Nobody was expecting this Q4 earnings call from Tesla. Why did stock plummet?
The product roadmap turned out to be a presentation of products and services nobody was counting on
If you are like almost everybody in the Tesla community, you were anxious to listen to Elon Musk talk about when the next generation of vehicles from the company would start hitting the roads. A lot has been written about if the Cybertruck would start deliveries at the end of this year or early next year after several months of delays since the unveil.
Also, there was a lot of expectation about the $25,000 model. The one is supposed to give Tesla the impulse that needs to have one of their cars in everyone’s garage and the model European and Chinese consumers are drooling for.
Even the number one question in the retail investor’s voting platform about the 4680 batteries was answered with boredom and we could understand from Musk’s mood that we are not making the right questions.
Elon Musk gave clear indications that they are not going to start production of any new vehicles this year.
He said that if they have to assign resources for the Cybertruck or any other vehicles, it would decrease their output which is their main goal at this time. They need to continue ramping up their actual factories in Fremont and Shanghai and start production in their two new facilities in Austin and Berlin. All their focus is on this endeavor and this is critical for the company. It seems that any further conversation about new vehicles is completely out of scope.
They are confident to increase vehicle production by over 50% this year only with the current factories. Some investors and Wall Street analysts haven’t realized that this is the best for the company’s financials but we all know that Tesla’s valuation is more a growth story and they have to be very careful with their words as new products are what makes unit ramping work and is the main driver to the valuation.
Some analysts don’t believe that with the actual products they can achieve the expected growth, but right now they are short on supply, and demand is strong enough to create delivery wait up to 9 months.
Full Self Driving
Tesla made clear to everybody that their focus is actually on FSD technology. Elon said that he would be shocked if they don’t reach a safety level significantly greater than a person by the end of this year and that “cars becoming self-driving with a software update might be the biggest increase in asset value of any asset class in history”.
Although some analysts have priced in the subscription income that this would represent in their models, few of them are aware of the true value of FSD. When it reaches level 4, the price will increase dramatically and it will have a tremendous impact on Tesla’s valuation.
Talking about the $25,000 car, Elon said in the past that he would like this car to be 100% autonomous, and in this call, he said that we are not making the right questions about it and could be understood from him that this car will be ready once autonomy is solved.
But the big surprise of the night was when Elon said that their main product focus this year was the Tesla Bot aka Optimus. A humanoid robot unveiled in last year’s AI day, designed to replace humans in dangerous, repetitive, and boring tasks.
He said that it will be a true revolution and that it will be bigger than their car or energy business because it is the ultimate product, the one that replaces human labor.
This product has the capacity of increasing the size of the economy multiple folds as it will prevent the lack of workers we are having today.
Most Tesla analysts think we will be able to see Optimus in their factories for training but Elon’s long-term goal is conceiving a product that eventually could replace any worker.
Then, why did Tesla stock plummet Thursday?
In my opinion, portfolio managers were waiting for a product roadmap of actual, down-to-earth products, and instead, they were given a futuristic and, in their minds, a non-realistic overview of almost science fiction products.
They need quick and short-term results for up to a year, and this roadmap looks more long-term for other kinds of investors.
Maybe Tesla should have made clear that now their main business is car sales and that they are bracing this part of the business because with the money they will earn they can afford research and development in more risky endeavors like FSD and the Tesla bot for the long run. This would probably please both portfolio managers and long-term investors.