What impact will the price reduction offensive have on Tesla (TSLA) 1Q financial results?

In the company's 2022/12 4Q (October-December) financial results announced on January 25, sales were 24.32 billion dollars, up 37% from the same period last year. Non-GAAP adjusted EPS was 1.19 dollars, up 40% from the same period. Both sales and adjusted EPS exceeded market expectations. The number of cars delivered increased 31% from the same period to 405,278. Among them, the SUV Model 3/Y was 388,131, and the luxury sedan and luxury SUV Model S/X were 17,147 together. In terms of sales, the passenger car division saw a 33% increase in sales, and it looks like the rise in ASP (average sales unit price) (price increase of nearly 10% in the US) absorbed exchange headwinds (1.4 billion dollars). On the profit side, the rise in raw material prices resonated, and the gross margin ratio in the passenger car sector fell 4.7 percentage points to 25.9%. The adjusted EBITDA margin was 22.2%, down 0.9 percentage points from the same period.

According to the company's management guidance, at the beginning of 2021, while EV production targets with an average annual increase of 50% were set out, the EV production volume target for 2023 remained at 1.8 million units, a 31% increase compared to 2022 EV results (1,369,611 units). Meanwhile, for mass production of new batteries and EV trucks, the annual capital investment amount from 2024 to 2025 was raised from the conventional 6 to 8 billion dollars to 7 to 9 billion dollars. In response to the 2023 annual production target of 1.8 million units, Mr. Musk clarified the view that an annual production of 2 million units is possible depending on the recovery of the global supply chain.

When the company announced the 3Q settlement in '22, it was revealed that the production cost of the next generation model model of the Model Y would be reduced to about half of what it had been, and the company began price reduction sales in the Chinese market in 22/10. Entering this year, following the implementation of drastic price cuts around the world, starting with the US and China in January, it became clear that EV price cuts will be implemented in the US and China in March and early April. In response to repeated price reduction attacks by the company, the company's breakthrough in the global market is remarkable. According to the company's announcement on 4/2, the number of EVs produced in the 1Q of '23 was 440,808 units, up 44% from the same period last year, and the number of units sold was 422,875 units, up 36% from the same period last year. At a quarterly pace, both the number of EVs produced and the number of units sold hit record highs.

While the company's goal of “manufacturing 20 million EVs and EV trucks per year” was set by the beginning of the 2030s, the company built a new energy storage mega-factory in Shanghai in early April and announced specialization in the production of ultra-high-capacity energy storage batteries called megapacks. The new mega-factory will be Tesla's second-largest power storage mega-factory in the world, and currently only the mega-factory in California, USA, is in operation. The plant is expected to have an annual production capacity of 40 GWh, which is equivalent to 10,000 megapack batteries.