Tesla's recent price cuts and strategic moves are part of a larger overall strategy, and analysts need to understand the difference between MSRP and ASP in analyzing Tesla's pricing strategy and gross margins, as well as the context of the auto industry, to fully grasp the situation
Questions to inspire discussion
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What is the difference between MSRP and ASP?
—Understanding the difference between MSRP (Manufacturer's Suggested Retail Price) and ASP (Average Selling Price) is crucial in analyzing Tesla's pricing strategy and gross margins, as well as considering the impact of price fluctuations on earnings.
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Why did Tesla reduce the prices of all Model Y trims in the US?
—Tesla reduced the prices of all Model Y trims in the US by $2,000 to make the Model Y Real Drive available for under $35,000 when factoring in tax credits and gas savings.
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How are Tesla's strategic moves and price cuts being criticized by analysts?
—The speaker explains Tesla's strategic moves and criticizes analysts for their knee-jerk reactions without doing the math, suggesting that a deeper level of analysis is needed.
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What challenges is Tesla facing in the auto industry?
—Tesla is facing challenges in the auto industry, but understanding the actions they are taking and the context of the industry shows that the situation is not as dire as it may seem.
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What is Tesla's approach to gross margin and R&D investment?
—Tesla's strategic move involves a conservative approach to gross margin and R&D investment in software updates for cars, transitioning from one-time car sales to continuous yearly profit.
Key Insights
- 🚗 Elon Musk's announcement that, when factoring in tax credits and estimated gas savings, the Model Y could be as low as $29,000, is a game changer in the electric vehicle market.
- 📉 Understanding the difference between MSRP and ASP is crucial for analyzing Tesla's pricing strategy and net transaction price.
- 🚗 The spread to invoice in the actual average transaction price and the incentives as a percent of that average transaction price indicate high demand and low incentives.
- 🧠 It's important to understand what's happening at other automakers and at macro Auto to understand Tesla's strategic moves.
- 📉 Tesla has been rapidly reducing their prices in response to the changing market conditions, showing a proactive approach to maintaining competitiveness.
- 🚗 Tesla could have shipped 30 to 40,000 more model 3s and 10,000 more cyber trucks, showing high demand for their products.
- 💰 Tesla is trying to increase the take rate for full self-driving, and analysts should focus on the actual numbers provided by Tesla rather than guessing.
- 📈 With a 50-60% take rate of full self-driving, Tesla could potentially add thousands of dollars to their net income per vehicle, completely changing their business model.
#Tesla
XMentions: @herbertong @theJeffLutz
Clips
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00:00 🚗 Tesla's recent price cuts and strategic moves are part of a larger overall strategy, with analysts criticized for knee-jerk reactions and the importance of understanding the difference between MSRP and ASP in analyzing Tesla's pricing strategy and gross margins.
- Tesla's recent price cuts and strategic moves may seem concerning, but when analyzed in combination with other changes, they paint a better picture of the company's overall strategy.
- The speaker explains Tesla's strategic moves and criticizes analysts for their knee-jerk reactions without doing the math.
- Tesla has reduced the prices of all Model Y trims in the US by $2,000, making the Model Y Real Drive available for under $35,000 when factoring in tax credits and gas savings.
- Gary Black reacts to Tesla's price cuts, cutting earnings estimates and price targets, and expects little to no volume growth as competitors match the price cuts.
- Understanding the difference between MSRP and ASP is crucial in analyzing Tesla's pricing strategy and gross margins, as well as considering the impact of price fluctuations on earnings.
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04:51 🚗 Tesla adjusts prices frequently to match demand, leading to potential over-supply and lower transaction prices, while GM and Ford's sales are up but their net inventory indicates they are not selling more vehicles to consumers.
- Tesla changes prices frequently to match production with demand, and the MSRP is not the real price due to dealer markups and incentives, as shown by a graph from Cox Automotive.
- Low supply and high demand create a potential over-supply situation for Tesla, leading to lower transaction prices and higher incentives, as indicated by Elon Musk and other analysts.
- GM and Ford's sales are up single digits, but their net inventory is up almost 40% year on year, indicating that they are not actually selling more vehicles to consumers.
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08:03 🚗 Tesla is facing challenges in Q4 to Q1, but their strategic moves and context in the auto industry show that the situation is not as dire as it may seem.
- Tesla is not the only car maker facing Q4 to Q1 challenges, with other automakers like BYD and Lee Auto also experiencing significant drops in sales.
- Tesla is facing challenges, but understanding the actions they are taking and the context of the auto industry shows that the situation is not as dire as it may seem.
- Tesla is projected to increase its average selling price by 31 million due to the increase in vehicle sales and configurator changes.
- Tesla increased prices in Q2 by $1,000 and then decreased them by $2,000 over the weekend.
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11:56 🚗 Tesla's production and distribution timeline is around 75 days, with significant inventory discounts on vehicles and supply timing issues affecting inventory levels.
- Understanding supply chain and inventory is crucial for companies like Tesla to optimize production and revenue.
- Tesla's production and distribution timeline is estimated to be around 75 days, with an increase in inventory due to supply timing issues and pockets of demand.
- Tesla has significant inventory discounts on vehicles, which have been running for six quarters, and the math shows that two-thirds of the production will run under MSRP reduction and about a third will have the opportunity for prior inventory discounts.
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15:26 🚗 Tesla is simplifying their selling process, aligning cost of goods sold and average selling price, raising and then lowering prices in response to supply and demand, with concerns about lower unit sales impacting margins.
- Tesla is streamlining their selling process by removing inventory discounts and simplifying the selling price of their vehicles, with Europe and China following the same trend as they clean up their inventory.
- Tesla has aligned cost of goods sold and average selling price, with only a 1.2% change in average selling price and a big jump in cost of goods sold between Q3 and Q4 of last year.
- Tesla had to raise prices due to increased commodity costs, but as supply and demand balanced, they were able to lower prices in alignment with cost reductions, leading to investor expectations for improvement in 2023.
- Tesla removed inventory discounts, cut configurator prices, and then added back inventory discounts at lower prices to align with production costs, necessitating a price correction due to COVID and factory upgrades.
- Analysts are concerned about Tesla's lower unit sales leading to decreased margins.
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20:51 🚗 Tesla has high demand and supply chain issues, but the demand is not as dire as reported, and understanding their strategic moves requires deeper analysis.
- Tesla has high demand for their products but struggles with supply chain and inventory timing, resulting in higher inventory levels.
- Tesla has some supply and execution issues, but they have products that people want and the demand issues are not as dire as everyone was saying.
- Understanding Tesla's strategic moves requires looking beyond just the top-line numbers and considering the deeper levels of analysis, especially given the changes Elon Musk has been making.
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23:58 🚗 Tesla is making strategic moves to increase the attractiveness of their Full Self-Driving package and transition to continuous yearly profit by offering upgrades and reducing prices.
- Tesla has made significant changes to the pricing and features of their Full Self-Driving package, with the goal of increasing the attractiveness of the offering and reaching peak velocity in sales.
- Tesla is in price discovery mode for full self-driving and is trying to increase the take rate by offering upgrades to consumers.
- Tesla's improved fsd2 and reduced prices will significantly increase margins and earnings in the future, transitioning from one-time car sales to continuous yearly profit.
- Tesla's strategic move involves a conservative approach to gross margin and R&D investment in software updates for cars.
- The speaker discusses Tesla's gross margin and the importance of understanding software in relation to margins.
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29:37 🚗 Find an expert with experience in the Tesla space for investment advice.
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Duration: 0:30:3
Publication Date: 2024-04-23T10:28:46Z
WatchUrl:https://www.youtube.com/watch?v=MfU88rtfmd0
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