Tesla in 2023
A lot of Tesla investors are pricing in 2 million deliveries for 2023. This is due to the fact that Elon Musk said on the earnings call that 2 million was possible, if nothing really goes wrong. That means no major wars, catastrophes or economic collapse.
Let's review just how possible 2 million deliveries might be, and what it would take in order for Tesla to achieve that milestone. In 2022 Tesla delivered 1.31 million vehicles. If Tesla hit 2 million then that would be a growth rate increase of 53%, which doesn't sound too extreme, as we have come to expect a 50% annual growth for Tesla.
According to Elon Musk demand is the highest it's ever been, due to all the price cuts that have taken place. The Model Y, in fact, is out of inventory in the U.S. and had its price raise in China recently.
And that even if Tesla do produce 2 million this year, they will also sell every vehicle. Yet despite such extreme price cuts of about an average of 20% across all markets, Tesla are still able to good generate gross margins, that we are told are going to be in excess of 20%.
Then on top of that, we are told that gross margins are not even the margins that are the most important. It's all about operating margin. The difference between gross margin and operating margin, is the operating expenses that Tesla incurs. Tesla have done an outstanding job in getting their OPEX (operating expenses) as low as it is, but not only that, it doesn't seem to increase very much, as Tesla's production increase.
In other words, we have two forces working in opposite directions here. As Tesla increases their supply, they need to reduce prices in order to find the new
demand for the additional supply. But as OPEX remains a relatively fixed cost, it means that the OPEX per vehicle is reducing each time too.
So for 2022 we have OPEX at $7.2 billion, and 1.31 million vehicles delivered. This ends up being about $5,500 of OPEX per vehicle. If OPEX remained the same for 2023, and we hit 2 million vehicles, then the OPEX per vehicle reduces to $3,600. I think this would increase a bit, but even if OPEX was $8 billion for the year, that reduces to $4,000 per vehicle, a reduction of $1,500 per vehicle, and all additional operating profit.
We have 2 million vehicles instead of 1.3 million. This is the operating leverage that Tesla has, and as they continue to ramp, the leverage increases with it. 2 million deliveries for the year is a big deal - when we start getting up into the multiple millions, then the OPEX per vehicle starts to really diminish.
For 2 million vehicles, if you estimate that the current capacities of all factories are around 250,000 a quarter for Shanghai and 150,000 for Fremont, or around 1.6 million annualized. To reach 2 million production for the year, we need an additional 400,000 from the new factories in Giga Berlin and Giga Texas.
If they are at a run rate of 3,500 vehicles a week currently, then that's 360,000 a year from them. If we add that on 1.6 million, then we are at 1.96 million. So Elon Musk talking about guidance of 1.8 million is less than the current run rates.
As far as the US is concerned, we actually know what the battery cell situation is there. The Long Range Model 3 with 2170 cells is not available right now, it's only the Model Y Long Range. There is 35 GWh a year of 2170 cells coming out of Giga Nevada. Some of them were used for the 20 or so working prototypes for the Tesla Semi, but probably not many more.
There are around 250,000 Model Y vehicles a year out of Fremont, which would consume around 20 GWh of 2170 cells. This leaves 15 GWh of 2170 cells that can be used in Giga Texas. That would equal around 180,000 Model Ys a year from Giga Texas, which is about 3,500 a week. 4680 battery progress is able to produce 1,000 Model Y vehicles a week too.
Which would mean an additional 50,000 a year, or taking our 1.96 million to 2.01 million for the year. That is the pretty much the total cell capacity Tesla has currently. The same applies for Giga Berlin, Tesla gets to about 15 to 20 GWh a year from LG Chem, which now mainly goes to Giga Berlin, and very few in Giga Shanghai.
This is about the same run rate in Giga Berlin as Giga Texas, due to the cells available. We are hearing that Giga Berlin is closing down for a production ramp and where will its battery cells come from. 2170 cells require massive capital expenditure to increase production and it takes a long time.
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2 Million Deliveries
The only option I would see is potentially BYD's blade batteries, which have been rumored. If Giga Berlin can make RWD versions of the Model Y, this would reduce the cost significantly, as it saves in tariffs and shipping costs. It will be interesting to see how that factory manifests a solution.
The Model 3 lines may be down for a bit of time this year, with the upgrade of the Model 3 Project Highland, which could be big, or it could just be a facelift with some minor cost savings. It could be Structural Battery Pack and front and rear castings. I would like to see an LFP 4680 battery. If that was the case I would have thought we might have seen some new giga presses, although they could use the same ones as the Model Y, as the mold can be altered easily enough, apparently.
But there are some definite cost saving exercises potentially for the Model 3, which might make sense as the price has come down, it would be good to increase margins again. This is one of the major highlights for the year. The Model 3 Project Highland could be using CATL's new Qilin Structural Battery Pack, with their M3P cells. This would mean the Model 3 would have more range and performance, or a smaller battery with similar range, yet simply lower cost.
This is highly speculative, but you never know what surprises Tesla might throw at us. I think Tesla's Giga Shanghai factory is pretty much at full capacity now, so I wouldn't expect any more line upgrades there, and any additional LFP cells they get will likely go into Energy now.
That leaves the only increase battery cell supply for Tesla using 4680 batteries. The pilot line is at 40% capacity, at around 4 GWh a year out of the potential 10 GWh/yr capacity. The one to watch now, is the new line that is running in Giga Texas. It has 4 4680 lines each with a capacity of 25 GWh a year. The first one is finally running, and if that can hit a run rate of 40% capacity, then we are at a further 10 GWh a year, or 140,000 Model Y vehicles.
We should keep an eye on these 4680 lines, as they are important for Tesla's cost reduction and mass production. People are talking about potentially 2.5 million units next year, which would only be about a 25% increase in growth, so it may be higher. I think the only way to see any growth in vehicle sales next year, is from Giga Berlin and Giga Texas, as we have no other factories that can ramp up to these levels. Tesla needs to build another Giga factory.
And the way that will happen will be from the increase in 4680 production. These factories are barely even at 1/4 of their potential capacity, or possibly even 1/8 if you think they might be as efficient as Giga Shanghai. This is where all the growth is coming. This might be it for the Model 3 and Model Y factories.
In Giga Texas we also have another factory for another vehicle, called the Cybertruck. A small number will be made this year and it will not add to any
significant amount for 2023. Next year, Elon Musk says it will hit volume production. It all comes down to the 4680 ramp. Not just the number of cells they are producing, but the Energy density. The cells produced at the pilot line in Kato Road was only producing the easiest chemistry they could, i.e. still using cobalt, and no silicon in the anode.
With the Giga Texas 4680 battery line, we will see some upgrades in Energy density there. The current energy density is likely only suitable for a single motor Cybertruck at this stage. It is all exciting, but will take time.
Tesla makes EVs and those take time to ramp up and produce. At some point, Tesla can become the most valuable company in the world. But it will take time, effort, and execution in all its factories and new factories and energy storage and FSD.
What do you think of Tesla's chance to produce 2 million vehicles in 2023? Will they get there?
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.