2024 Tesla Margins: Shocking Insights from Industry Expert Jeff Lutz

Tesla's 2024 margins are expected to be significantly impacted by various factors such as lower car prices, higher FSD penetration, efficient manufacturing facilities, and global government incentives, leading to potentially shocking margins 

Questions to inspire discussion 

• What factors will impact Tesla's 2024 margins?

  —Factors such as lower car prices, higher FSD penetration, efficient manufacturing facilities, and global government incentives will impact Tesla's 2024 margins.

• How will the introduction of the IRA point of sale impact Tesla's margins?

  —The introduction of the IRA point of sale in the US will lead to lower car prices, resulting in higher margins for Tesla in 2024.

• What will contribute to higher margins for Tesla in 2024?

  —Cyber trucks, FSD penetration, and government incentives for Tesla vehicles will contribute to higher margins in 2024.

• What are the potential impacts on Tesla's production costs?

  —Production costs may increase due to factors such as labor costs and commodity prices, with steel costs for the Cybertruck having risen 35-45% since its unveiling in 2019.

• How will Tesla's non-auto business impact their overall margins?

  —Tesla's non-auto business, including FSD, energy, and other services, will contribute to significant growth and cost reduction, impacting the company's overall margins.

Key Insights

• 🔍 Jeff Lutz, a C-level supply chain executive, is the go-to expert for insights on Tesla's supply chain, cost, margins, and factories.
• 🔋 Tesla's margins in 2024 will be a SHOCKER with or without the credit and Panasonic cells being built in the US.
• 🏗️ Capital efficiency is expected to improve with depreciation coming off equipment and increased production units.
• 🚗 EV adoption in North America is expected to increase from 8% to 12%, raising the question of who will produce the additional EVs besides Tesla.
• 📈 Most people don't realize that the cost of goods and the supply chain is what Tesla's able to do to have industry leading margins and that it's being underestimated.
• 📈 The compact vehicle could be four to five times the size of the Model Y, doubling Tesla's entire current business.
• 📈 Tesla's procurement and capital leverage, as well as resource leverage, are often overlooked by the analyst community, giving them a significant advantage over their competition.
• 💰 The source of the gross margins is going to come from AI and real world AI services, driving super high gross margins.
• 💰 Tesla's future margins will be less from hardware and more from the AI services they provide, marking a significant shift in their revenue sources.

#Tesla 

Clips 

• 00:00 🚗 Tesla's 2024 margins will be impacted by lower car prices, higher FSD penetration, and Canada's EV goals.
  • Tesla's 2024 auto margins will be impacted by price and cost factors, and Jeff Lutz, a supply chain executive, will provide insight on the topic.
  • The introduction of the IRA point of sale in the US will lead to lower car prices, along with other factors such as lower interest rates and a weaker US dollar, resulting in higher margins for Tesla in 2024.
  • Cyber trucks and FSD penetration will contribute to higher margins, and Canada aims to have 20% EV mix by 2026 and 100% by 2035.
• 02:42 🚗 Tesla's margins in 2024 will be boosted by global government incentives, credit for Panasonic cells, lower interest rates, and higher ASP of the cybertruck and FSD penetration.
  • Governments globally, including the US, are implementing a point of sale incentive for Tesla vehicles, which will lower the cost for consumers and increase the company's margins by reducing costs and adding features to their vehicles.
  • Tesla will still maintain the credit for Panasonic cells being built in the US, and the long range and rear wheel drive Model 3 vehicles may lose the credit while the performance model will maintain it.
  • Lower interest rates, weaker dollar, model Y3 sales mix, higher ASP of the cybertruck, and FSD penetration will contribute to improved margins for Tesla in 2024.
• 05:37 🚗 Tesla's 2024 margins will be impacted by factors such as FSD adoption, Model Y3 sales mix, production costs, and labor and capital efficiency, with uncertainty about Q4 2023 and Q4 2024 auto gross margins.
  • Tesla reported that 24% of Teslas in North America have FSD, with an 8% global number in regions where FSD doesn't exist yet, and there are different packages, and the speaker agrees with these factors.
  • Model Y3 sales mix will increase due to the loss of the $7,500 model 3 IRA credit, impacting margins, but Tesla may ship the model 3S to Europe from Freemont to still take advantage of incentives, and there will be a reduction in commodities and transportation costs.
  • Production costs may increase due to factors such as labor costs and commodity prices, with steel costs for the Cybertruck having risen 35-45% since its unveiling in 2019.
  • Tesla's 2024 margins will be impacted by labor and capital efficiency, as well as depreciation of equipment.
  • The speaker believes that the margins for 2024 will improve, and there is uncertainty about Q4 2023 and Q4 2024 auto gross margins.
• 10:42 🚗 Tesla's competitive pricing, IRA impact, and efficient manufacturing facilities will lead to shocking margins in 2024, while other automakers' EV production capacity remains uncertain.
  • The speaker is interested in seeing how other automakers are addressing demand and EV adoption, and questions who will produce the increased number of EVs if only Tesla is adding capacity.
  • Tesla's pricing remains competitive, the IRA is a big factor, the Cybertruck will have minimal impact on margins but will eventually be the best gross margin vehicle, and the dynamics of portfolio placement and supply chain leverage in 2024 are important factors to consider.
  • Tesla's supply chain performance and capability are highly rated, but they do not receive enough credit for their procurement leverage.
  • Tesla's ability to reduce labor, improve processing times, increase output per square meter, and navigate supply chain challenges through resilient and efficient manufacturing facilities is foundational to driving down costs.
• 14:24 🚗 Tesla's 2024 margins will be a shocker due to their industry-leading supply chain and partnerships with suppliers, with the Model Y expected to drive high production volume and potential doubling of their current business.
  • In 2024, Tesla's margins will be a shocker due to their industry-leading supply chain and partnerships with suppliers.
  • Suppliers of Tesla are fighting to maintain their status as suppliers, as the company's CEO is driving efficiency throughout the organization, which will impact the supply chain.
  • Suppliers are eager to work with Tesla on the Model Y due to its high production volume, and they are willing to offer competitive pricing and terms to secure a contract.
  • The Tesla Model 3 and Model Y are expected to continue growing in production, with the Cybertruck projected to surpass the production of Rivian and Ford combined by the end of 2024.
  • Tesla's business will continue to grow with the cyber truck and compact vehicle, potentially doubling the size of their current business.
  • Tesla's suppliers and partners, including those for services, tooling, and fixturing, play a significant role in the company's expansion, with a focus on component reuse and energy efficiency.
• 20:02 🚗 Tesla's production run rate will lead to high margins in 2024 due to significant procurement leverage and cost reduction advantages over their competition.
  • Tesla's production run rate will result in significant procurement leverage for suppliers, leading to substantial growth and potential for high margins in 2024.
  • Tesla is tough and demanding on suppliers, but fair, and if you align your business with their values and capabilities, you can do very well as a supplier.
  • Tesla has a significant advantage in procurement, capital leverage, and resource leverage, which will result in a higher rate of cost reduction compared to their competition.
• 22:50 🚗 Tesla's non-auto business is contributing significantly to gross profit, with a focus on energy, full self-driving, and AI services leading to potential growth and cost reduction in hardware.
  • The impact of non-auto margins on Tesla's profits is often overlooked and can have a significant effect on the company's overall margins.
  • Tesla's non-auto business contributed $510 million to gross profit last quarter, and the author discusses the growth of FSD, energy, and other services.
  • Tesla's focus on energy, full self-driving, and supercharging will lead to significant growth and cost reduction in hardware, according to Elon Musk and the leadership team.
  • Tesla's gross margins will come from AI and services like full self-driving, robotaxi, and humanoid robots, with a significant investment in the Dojo infrastructure.
  • Tesla is investing in AI and self-proclaimed to be an AI company, with plans to increase gross margins through AI services, while spending significantly less on research and development compared to other major companies.
• 27:43 🚗 Tesla's efficient production and R&D, focus on a small number of models, and cost savings will lead to higher margins in 2024, which analysts are not currently tracking.
  • Tesla's revenue is growing rapidly, and they are efficient in their research and development, with nobody being more efficient in building hardware at their MSRP with fewer models.
  • Elon Musk focuses on efficiency and simplification in labor, software, and hardware development, but there are questions about Tesla's increasing R&D spend and where the infrastructure spend from Dojo is going.
  • Tesla is increasing R&D spending and once AI solutions and FSD take rate go up, the percentage will drop dramatically.
  • Tesla's efficiency in production and R&D, with a focus on a small number of models, allows for high margins and cost savings.
  • Tesla's efficiency and cost savings through reusing parts and scale will lead to higher margins in 2024, which analysts are not currently tracking.

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