Published on November 9, 2019 |
by Guest Contributor
9. November 2019 by Guest Contributor
Originally Posted EVANNEX.
by Shankar Narayanan
The greatest threat to Tesla's existence was not the so-called "Tesla Killers" from the competition, but rather Tesla's dependence on capital markets to finance growth. The lack of sustained profits led the company to rely on the financial markets to provide equity and debt at regular intervals to finance its operations.
This financial dependence – along with the high volatility offered by the Tesla stock – makes the company an attractive destination for short sellers. Data from Marketbeat shows that by October 15, 2019, a week before Tesla's third-quarter earnings release, a massive 36.06 million Tesla shares were short.
In dollars, Tesla's short pileup was worth a cool $ 12.15 billion, almost twice the volume sold without Netflix (NFLX).
Tesla's third quarter results showed that the electric car manufacturer's gross margin increased as the decline in the average selling price slowed. It's no coincidence that Tesla only had two profitable quarters before 2018 and three profitable quarters in the last seven quarters. If my Q4 prediction for Tesla comes true, Tesla can hit a strike rate of 50% – four profitable quarters of eight.
Tesla's road trip must be divided into two periods: before 2018 and afterwards. In 2017, Tesla delivered 103,000 vehicles, which increased to 245,000 units in 2018. Tesla targets deliveries of 360,000 to 400,000 units this year. Even if Tesla manages to hit the lower end of the guidance, it would mean that Tesla has increased its production 3.5 times in two years.
Tesla's Gigafactory in China, with its planned initial capacity of 150,000 units, is expected to be online soon, Tesla's overall capacity increases further. If a five-fold increase in capacity over three years has no significant impact on the gross and operating margins of a production company, nothing else will.
“Economies of scale are the cost advantages that companies experience when production becomes efficient, as costs can be spread over a larger amount of goods. ”- Wiki
Increasing production volume has already begun to pay dividends for Tesla in the form of margins, as stated in Tesla's third quarter 2019 report. But apart from volume, it is a factor that has often been overlooked, and it is the cost of labor and construction in China.
As mentioned via Statista, "In 2018, labor costs in China were estimated at $ 5.51 per hour." In comparison, the minimum wage per hour in California was $ 11 in 2018. According to Tesla, Shanghai Gigafactory is "about 65% cheaper to build than the Model 3 production plant "in Fremont, California, USA.  The Chinese car market is larger than the US, and it will cost less to produce Tesla cars there. A quick visit to the Tesla China website reveals that Tesla has priced its" Made in China ”model 3 at just 3% lower than the price in the US.
Model 3s rolling out from Tesla's China Gigafactory will be eligible for EV subsidies and will not be subject to the current 15% rate on imported cars. pass some of the company's savings on to its Chinese customers when the volume gets better. That said, we are unlikely to see a large price difference between US and China sticker prices.
The words of increasing production in China find their way to Tesla's bottom line. Let's not forget that Tesla's next release, Model Y, shares nearly three-quarters of its components with Model 3. This will help reduce costs further in Tesla's Fremont plant.
Tesla's third-quarter profit is not A flash in the forehead. They are a sign of change.
Related: The Chinese Tesla Model 3 “Super Margin” (Forecast)
Author Bio: Shankar Narayanan is the editor of 1redDrop.com. Has an MBA from Kent State University and an engineering degree from Madurai Kamaraj University. He has been an active contributor to top financial websites such as SeekingAlpha and GuruFocus, and has a penchant for talking business, finance and technology.
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