issues he has with the SEC regards improperly categorized repairs, counting returned repair cars as new deliveries, etc.
He’s cooking the books.
https://www.cnbc.com/2023/10/12/tesla-whistleblowers-filed-complaint-to-sec-in-2021-what-it-said.html#:~:text=The%20complaint%20contained%20a%20number,and%20other%20company%20disclosures%20to
I don’t think Elon’s right. For a new product to succeed it has to be better than the existing options, or mandated. From a business perspective is an autonomous car better than buses, metro rail, taxis?
Even as taxis, people work for uber/lyft now to pay their rent, and usually get the cheapest car lease they can swing. Buying a brand new autonomous car to do it for you doesn’t seem like something an uber driver can pay for, maybe it’d be like the medallions for cab drivers in NYC which is a horrible arrangement, hoping your car pays off your car isn’t the best strategy. So then you end up with companies that can afford the autonomous cars buying a fleet of them and then hey wow that’s a taxi service.
As for being mandated, I really don’t see that flying in freedom land, at least I would hope not.
Also if I can take a jab at Tesla’s strategy on their autonomous tech, camera only is horrible, why make an autonomous car that doesn’t take advantage of superhuman sensors like sonar/radar/lidar??? Companies like Waymo and Cruise at least load up theirs with all the things, heck add a scent detecting system so it can know there’s a skunk somewhere in the area, add leak detection to the seats so you know if the previous passenger had an accident to return to base for cleaning, all the sensors!
To me that shows Tesla’s not super serious about autonomy, they’re doing it as cheap as possible and using their existing customers to build databases, that’s a lot of customers and data sure, but when it can all get defeated by fog what’s the use?
I can’t wait to tell my autonomous car to just kinda drive around for a bit while I’m at a concert, sporting event, or night out because it’s cheaper than paying for parking.
Elon “There just isn’t any way I could make a crappy product for 205K and get away with it. We’d need to charge more, so people wouldn’t think there getting ripped off”
If Tesla doesn’t want to make a cheap EV, it’s ok, the Chinese will, so that American companies don’t have to.
American companies left a huge gap on the cheap end for the Chinese to come in and swoop, and they deserve it.
Tesla is just another American car company at this point, behaving like any other American car company. They don’t make cars; they make excuses. GM is a healthcare and pension company, and quality definitely isn’t Job 1 at Ford, even when the CEO came from Toyota.
If I was the North-American Mitsubishi chief, I would be begging Luca De Meo to be allowed to sell the Dacia Bigster you pictured (RAV4 sized SUV with a 1.8 155hp hybrid engine) under my brand
The horse analogy bothered me. We don’t have horses sharing the roads with cars. And, when we did, the cars were WAY slower.
You can’t mix autonomous and non-autonomous without hitting level 5, period. You could hit lower levels, but it would need to be controlled better.
No Amish around you, eh?
Investor: High margins? That’s great!
Consumer: We’re happily paying more for a product that we could have been.
Consumers almost always pay more for products than they cost. The real argument should be about how big a margin is the right margin. Considered from the investing perspective, it’s the point where you’re making the biggest profit as the producer. From the consumer perspective it’s at break-even.
The Honda Rune: Hold my ridiculously over-engineered exhaust pipe. 🙂