Tesla's Q3 Earnings Call: Elon Musk's Concerns About the Economy and How It Affects Tesla

October 19, 2023

By Kevin Armstrong

Tesla's Model Y starting price across the U.S.

Not a Tesla App

Elon Musk had a distinct note of concern about the current economic climate, particularly the high-interest rate environment, during the 2023 third-quarter earnings call.

Tesla's earnings dropped by 37% from a year earlier, marking the smallest profit in two years. The company's third-quarter revenue saw a 9% boost from the previous year. However, Tesla fell short of Wall Street expectations on both fronts.

The company's profit margins have also slimmed. Its gross margin stood at 17.9%, a seven percentage point dip from a year ago. The adjusted automotive margin, a metric closely watched by industry experts, fell by nearly 11 percentage points to about 18%.

Interest Rates and Car Affordability

Musk began by highlighting that buying a car boils down to the monthly payment for most people. "The vast majority of people buying a car is about the monthly payment... as interest rates rise, the proportion of that monthly payment that is interest increases naturally," Musk stressed.

With rising interest rates, a larger portion of the monthly payment goes toward interest, making it difficult for many to afford the car. He stresses, "If interest rates keep rising, you just fundamentally reduce affordability."

This is a particular concern for Tesla, as they are tracking for the Model Y to be the best-selling car globally, not just in revenue but unit volume. Musk explains that high-interest rates can reduce the affordability of their vehicles, likening rising interest rates to an increase in the car's price.

Listen to Replay of the Earnings Call

Historical Lessons from 2009

Musk's concerns are not unfounded. He vividly recalls 2009 when General Motors and Chrysler filed for bankruptcy. Musk recounts Tesla's close brush with the financial crisis, detailing how they closed a financing round on Christmas Eve, without which they would have failed to meet payroll just two days after Christmas. The memory serves as a poignant reminder for Musk, who emphasizes, "I don't want to be going at top speed into uncertainty."

Despite the looming economic concerns, Tesla has growth opportunities. Giga Texas still has ample space to expand production, pointing out that they are "only occupying a tiny corner of the land that we have." However, Musk noted that one of their major challenges is personnel, as the greater Austin area has a limited population, which is further constrained by a housing crisis.

The Importance of Car Price

Musk touched upon price elasticity, comparing Tesla vehicles to other cars like the RAV4. He emphasized the importance of making Tesla vehicles more affordable for the majority, iterating, "Cost is not an optional thing for most people; it is a necessary thing." He further explained that due to rising interest rates, even though Tesla has reduced the prices of vehicles like the Model Y, the monthly payment for customers remains almost the same due to the increased interest component.

The Wider Banking and Credit Situation

Musk also dived into a more significant credit situation. He pointed out that acquiring credit has become a challenge for many. Many banks have become more cautious, and some, like Credit Suisse, have even collapsed, which was an unexpected shock for many. He added, "People are reading about wars all over the world. Buying a new car tends not to be front of mind.

Elon Musk's concerns mirror the more considerable anxieties surrounding the global economy. The call served as a reminder that even industry giants like Tesla are not immune to global economic shifts and uncertainties.

Tesla and Rivian Settle 4-Year-Long Lawsuit Out of Court

November 26, 2024

By Karan Singh

Not a Tesla App

Tesla and Rivian have been in court since 2020 after Tesla alleged that ex-employees stole and transferred trade secrets. Tesla also alleged that Rivian was encouraging Tesla employes to depart and bring said trade secrets with them on their way to Rivian.

Tesla is now seeking to have the suit dismissed on December 24th of this year, assuming the settlement terms are reached.

Initial Lawsuit

The initial lawsuit in 2020 involved several employees, including a Health and Safety Manager, a Charging Network Manager, and two Human Resources Recruiters, who all departed Tesla to move to Rivian. Tesla alleged that these employees took trade secrets, confidential materials, and proprietary information when they joined Rivian.

The next year, Tesla added to the suit, alleging that Rivian stole technology related to Tesla’s next-gen batteries. That would’ve been the 4680-cells back then - now the updated Cybercell which is shipping in the Cybertruck.

Out-of-Court Settlement

On November 25th, Tesla informed the California state court that it would be settling the matter with Rivian out of court. This means that Tesla and Rivian have come to an agreement outside of the court case, and Tesla will be dropping its lawsuit. This is good for both companies—extended legal battles are extremely expensive, especially with highly paid, specialized lawyers on both sides of the battle arguing it out for nearly four years.

It's good to see that both companies are moving forward. Rivian stock saw a positive bump in yesterday’s trading from this news—approximately 13%. We’re looking forward to seeing what both companies do in the future. It’d be best to see both as allies in electrifying the planet and supporting adventuring rather than at each other’s throats in court.

Tesla is Setting Up Pop-Up Displays Across Malls in the United States

November 26, 2024

By Karan Singh

David Zhai on LinkedIn

Each year, around the Holiday season, Tesla puts up pop-up mall displays across the United States, Canada, and certain locations in Europe. It looks like Tesla is continuing this tradition once again this year, as David Zhai, Concept and Prototype Staff Manager at Tesla, has stated on LinkedIn that the Tesla Pop-Up Shops are returning.

Pop-Up Displays

Tesla intends to build small pop-up displays featuring Tesla vehicles, including the Cybertruck, at major malls throughout the United States. These displays are usually temporary and just for the holiday season. However, they’re placed in high-traffic areas, usually near the center of major malls - near food courts and rest areas.

They’re also usually staffed by members of the local Delivery/Service Center, who are around to answer questions and show off the features of the vehicles on display. After all, seeing a Cybertruck from a distance is one thing - sitting inside is entirely another.

Other Regions

David Zhai didn’t mention whether these would be coming to other regions - just the United States. It seems that while Tesla previously ran these displays globally, it may not be the case this year. We’ll keep an eye out and see if they start popping up in Canada, Europe, or China - let us know if you spot one there!

Drive-By Displays

When Cybertruck launched, Tesla also held drive-by displays throughout North America and Europe. They drove the Cybertruck into places like New York’s Times Square while towing a Model 3 or Model Y on a trailer behind it. These displays were really popular and attracted tons of attention.

We’re hoping to see more of these drive-by displays make a comeback sometime soon. Many owners have yet to see the new Model 3 or the Tesla Semi up close and personal.