Annual Shareholders Meeting of Tesla in Giga Texas Super Factory on October 7th, 2021

Unlike the previous “Tesla Spring Festival”, this year’s Tesla Shareholders Meeting was a mix of joy and worry, with complex emotions and a subtle atmosphere, due to the impact of the pandemic and the widespread pressure of the automotive industry’s supply of parts.

Trouble

“Battery shortage” has been limiting Tesla’s expansion for the past 3 years, but now Tesla has been suppressed to the extreme. As early as July 2018, Tesla CEO Elon Musk fired at Panasonic, claiming that the battery supply of Tesla’s Giga Nevada plant constrained the production capacity ramp-up of Model 3.

After that, Tesla took several steps to improve the supply capacity of batteries, including increasing the battery production capacity of Panasonic’s Osaka plant and the Giga Nevada plant; introducing Ningde Times, the world’s largest supplier of power batteries, and LG Chem, the second-largest, and acquiring Maxwell, HIBAR System, etc. to establish a self-developed 4680 battery production line pilot line.

Eventually, these efforts have achieved a good presentation in market share. In the past 2020, Tesla’s car sales accounted for 0.7% of the entire automotive industry’s new car sales but consumed 26% of the industry’s power batteries.

In the upcoming 2022, Tesla will continue to improve battery supply by introducing BYD blade batteries in China and ramping up self-developed Pilot line production capacity to 10 GWh/year in North America. However, at the same time, Tesla’s storage battery factory Megafactory, which was put into production in Lathtop, California, and the automotive and battery factories Gigafactory Texas and Giga Berlin, which will be put into production at the end of the year, will generate more demand for batteries than this.

Therefore, despite the great efforts made by Tesla, it still cannot keep up with the growth of its own demand for batteries.The specific issue is that all of Tesla’s pure electric semi-truck Semi, supercar Roadster released in 2017, and pure electric pickup truck Cybertruck released in 2019 have been delayed without exception beyond 2021. According to Elon, even the fastest-produced Cybertruck, the plan unveiled at the shareholders’ meeting was postponed to “small-scale production at the end of 2022.”

At the shareholders’ meeting, Elon reiterated the point he had made several times in 2020: the production of new products with no increase in total battery supply means supply constraints on existing product lines. It only increases management complexity and does not bring any new value to Tesla’s mission to “accelerate the world’s transition to sustainable energy.”

In some ways, Tesla Semi, Roadster, and Cybertruck, like Lucid Air products under another newly established American car company, LucidMotors, a few years ago, have no choice but to continue to postpone until fundamental constraints are resolved. Except that Lucid Air’s constraints were funds, and Tesla’s constraints were batteries.

Meanwhile, Volkswagen, Mercedes-Benz, BMW in Europe, General Motors, Ford in North America, and almost all mainstream Chinese local car companies will launch key pure electric products in 2022. In China and Europe, the penetration rate of new energy vehicles has reached a turning point in the past two months.

Having waited for the industry breakthrough, Tesla’s problem is no longer a happy one, but the problem itself.

In addition to the already publicly released models, Tesla has two models under development, namely the next-generation compact Model next gen and Mini Bus.

First, the Model next gen, known by the nickname Model 2, should have been released as early as Q4 2020 based on the development progress and Tesla’s previous product release rhythm. However, due to the pandemic, supply chain, and battery constraints, the conventional release rhythm has become completely impractical, and public announcement has lost its meaning.

At the shareholders’ meeting, Elon just denied the name Model 2 again but did not share any information about the product itself. This is probably due to comprehensive considerations of product release and production rhythm.Speaking of the Mini Bus, at the shareholder meeting, Elon said he is a loyal fan of the Volkswagen Bus. In fact, five years ago, he expressed similar sentiments, saying that Tesla’s Mini Bus design inspiration came from some of the California Custom VW combi design art.

Prior to that, in Tesla’s Master Plan, Part Deux, Elon revealed that both Tesla’s Semi and Bus were in early stages of development. In other tweets, Elon revealed that the Tesla Bus would be based on the Model X chassis and would be released in 6-9 months, or Q3 2017.

However, in the subsequent press conference, we only saw Tesla’s Semi and no signs of the Bus. But in March 2018, the Tesla Bus appeared in a promotional video for The Boring .Co, another tunneling company run by Elon as CEO, where he confirmed that it would be a self-driving bus with speeds up to 150 mph.

This indicates that the Tesla Bus project has been in continuous development, but tight battery supply since 2018 has prevented us from seeing the true face of the Tesla Bus until today.

Considering the annual sales target of up to 20 million vehicles by 2030, Elon’s statement that “over time Tesla will enter every important segment of the car market” may not be unfounded. For example, China’s low-speed elderly scooters?

So when will we see Tesla’s pickup, semi-trailer, Roadster, Bus, compact cars, and even low-speed elderly scooters?

It all depends on battery supply, or more precisely, on the growth rate of battery production capacity for Panasonic, LG Chem, CATL, BYD, and Tesla itself.

While the entire industry faces supply restrictions, Tesla needs to be prepared with more cash reserves, stronger supply chain management, and more reliable performance. Let’s take a look at Tesla’s current operating status.Starting from Q4 2016, Tesla achieved a staggering 71% compound annual growth rate. Such growth is relatively easier to achieve during the early stages of a small startup, whereas the real challenge lies in sustaining growth at a large scale.

Since Q3 2020, Tesla has broken its historical sales records for five consecutive quarters despite facing significant external difficulties. This impressive feat reflects the company’s outstanding performance.

Moreover, when Tesla climbed out of the production hell for Model 3, it faced limitations in battery supply, and no new products were introduced. Therefore, Tesla’s management focused mainly on refining its operation, which led to a decrease in the average selling price from over $58,000 in the first half of 2019 to less than $50,000 in the first half of 2021. This trend continued even with the production of the higher-priced Model Y and the upcoming Model S Plaid.

At the same time, Tesla’s gross profit margin continued to improve, exceeding 24% in the first half of 2021. This means that the company’s comprehensive cost reduction rate exceeds the pace of price reduction.

The sales growth of Model 3 and Model Y has generated robust free cash flow for Tesla, reaching $4.2 billion in the past four quarters.

In just four years, Model 3 has become the best-selling luxury car model in the world, topping global sales with over 120,000 units sold in single quarter Q4 2020, surpassing BMW 3 Series, Mercedes C-Class, E-Class, Audi A4, Q5, and A6 regardless of fuel type.

However, it is essential to note that all these achievements occurred when Tesla faced extreme supply restrictions of chips, batteries, and components. Its only car factories in Fremont, California, and Giga Shanghai were forced to shut down multiple times.What Will Happen to Tesla with the Launch of Giga Berlin and Giga Texas Factories in 2022?

According to Tesla’s own prediction, with the support of the four major factories, Model Y will become the best-selling model globally, without any limiting adjectives.

Let’s take a look at the global sales champion in 2020, the Toyota Corolla, with a worldwide sales volume of 1,134,262 vehicles.

Judging from the production capacity ramp-up of Model Y, this car, which shares the same platform with Model 3, has grown more unreasonably and completed the three-year growth journey of Model 3 in a year. However, there is still a considerable gap between this and the over 1.1 million Corolla units sold annually.

Nevertheless, Model Y is likely to become the single model with the highest global revenue, i.e., the highest sales volume × price in 2022 or 2023.

In fact, with only Model 3 and Model Y, Tesla has already surpassed Mercedes-Benz, BMW, Audi, and Lexus, becoming the top luxury brand with the highest sales volume in the US in Q3.

With the adoption of the front and rear body integral die-casting technology in Model Y and the production of 4680 batteries, Tesla’s cost structure is expected to be further improved, and lower prices, higher sales volume, and higher gross profit margin are logical.

For a vertically integrated carmaker like Tesla, almost all expansion constraints come from the outside. And this round of battery supply limitations is more severe than ever.

The first step towards achieving an annual output of 20 million vehicles and a storage capacity of 1,500 GWh/year is the offline launch of the first front and rear body integral die-casting Model Y with the integration of 4680 battery cells into the chassis.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.