Overview
The key points from Tesla’s Q1 earnings call, last week, showed the company’s revenue was $23.33bn (up 24% from Q1 22), its operating margin has shrunk to 11.4%, and net income fell 24% to $2.51bn from $3.32bn a year ago. This is the lowest operating margin the company has experienced in 2 years. To a certain extent, this was to be expected, as Tesla has cut prices 6 times since January this year. What is more interesting, is that it illustrates that Mr Musk is choosing growth over profitability, which goes against what Tesla has previously stated. The Tesla mantra to investors before was that you can have both. However, going forward Tesla is pushing for higher volumes and a larger fleet instead of low(er) volumes and higher margins.
One of the key moments, from the earnings call, was Mr Musk strongly stating that he believes Tesla’s future lies in achieving fully autonomous EVs. He is willing to sell EVs at zero profit, to realise this dream. His rationale is that there is immense earning potential in driverless software. The markup in SaaS is high and within the Tech sector, every (permitting) company strives for this business model, which has stable and sticky revenues. However, the backlash to Mr Musk’s comments has been centred around that analysts and industry experts do not think he can implement a tech-style business model in the Automotive industry. Others have welcomed this vision, with many using the argument that due to there being no precedence for this vision, the Automotive sector should be open-minded. The main flaw with Mr Musk’s statement is that Tesla has not delivered any autonomous EVs to date. Tesla has been striving for autonomous vehicles since 2019 but with no success yet. Similar to when analysts would try and evaluate Tesla, at its inception, financial fundamentals have to be set aside, as the question boils down to, do you believe in Mr Musk and his ability to execute (t)his vision?
Tesla’s earnings call has trickled down to other OEMs. One of the key themes, when GM and Ford release their Q1 earnings in the coming week, will be to convince the market they will not be entering into the Price War, with Tesla. Thus far, the majority of OEMs have had to participate in the Price War. (Institutional) Investors have not been convinced by GM or Ford, as share prices have fallen 20% and 13%, respectively. Analysts believe that due to GM’s incredibly low EV sales and embarking on a $2bn operational cost-cutting strategy by the end of the year, may help GM dodge the impact of Tesla’s Price War. This demonstrates how powerful Tesla’s market share is, as they dictate macro tailwinds and headwinds.
A letter from a group of disgruntled Tesla shareholders has been sent to the board of directors, imploring them to ask Mr. Musk to focus on his role at Tesla, instead of his other (many) roles. The letter has been signed by Amalgamated Bank, Sisters of St. Joseph of Carondelet, United Church Funds, Investor Advocates for Social Justice, and the New York City Controller’s Office. These progressive shareholders own a combined $1.5bn worth of Tesla shares (less than 1% of Tesla shares). The letter outlines how these shareholders believe that Mr Musk is not spending enough time tackling macro issues such as increased EV competition and governance issues such as allegations of a toxic working environment at Tesla. The letter doesn’t propose a plan on how to overcome this, rather it seems the intent is to highlight these issues and prompt a (positive) reaction from Mr Musk.
CATL has reported solid Q1 results, where revenue jumped by 83%, YoY, to RMB 89bn ($13bn), however, this is 25% lower than Q4 22. The YoY jump has been driven by rising demand for cleaner vehicles and falling raw materials costs. The Q1 revenue beat analyst expectations, as consensus had the figure around RMB 75.1bn. A key point from the results stated that CATL will raise RMB 4bn in capital for projects in Indonesia, as the country is home to many of the precious materials found in EV batteries. CATL plans to join PT Aneka Tambang and PT Industri Baterai Indonesia on projects such as nickel mining, battery materials and an EV batteries factory.
XPeng has stated that in the coming decade, only 10 OEMs will survive due to intense competition. This will be driven by the intense competition in China’s EV market that will spill onto the global stage. Brian Gu, the Vice-Chair of XPeng, theorised that in order to survive, OEMs will need to have annual sales of at least 3m vehicles, underpinned by global exports. To put this in context Toyota sold 10.5m cars in 2022, while Tesla sold 1.3m. This bold statement arrives at an interesting time, as China is on the cusp of overtaking Japan as the world’s biggest exporter of cars by volume, after passing Germany last year. Paradoxically, China is also experiencing slow(er) growth and an intense price war, which is pushing low-cost carmakers to the brink of collapse. Mr Gu believes that OEMs can’t just be China-only players but global players in order to survive and thrive.
Jaguar Land Rover (JLR) has stated it will invest £15bn, over the next 5 years, in order to upgrade its factories, to help ramp up EV production. JLR’s Merseyside plant will, from now on, focus on EV production, whilst the Wolverhampton factory will focus on producing electric motors and associated parts. JLR has not outlined a detailed strategy or breakdown, on how the £15bn will be spent.
JATO Dynamics has released Q1 data for Europe, which showed that BEVs accounted for 13.4% of new car sales. The top 5 selling EVs in Europe were: 1) Tesla Y, 2) Tesla 3, 3) Volkswagen ID.3, 4) Volkswagen ID.4 and 5) Dacia Spring.
Deals
Oyika, a Singapore-based EV battery charging company, has raised $10.8m in a series B round, led by Banpu Next. This raise pushed the company’s valuation to $62.7m. Banpu Next is a subsidiary of Thai energy solutions firm Banpu Infinergy and Yinson Venture Capital also invested. The capital raised will help accelerate expansion and onboard more clients.
Kate, a French-based (electric-) alternative microcar company, has raised $7.6m in funding from a consortium of business angels. The company aims to develop its alternative cars, however, to what extent they will be electrified, is unclear. Kate’s next car, billed as K1, has an ambitious goal of unveiling it in Q3 23.