In his latest video, YouTuber and first-ever Tesla investor Dave Lee asked whether or not Tesla can deliver 1.5 million Model Y vehicles in 2023 and how to assess that as a Tesla investor. . Disclaimer: I too own a few shares in Tesla shares [NASDAQ: TSLA].
What inspired this video was a “huge clue” given by Elon Musk regarding Tesla’s ambitious plans for the future. Dave also included a response from Elon to one of his tweets about it.
First, Dave shared the tweet he shared to which Elon replied. Dave said: “If you missed Tesla’s revenue, the highlight was Elon Musk sharing the call that he believes Tesla’s Model Y will become the best-selling vehicle of any type in 2022 or 2023.” Dave also highlighted the world’s best-selling car, the Toyota Corolla, which sells around 1.5 million units per year. In order for Tesla to beat that, it will have to sell 1.5 million units in 2022 or 2023. Elon replied that this was most likely based at least on revenue in 2022, and perhaps on the total number of units in 2023.
Before you dive any further, think about it for a moment. Imagine an electric vehicle being the best-selling vehicle of any type, finally beating gasoline vehicles.
Seems very likely at least based on revenue in 2022 and possibly total units in 2023
– Elon Musk (@elonmusk) April 26, 2021
Dave pointed out that Elon has somehow lowered expectations and that in 2023 Tesla may reach that milestone. After that, Dave pointed out that one of his favorite things about Zachary Kirkhorn and Elon Musk is the fact that both of them tend to under-promise. They don’t often set high expectations.
“On the other hand, I like it when Elon gives these really tasty hints about Tesla’s super-ambitious crazy plans.” And Tesla would need such a plan to make over 1.5 million electric vehicles in 2022 or 2023. I say “finished” because that number does not include other Tesla models.
Dave’s tweet that Elon replied to was the first in a thread where he pointed out that if Tesla were able to sell 1.5 million Model Y vehicles and 500,000 Model 3 vehicles, that would represent 2 million electric vehicles produced in 2022 or 2023. The most likely outcome would be for Tesla to achieve these. numbers in 2023. Dave outlined what 500,000 vehicles per quarter could look like in terms of revenue.
Dave explained that he had introduced “towel math” and pointed out that “the four things you just need to know [with regards to the] The math of the towel is revenue, gross profit, operating expenses, and operating income, ”and then he quickly breaks down each one.
Returned. That’s the money Tesla makes. You multiply the vehicles for that quarter or year by the Average Selling Price (AVP) per vehicle. This is the money Tesla makes from the sale of its products and services.
Gross profit. This is calculated by subtracting all costs from income. Costs include the cost of building factories, manufacturing vehicles, overheads such as employees and rentals, parts.
“In Tesla’s case, they could maybe get a gross profit of $ 5.6 billion if they sold 500,000 vehicles a year,” Dave said.
Then you subtract the operating expenses. “Let’s say it’s $ 2 billion. Tesla is left with $ 2.6 billion in operating revenue. I don’t think people understand the magnitude of the amount of money or profit Tesla is about to generate with their vehicles increasing dramatically. “
Map the scale
To help understand this magnitude, Dave created a simple spreadsheet that shows how it would work year over year (YoY). For example, if Tesla sold 500,000 Model 3 vehicles in 2021, 350,000 Model Y vehicles this year, and 50,000 each of the Model S and X models, that makes 900,000 vehicles.
Dave takes it one step further until next year – again, hypothetically speaking.
“Let’s say Model 3 is still at 500,000. So I’m just saying hypothetically if Model 3 stays the same. Let us be conservative. The Model Y climbs to 750,000. With Austin, Berlin and Shanghai expanding, that seems doable. The only question is whether the 4680 cells can really deliver that, but also Tesla’s ramp-up suppliers, as they noted. So you have the S and X models at 100,000 vehicles, Cybertruck and Semi at 150,000. I think that’s pretty reasonable – over 1.5 million units.
For 2023, Dave pointed out that this is the year that Tesla could sell 1.5 million Model Ys and 500,000 Model 3s and, hypothetically speaking, Tesla could sell 100,000 Model S vehicles, 300,000 Cybertrucks and Tesla Semis. “That’s 2.4 million cars in 2023. So what does that look like? How can we assess this overall? “
To make this easier to digest, Dave assumes that Tesla keeps its average income at $ 45,000 per car (this actually fluctuates as some vehicles are cheaper or more expensive and it depends on whether or not customers add upgrades. level).
“As Tesla grows and increases production, the average selling price of the car may go down, but maybe they could make up for it with fully autonomous driving. So let’s hypothetically say it stays the same at $ 45,000. Gross profit – let’s say it stays at $ 25,000 / 25% and then the operating expenses will increase a little bit each year and we’ll get operating profit.
What it looks like for 2021 and 2022
With these numbers in mind, for 2021, Dave points out that Tesla hypothetically has $ 40 billion in revenue with gross profit of $ 10 billion and operating expenses of around $ 6 billion with revenue of $ 10 billion. operation of $ 4 billion. You have to take out taxes and interest income to get the bottom line numbers, Dave noted, but he just wanted to use operating income to paint a quick picture. After that, he shares what it might look like for Tesla in 2022 if it sold 1.5 million vehicles.
“You get $ 67.5 billion in revenue.”
While Dave also details the amount of operating expenses and gross profit that goes with it, think about that number for a moment.
What just happened here?
Dave explained that with all of these hypothetical numbers, over the two-year period from 2021 to 2023, Tesla could go from $ 4 billion in operating profit to $ 18 billion in operating profit.
“If you follow these numbers, that’s a 4X jump in operating profit in just two years. Dave stressed that this was not about investment advice, it was just his stream of consciousness. This is a possibility for Tesla and it could reach the numbers he used in the video or reach higher or lower numbers than the ones he used.
“I don’t think people fully understand the operating leverage that Tesla has. This means that as income increases, their expenses do not increase as much and, therefore, their operating income increases faster than their income growth.
You can watch Dave’s full video here.
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