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

I have been tracking Tesla for a while before the release of the financial report. I have also written my personal opinion on Tesla's financial report before. The previous article expressed the view that the long-term growth potential is significant, but the current price is on the high side, with support near 220.Although there is confidence in long-term holding, short-term fluctuations are inevitable.。

Those interested can also check out my previous articles:

Tesla's third-quarter revenue was $25.18 billion, a year-on-year growth of 7.8%.The growth rate is the highest in the past 4 quarters, approaching the recovery of double-digit growth.
In terms of business segments, the main automotive business revenue increased by 2%. Although the growth rate was a meager 2%, it finally returned to positive growth. Despite there not being any new Tesla models, this quarter's delivery volume finally achieved a 6.4% growth. Although we have always said that Tesla's current valuation is based on a small portion of electric vehicles, electric vehicles have always been the core. Automotive revenue accounts for 79.5% of total revenue, and the growth of the FSD and AI business in the future is also based on electric vehicles. A fluctuation of around 5% may not have a significant impact, but a 10% growth rate would be very noticeable.

Before this quarter, Tesla's electric car business had been under pressure, with vehicle sales declining for two consecutive quarters, new models consistently delayed, the Cybertruck failing to generate substantial sales, and the self-driving taxi service postponed to 2026. This quarter, Tesla's vehicle sales rebounded, the Cybertruck gross margin turned positive, new models are expected to be launched as scheduled next year, as stated in Musk's conference call: It is expected that electric vehicle sales in 2025 will increase by 25%-30%. Therefore, Tesla's electric car business should be in the process of bottoming out.

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

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

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

In fact, financial report data is not the most important, many data are not that different, especially because the electric vehicle delivery data comes out before the financial report. The so-called exceeding expectations and falling below expectations are all decided by Wall Street. The key focus of Tesla's financial report is actually on Musk's statements at the performance exchange meeting after the financial report, for example, last quarter Musk talked about AI, which caused a significant increase in Tesla's stock price 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.

6) Hardware: HW3 vehicles may not reach the safety level required for unsupervised FSD, and Tesla will replace HW 4 for users who have purchased 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 started using the GPU cluster at the Austin Gigafactory in advance and is expected to further deploy 50,000 GPU computing power 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 that has all the core elements needed to expand humanoid robots, including artificial intelligence brains and large-scale production capabilities, which sets it apart from competitors. The company believes Optimus will ultimately become the most valuable part of Tesla's products.

Looking at Tesla's financial reports, the profit side does indeed exceed expectations, but numbers are always a game for Wall Street. For investors like us, after the continuous downturn in Tesla's electric vehicle business in the past few quarters, it seems to have started to rebound from the bottom, which is a very positive signal. It should be noted that Tesla has not launched new cars in recent years, allowing competitors to benchmark in various ways and launch new vehicles, yet Tesla remains unaffected. Holding its position today is not easy. The electric vehicle market itself is very volatile. Tesla's vehicle sales declined in the past two quarters, but growth has resumed this quarter. The launch of new models next year suggests that Tesla's electric vehicle business recovery is not difficult as long as new models are introduced. As long as new models are launched, Tesla's electric vehicle business remains relatively stable.

Certainly, the valuation of the electric vehicle business indeed cannot support the current valuation. A PE ratio of 60 is indeed not the appropriate valuation for an electric vehicle company, so asia vets, FSD has discounted at least half of the valuation. For Tesla, it is definitely an excellent company, not just an electric vehicle company, and it has never been a matter of whether to buy or not.It's not a matter of whether to buy, but when to buy.But for me, I wouldn't be surprised if Tesla's stock price rises to 300, but I wouldn't choose to buy above 200, because at this price, in the short term, the premium of asia vets, FSD components is too high. My ideal buying price is around 150, maybe I can't resist at 180, but I think over 200, Tesla is not cheap in the short term.

When it comes to investing in Tesla, we must not only focus on Tesla's electric vehicle-related data, as this data is not very revealing, at least not in recent years. Because monthly sales figures are already known, the electric vehicle business is like an open book, and now it's become a traditional business that cannot provide a high valuation. Even if it becomes the world's number one, it's still just Toyota in the electric vehicle industry. Look at BYD, you'll understand how much market cap Tesla's electric vehicles are worth based on the ideal valuation. Even if we calculate based on an 8 billion net income per year, with a 30 times PE ratio given by the bullish US market, Tesla's electric vehicle valuation would only be around 240 billion US dollars. So, what about the rest of the market cap?

The answer isAI and new businesses, such as FSD, Robotaxi, siasun robot&automation, energy storage, and more.

For example, in terms of FSD, everyone in China knows that most car companies are diving into intelligent driving, and have already created significant revenue streams from it. Tesla's FSD revenue in China can basically be ignored, and currently the revenue overseas is also quite average (as seen from the growth rate of automotive sales revenue). At this point, Tesla just needs to continue piling up vehicles until FSD is further perfected, and we can see significant effects once the penetration rate increases.

Take Robotaxi as another example. Recently, Baidu's unmanned taxis have been very popular, which also led to a rise in Baidu's stock price. However, personally, I believe that Tesla's Robotaxi technology is definitely far superior to Baidu's "Robots Running Fast". Tesla has the talent, the technology, and the graphics card. I am confident in Tesla, not in Baidu. Unmanned taxis are definitely the future trend. In the short term, in 1 or 2 years, significant effects may not be visible, but in 5 years, it might be different. I personally think that in the future, the leader of unmanned taxis will definitely be Robotaxi, not "Robots Running Fast".

Similarly, in the area of siasun robot&automation, short-term concepts are predominant, but once it is applied on a large scale in the future, it will also be a very significant growth driver 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.So personally, I think Tesla at 150 is still relatively cheap, and Tesla above 200 requires a certain belief in Tesla!