Tesla's Boost: Margin Magic through Sales Volume and Cost Cuts

Tesla is making investors happy again after a dip. Shares jumped 16%, one of the best performances ever. Analysts from Bank of America and Goldman Sachs are sharing insights into Tesla's impressive earnings report. Tesla's auto gross margin, excluding regulatory credits, was 17. 05% in the last quarter. This beat expectations of 14. 90%. Why the jump? Bank of America says it's due to higher sales (volume leverage), lower costs for raw materials, freight, and duties, plus improvements in their Full Self-Driving (FSD) technology. Tesla's strong position in the electric vehicle (EV) market helps it get better deals on raw materials. Lithium, for example, saw Tesla driving a hard bargain, which boosted margins. However, Oppenheimer warns that this might not last once lithium prices stabilize.

A big part of this margin boost comes from FSD. Tesla recognized $326 million from its FSD-related deferred revenue this quarter thanks to new features like smart summon and auto-park. Without this, the margin would have been 15. 6%. Tesla's average selling price per vehicle (ASP) didn't help much this quarter due to ongoing financing discounts to keep sales going. Tesla expects to deliver slightly more cars in 2024 than in 2023. To match last year's 1. 81 million units, they need to deliver 516, 344 units in the last quarter of 2024. Here's an interesting bit: Goldman Sachs is puzzled by the gap between real-world FSD data (around 100 miles per critical intervention) and Tesla's claim of achieving 10, 000+ miles per critical intervention soon. Elon Musk announced that fully autonomous FSD will roll out in Texas and California next year. He also said the Cybercab will hit 2 million units per year by 2026.

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