Tesla Loses $280 Billion in Market Value Overnight

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October 19 marked a significant date in the financial world as Tesla unveiled its third-quarter earnings reportInvestors anticipated this report with bated breath, only to find that the numbers presented fell short of market expectationsThe immediate Market response was swift and unfavorable—Tesla's stock plummeted by 4.78 percent, leading to a staggering loss of $38.6 billion in market capitalization, translating to approximately 280 billion yuan.

In the third quarter, Tesla generated a total revenue of $23.35 billion, an increase of 8.84% year-on-yearHowever, this figure represented a decline from the previous quarter's revenue of $24.93 billion, creating a sense of uncertainty among shareholders.

Breaking down the revenue streams, Tesla's automotive segment brought in $19.625 billion, which, while a 5% increase year-on-year, lagged behind the company's overall growth

In contrast, two other areas showed rapid growth: energy storage revenue surged to $1.559 billion, marking a remarkable 40% increase; the service and other categories reported $2.166 billion, up by 32% from the previous year.

Despite the increase in revenue, Tesla's profitability took a severe hit in the third quarter, with net profits plummeting by 43.62% to $1.878 billionThe attributable net profit stood at $1.853 billion, reflecting a drop of 43.71% compared to the previous yearOnce hailed as the most profitable car company, Tesla's financial metrics fell short of expectations across the board.

Financial metrics that had recently dazzled markets now painted a troubling picture; the operating profit margin shrank to 7.6%, down about ten percentage points year-over-year

Adjusted EBITDA profit margin was recorded at 16.1%, dropping roughly seven percentage points from the previous year's 23.2%. This shift stirred conversations among analysts and investors alike.

Foreseeing what was at stake, several prominent financial institutions—including Piper Sandler, Citi, and UBS—lowered their price targets prior to the report’s release, indicating a growing concern regarding Tesla's financial health.

Gross Margin Hits Four-Year Low

On the production front, Tesla reported a global output of approximately 430,500 vehicles in the third quarter, an 18% increase year-on-year, while deliveries totaled around 435,100, representing an increase of 27%. However, this was down 6% from the previous quarter

Officials attributed this drop in deliveries to necessary production halts for key facility upgrades, largely in response to a redesign of the Model 3.

Focusing on the specifics, the popular Model 3 and Model Y collectively delivered 419,100 vehicles, while high-end Model S and Model X sales accounted for approximately 16,000 units, illustrating a 14% decline from the previous yearThe sales proportion dropped from 5% to 3.7% year-on-year, a trend that alarms industry insiders.

The increase in vehicle deliveries has come at a cost, representing a strategic shift toward "price for volume." Throughout this year, Tesla has aggressively slashed prices across its range of vehicles in various markets, directly impacting its sales margins, which have now fallen below the pre-eminently coveted 20% benchmark.

In the first and second quarters, Tesla's gross margins stood at 19.34% and 18.19%, respectively, but the freshly released third-quarter report disclosed a further decline to 17.89%. This decline signifies that Tesla's gross margins have dipped below 20% for three consecutive quarters, marking their lowest levels in nearly four years.

Shifts in the global automotive supply-demand equation have also led to an increase in the number of days vehicles remain in inventory, rising from 8 days during the same period last year to 16 days this quarter, highlighting the challenges Tesla faces in balancing supply and market demand.

Interestingly, while the gross margin for the automotive business was not specified in the report, CEO Elon Musk emphasized in the subsequent earnings call that the energy business currently yields the highest gross margins for the company.

Tesla highlighted an unprecedented peak in energy storage deployment in the third quarter, achieving 4GWh

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In California, a facility expansion in its second phase is poised to increase capacity to 40GWh, propelling continued growth in deployment and boosting productivity even further in the current quarter.

Challenges in Cybertruck Mass Production and Profitability

During the earnings call, Musk shared updates about the highly anticipated Cybertruck, which he views as a vital contributor to Tesla's "second growth curve." Following several delays, delivery of the Cybertruck is expected in November, with an impressive 1 million reservations already logged.

Musk praised the Cybertruck as an outstanding product, but tempered his optimism by saying, "Achieving mass production and generating positive cash flow from the Cybertruck will be fraught with challenges." This statement undoubtedly dampened investor enthusiasm and cast a pall over future projections.

He further elaborated that creating a completely new advanced product entails a typical array of hurdles

"The difficulty of mass production is a thousand times greater than making a prototype, and achieving positive cash flow will be even more challengingThe most optimistic estimate puts the timeline at around 1 to 18 months." This admission led market analysts to speculate that the November delivery might only cater to a limited group rather than everyday consumers.

On the anticipated sales of the Cybertruck, Musk postulated that a hopeful scenario could see about 250,000 units sold yearly, projecting that this goal could be met by 2025.

Another critical element worth mentioning is Tesla's Full Self-Driving (FSD) service, which Musk has long envisioned as one of the main profit-generating streams for the company

Currently, FSD subscription uptake in North America is around 20-25%. Tesla reported that vehicles under the FSD beta program have collectively driven over 500 million kilometers.

However, in September, Tesla significantly reduced the subscription price for FSD in North America from $15,000 to $12,000, a 20% discountFollowing the general trend of lowering vehicle prices, this move raised investor concerns regarding the future profitability of the serviceMusk responded, stating, "We want it to be more affordable, allowing more individuals to give it a tryOver time, the FSD price will correlate with its value as it grows."

Through the first three quarters, Tesla's global delivery totaled approximately 1.324 million vehicles