During Tesla's earnings call, analysts raised concerns about demand for the company's vehicles, claiming that orders net of cancellations came in at a rate of less than half of production in the fourth quarter. However, Tesla (NASDAQ: TSLA) CEO Elon Musk stated that demand for the company's vehicles still far exceeds production, and that they are even making small price increases as a result.
When asked about advanced manufacturing production credits for battery cells and packs, Musk stated that long-term, the company expects the value of these credits to be very significant. However, he also noted that the credits do rely upon domestic manufacturing and that in the case of Panasonic domestic manufacturing, the value of the credits will be split with Tesla. This means that the value of credits this year will not be gigantic, but he thinks it will probably be very significant in the future.
After recent price cuts, analysts also released expectations that Tesla automotive gross margin, excluding leases and reg credits, will drop below 20% and average selling price around $47k across all models. Musk acknowledged that this may be the case, but also pointed out that every time Tesla sells a car, it has the ability to upload software to enable full self-driving. He stated that this is a tremendous upside potential because all of those cars, with a few exceptions, have Hardware 3 and that means that there are millions of cars where full self-driving can be sold at essentially 100% gross margin. The value of this feature grows as the autonomous capability grows and when it becomes fully autonomous, this will be a value increase in the fleet that might be the biggest asset value increase in history.
Musk also confirmed that Cybertruck will have Hardware 4 and that it will not be a significant contributor to the bottom line in 2023, but it will be into next year. He also stated that Hardware 3 will not be as good as Hardware 4, but he's confident that Hardware 3 will so far exceed the safety of the average human (200%-300% safer than human). The goal is to ultimately improve the safety on the road and that Hardware 4 might be 500% or 600% safer than the average human. However, retrofitting Hardware 3 with Hardware 4 is quite significant and it would not be economically feasible to do so.
Finally, when asked about Tesla Insurance, Musk stated that it is becoming a big enough revenue source and that there are two really important side benefit to Tesla Insurance. One of which is that just by Tesla operating insurance for their cars at a competitive rate, it makes other car insurance companies offer better rates for Teslas. This has an amplified effect and it is also giving Tesla a good feedback loop into minimizing the cost of repair of Teslas, for all Teslas worldwide. He added that it is also reducing the total cost of ownership and figuring out how to get the most out of the cars in case of an accident.
Rate this article