Tesla's Q3 2024 financial report interpretation: Are electric vehicles about to rebound from the bottom?

I have been tracking Tesla for a while before the release of the financial report. I have also written my personal interpretations on Tesla's financial report before. The viewpoints expressed in the previous article have basically not changed: there is great long-term growth potential, but the current price is high, with support near 220.Although I have confidence in holding for the long term, short-term fluctuations are inevitable.。

If you are interested, you can also read my previous articles:

Tesla's revenue in the third quarter was $25.18 billion, a year-on-year increase of 7.8%.The growth rate is the highest in the past 4 quarters, approaching the recovery of double-digit growth.
By business segment, core automotive revenue increased by 2%. Although the growth rate was a meager 2%, it finally returned to positive growth. Despite the absence of new Tesla models, deliveries in this quarter achieved a 6.4% growth. While it's been said that Tesla's valuation is currently skewed towards electric vehicles occupying a small portion, electric cars are still the cornerstone, accounting for 79.5% of total revenue. The growth in FSD and AI business is also based on electric vehicles. A fluctuation of around 5% might not have a significant impact, but a growth rate of 10% would be quite noticeable.

Before this quarter, Tesla's electric vehicle business had been under pressure, with vehicle sales declining for two consecutive quarters. New models were continuously delayed, the Cybertruck failed to gain momentum, and the autonomous taxi was postponed until 2026. This quarter saw a revival in Tesla's vehicle sales, positive gross margin in Cybertruck, and new models are expected to be launched on time next year, as mentioned in Musk's conference call:It is forecasted that electric vehicle sales will increase by 25%-30% by 2025. Therefore, Tesla's electric vehicle business seems to have hit rock bottom and is rebounding.

Tesla's overall gross margin in the third quarter was 19.6%, an increase of nearly 2% compared to the same period last year. Even after excluding the $0.739 billion carbon credit revenue, the gross margin was still 17.1%, while the gross margin after excluding carbon credits in the previous quarter was 14%, showing significant improvement.

On the net income side - after 4 consecutive quarters of year-on-year decline, the growth rate turns positive.
Tesla's non-GAAP net income in the third quarter was $2.51 billion, an 8.1% year-on-year increase. This marks Tesla's net income turning positive year-on-year for four consecutive quarters after a decline, likely signaling a bottoming out and rebound.

4. In terms of expenses
Tesla's business expenses, even research and development expenses, have started to decline in the third quarter.

In fact, financial report data is not the most important, as many data points are not significantly different. This is especially true because the electric vehicle delivery data comes out before the financial report. The so-called exceeding or falling below expectations are all dictated by Wall Street. The focus of Tesla's every financial report is actually on Elon Musk's statements during the performance call after the financial report. For example, Musk drew a picture of AI in the last quarter, which drove Tesla's stock price up significantly at that time.Here are a few key points from the financial report meeting:

1) Cybercab: Expected to start mass production in 2026, with an annual output of 2-4 million vehicles. 2) A new model priced at 0.025 million dollars: Likely to be launched in the first half of 2025. 3) Semi: Currently, all deliveries (about 200 vehicles) come equipped with FSD. Mass production is set to begin in 2025, with a new factory expected to be constructed and fully operational by 2026. 4) Roadster: Product design is near completion, but progress priority will be lower compared to other products.

1) Upgrade: FSD13 will be released soon with an expected 5-6 times increase in takeover mileage compared to 12.5. By the second or third quarter of 2025, FSD's driving safety may surpass human capabilities. By January 2025, optimization of FSD end-to-end performance and hardware enhancements will be visible.

2) Existing models: Model 3/Y software will see significant improvements.

3) Market strategy: Another 30-day trial will be introduced to encourage people to experience it, further increasing the adoption rate of FSD.

4) Robotaxi: Set to be launched in Texas in 2025, with California expected to follow by the end of 2025. Both proprietary fleets and owner deployment will coexist online.

5) Unsupervised FSD: Expected to be approved in California and Texas by 2025, based on hw3.0 and 4.0. At the federal level, vehicles are believed to meet regulatory requirements.

Hardware: HW3 vehicles may not reach the safety level required for unsupervised FSD, Tesla will replace 3 with HW 4 for users who purchase FSD for free.

3. Computing Power:Continue to expand AI training capabilities to meet the needs of FSD and humanoid robots. There are currently no constraints on computing power, which is crucial. Tesla has already begun using a GPU cluster located at the Austin Gigafactory in advance, and is expected to further deploy the computing power of 50,000 GPUs in Texas by the end of this month.

4. 4680 Battery:The team has made significant progress in the 4680 battery production line, producing 0.1 billion battery cells in 2024 Q3 and continuously improving the dry production line. Considering incentives and tariffs, the cost of domestically producing 4680 battery packs in the USA is competitive, and there are no plans to rely entirely on internal battery production.

5. Robotics:Tesla has the most advanced humanoid robots on the market, and is the only company with all the core elements required to expand humanoid robots, including artificial intelligence brains and large-scale production capacity, which sets it apart from competitors. The company believes that Optimus will ultimately become the most valuable part of Tesla's products.

Looking at Tesla's financial report, the profit side does indeed exceed expectations, but numbers are always a game on Wall Street. For us investors, Tesla's electric vehicle business has experienced several quarters of continuous downturn and it seems to have started to bottom out, which is a very positive sign. It is worth noting that Tesla has not introduced new cars in recent years despite numerous benchmarks and new car launches by competitors. It is not easy to hold onto its current position. The electric vehicle market itself is very competitive. Tesla's vehicle sales volume has declined in the past two quarters but has started to grow again this quarter. With the introduction of new models next year, it is foreseeable that Tesla's electric vehicle business is on track to recover growth. As long as there are new models introduced, Tesla's electric vehicle business remains relatively stable.

Of course, the valuation of the electric vehicle business cannot currently support the current valuation. A P/E ratio of 60 is indeed not a reasonable valuation for an electric vehicle company, so AI and FSD components have at least halved the valuation. For Tesla, it is definitely an excellent company and not just an electric vehicle company. It has never been a question of buying or not.It's not a matter of whether to buy, but when to buy.But for me, I would not be surprised if Tesla's stock price reaches 300, but I wouldn't buy above 200 because at this price, the short-term premium of AI and FSD components is too high. My ideal buying price is around 150, but perhaps I might consider buying at around 180. However, I think Tesla priced at over 200 in the short term is not cheap.

When we invest in Tesla, we cannot just look at the data related to Tesla electric vehicles, because this part of the data is not very informative, at least not in recent years. Since the monthly sales volume is already known, the electric vehicle business is like a transparent business, and now the electric vehicle business is considered a traditional business, which cannot provide a high valuation. Even if it is the world's number one, it is just the Toyota of the electric vehicle industry. Just take a look at BYD, and you will understand the ideal valuation of electric vehicles like Tesla. Even considering an 8 billion net income per year, with a PE ratio of 30 times in the bullish US stock market, the valuation of Tesla electric vehicles is only 240 billion US dollars. So what about the remaining market value?

UBS GroupAI and new businesses, such as FSD, Robotaxi, humanoid robots, energy storage, and more.

For example, in terms of FSD, everyone in China knows that most car manufacturers are investing in autonomous driving technology, and they have already generated considerable revenue from it. Tesla's FSD revenue in China is basically negligible, and currently, the overseas revenue is also quite average (as seen from the growth rate of automotive sales revenue). Tesla needs to continuously pile up cars in this area, until FSD is further perfected and its penetration rate increases, only then will we see significant effects.

For example, Robotaxi, Baidu's unmanned taxi service, has recently gained popularity, driving up Baidu's stock price. However, I personally believe that Tesla's Robotaxi technology is definitely superior to Baidu's 'running carrots'. Tesla has the talent, the technology, and the graphics cards, and in this aspect, I definitely trust Tesla more than Baidu. Unmanned taxis are definitely a future trend. There may not be obvious effects in the short term in 1 to 2 years, but in 5 years, it may be different. In my opinion, the leader of future unmanned taxis will definitely be Robotaxi, not 'running carrots'.

Similarly, humanoid robots are mostly conceptual in the short term, but once they are mass applied in the future, it will also be a very significant growth point for Tesla.But we must admit that the income contributed by AI in the next few years is very limited, so currently there is more room for imagination in this area. Roughly speaking, the stock price of 150 includes the value of electric vehicles + energy storage + FSD in the non-explosive state, the part exceeding 150 is the imaginary value of the AI part, which cannot be accurately valued.Therefore, I personally think that Tesla at 150 is still relatively cheap. For Tesla priced above 200, one needs to have a certain belief in Tesla!