With its ceaseless innovation, record-breaking achievements, and the leadership of CEO Elon Musk, Tesla (TSLA -1.41%) is a company that never fails to captivate. As another quarter comes to a close and Tesla continues to reach new heights, it becomes even more vital for investors, both current and potential, to gain clarity on the company's trajectory.
Here are five key aspects that shed light on the enigma that is Tesla, guiding investors toward a deeper understanding of the world's most successful electric vehicle (EV) manufacturer.
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1. More records broken
In Q2 2023, Tesla achieved another record-breaking quarter, hitting new milestones in deliveries, production, and revenue. The company produced an impressive 479,700 vehicles during this period, representing an 85% increase year over year (YoY). Just three years ago, Tesla's production hovered around a measly 82,000 cars.
Similar to production, Tesla delivered 466,140 vehicles, another record for the company. Because EVs make up the bulk of the company's operations, Q2 revenues also soared, growing by 47% YoY and reaching an all-time high of $24.9 billion.
2. Margins slip
While there were plenty of accomplishments this past quarter, Wall Street focused on one aspect in particular -- declining profit margins. Tesla's gross margins decreased to 18.2%, down from 25% in Q2 2022 and 19.3% in the previous quarter.
The decrease can be attributed to a handful of factors. Most notably was the impact of inflation and rising interest rates, an issue evident across the automotive industry, and Tesla was no exception. To combat this, Tesla cut prices on various models six times this year to stimulate demand, but inevitably cut into profits. Additionally, Tesla also had to contend with increasing costs on commodities, manufacturing, and logistical expenses.
However, one significant factor contributing to diminishing margins was its substantial investment in research and development (R&D). Tesla allocated a record-breaking $943 million to R&D during the quarter, emphasizing the company's focus on staying at the forefront of cutting-edge technology.
3. Near-term goals
In the more immediate future, Tesla's top priority is to cut costs. Stated numerous times in the most recent earnings call, Tesla is "hyper-focused" on reducing expenses and then using those funds to reinvest in research and development, particularly in AI projects.
Adding to its prioritization of R&D, Tesla has set ambitious goals to solidify its position as a dominant force in the automotive industry. With a target to produce 1.8 million cars this year, the company is on track to achieve yet another record if it can keep up its current pace.
Moreover, Tesla is eagerly gearing up to deliver the highly anticipated Cybertruck in the coming months. The excitement surrounding the Cybertruck is immense. As Musk put it on the earnings call, "Demand is so -- so far, off the hook, you can't even see the hook."
4. Long-term goals
One of the more ambitious goals of Tesla is its target to produce 20 million cars by 2030. To aid in achieving this milestone, Tesla is focused on the construction of new factories. The most current project is the Gigafactory in Nuevo León, Mexico, which is expected to be operational by next year. The company is also in the early stages of potentially expanding into India.
Increasing production is vital for Tesla's value, but Musk foresees the development of autonomous driving and a subsequent robotaxi service as the most crucial objective for Tesla's long-term success, citing "quasi-infinite demand."
Before launching a robotaxi service, Tesla first needs to create its full self-driving software, a task that will require investing "north of a billion dollars" in its supercomputer Dojo to help train neural networks. Musk is optimistic about making this vision a reality and expects Tesla will achieve this groundbreaking feat by the end of the year.
5. What Musk thinks
In the eyes of Elon Musk, short-term challenges that Wall Street seems to be fixated on are mere bumps on the road to Tesla's grand vision. Musk believes that the potential for Tesla's growth is immense, with the possibility of achieving anywhere from 5x to 10x from its current standing.
"The short-term fluctuations in gross margin and profitability are insignificant in comparison to the long-term picture," Musk stressed, adding, "Autonomy will make all of these numbers look silly."
Most importantly, Musk views Tesla's financial position as "ridiculous" due to its rare ability to maintain free cash flow despite the cost-intensive nature of EV production. This strength enables Tesla to sustain investments in cutting-edge technologies that have driven its remarkable success for years to come.
