Read on Twitter
1/ Tesla's Q1 Auto Gross Margin
I've spent an inordinate amount of time in the last month or so trying to get a grasp on Tesla's likely auto GM for Q1. Q4 surprised everyone with a substantial dip in this key metric, which had been steadily increasing.
I've spent an inordinate amount of time in the last month or so trying to get a grasp on Tesla's likely auto GM for Q1. Q4 surprised everyone with a substantial dip in this key metric, which had been steadily increasing.
2/ On the Q4 call Master of Coin Zach Kirkhorn addressed the issue like this: "Automotive gross margin in Q4 was primarily impacted by two things: First, we invested in improving our products built in Fremont, including converting over to the new Model S and Model X, launching...
3/ ...the single-piece castings on Model Y and introducing heat pump on Model 3. Second, logistics and labor costs were impacted due to supply chain instability and pandemic inefficiencies...
4/ ...Adjusting for items such as these as we do in our internal management views, we saw an improvement in auto gross margin."
When I initially heard this explanation, and up until quite recently, I thought some of these issues, most notably supply chain issues...
When I initially heard this explanation, and up until quite recently, I thought some of these issues, most notably supply chain issues...
5/ would leak into Q1 and continue to cause margin pressure. With Model S and X production grinding to a halt, this would seem to potentially cause even more pressure in Q1. However, I now believe that the casting machines and new S/X equipment likely resulted in a write down...
6/ of some PP&E in Q4, and that could potentially have been worth hundreds of millions of dollars. This accounting treatment would be a bit unusual, but if the replacement parts were of like-kind, then the write-off of the old equipment would actually hit gross margin...
7/ So the huge drop we saw in Q4 could actually have primarily been due to some accounting technicalities rather than actual manufacturing costs. If this is the case, and we have an outstanding ramp on both the US and MIC Model Y, margins could actually see...
8/ a rather massive boost in Q1, which would come as a shock to most people, and certainly would drive an earnings beat. I'm honestly not sure where I ultimately fall on this question. I do think there will be some lingering supply chain issues, and the S/X lines being down...
9/ certainly doesn't help. But as I've been thinking about this more lately, it seems that those may be relatively small items compared to the lack of new equipment in Q1, and the huge ramp of higher margin Model Ys.
10/10 Here's a summary of my thoughts on the QoQ change in Auto GM. Let me know if I'm missing anything, or what you think we'll ultimately see later this month.
