Saturday, May 18, 2024

Tesla Cuts Prices With One Big Question For The Earnings Call

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Tesla (TSLA) and BYD (BYDDF) are the world’s largest electric-vehicle makers.




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A lot of attention is focused on EV startups such as Nio (NIO), Li Auto (LI), Xpeng (XPEV), Rivian (RIVN) and Lucid (LCID). Efforts by traditional auto giants such as General Motors (GM), Ford Motor (F) and Volkswagen (VWAGY) also get coverage. However, Tesla and BYD stand apart.

In 2022, China EV and battery giant BYD’s vehicle sales raced ahead of Tesla’s. For all-battery electric vehicles (BEVs), BYD seized the crown in Q4 2023, but Tesla regained that title in Q1 2024.

But Tesla’s first-quarter deliveries came in far below even the most bearish estimates, declining vs. a year earlier despite continued price cuts.

Elon Musk is now touting a renewed focus on Full Self-Driving and robotaxis, with an unveiling event on Aug. 8. But that raises concerns that a small EV will be pushed back several years.

Meanwhile in April, Tesla raised EV prices than cut them, along with slashing FSD prices. It’s also announced big layoffs, along with some key executive exits.

So with Q1 earnings due, all focus will be on the conference call, with analysts looking for some clarity about Tesla’s strategy and when growth will return. Most importantly: Is a much-touted small EV on hold for years to come

Meanwhile, BYD sales plunged in January-February amid typically weak China demand due to Lunar New Year holidays, and as consumers waited for price cuts and new models.

But sales rebounded in March as the EV and battery giant unleashed sweeping price cuts across a refreshed and enhanced lineup, with further tech advances in the coming months.

BYD stock is consolidating after tumbling for many months. Tesla has plunged to a 52-week low.

Let’s take a look at BYD vs. Tesla, as well as BYDDF stock vs. TSLA stock.


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Tesla Vs. BYD Sales

Tesla delivered 386,810 vehicles in Q1, far below even the most bearish views. That was down sharply from Q4 2023’s record 484,507 EVs and off 8.5% vs. a year earlier.

There was weakness in all of Tesla’s major markets.

U.S. Model 3 production was low as the Fremont plant struggled with the upgraded sedan. The company produced 433,371 vehicles worldwide, even with Berlin and Fremont woes and with Tesla slashing Shanghai output.

Meanwhile, BYD announced first-quarter sales of 626,236 EVs, including 300,114 passenger BEVs. That was down sharply from Q4’s 944,779 but up 13.4% vs. a year earlier. After a dismal start to 2024, BYD sold 302,459 in March alone, including 139,902 BEVs.

BYD appears likely to reclaim the BEV crown from Tesla in Q2, though PHEVs have been in higher demand.

BYD Price Cuts

BYD in early 2024 slashed prices across its low-end, mainstream and some of its premium offerings, usually by more than 10%. It’s leveraging its advantages from lower lithium prices and being a low-cost, vertically integrated automaker, producing its own batteries, motors and many other key components, including many of its chips.

At the same time, BYD is adding more smart tech to its vehicles, with driver-assist systems offered on its flagship Han and other mainstream offerings.

BYD is explicitly targeting traditional gas-burning vehicles, with its “electric cheaper than gas” slogan. Traditional automakers are cutting prices to keep pace, but so are China EV makers, many of which are not profitable.

Tesla Price Swings

After slashing prices during 2023, Tesla kept cutting prices in 2024, while Model Y inventory discounts continued to swell.

After preannouncing the moves in an apparent bid to pull sales into March, Tesla raised Model Y list prices slightly on March 22 in Europe and on April 1 in the U.S. and China.

More recently, Tesla has largely eliminated huge inventory discounts in the U.S. That, along with recent layoffs and other moves, suggests big production cuts and an effort to prop up margins at the expense of sales. That’s a reversal of Elon Musk’s professed strategy in 2023.

On April 20, Tesla cut Model Y, S and X prices in the U.S. by $2,000, after raising Model Y prices by $1,000 on April 1. With most inventory discounts gone, the effective price may be significantly higher than a few weeks ago.

However, Tesla also cut Model 3 and Y prices in China by nearly $2,000, while slashing imported Model S and X vehicles by up 22%. The EV giant also cut Model 3 prices in several European countries, including Germany.

Tesla also also cut the FSD price to $8,000 from $12,000, days after halving the FSD subscription price to $99 a month.

Tesla Subsidies In 2024

In the U.S., the first two Model 3 variants lost their $7,500 IRA credits as of Jan. 1 due to tighter battery sourcing rules. Tesla could adopt different batteries over time, but would likely be more expensive.

Germany abruptly ended EV subsidies of 4,5000 euros as of Dec. 17. France ended subsidies for EVs made outside of Europe as of Dec. 15. That hits the China-made Model 3, but not the Berlin-made Model Y.

California, a massive market for Tesla, has limited its EV subsidy to the middle class and poor.

Tesla Model 3 Revamp

“Highland” Model 3 deliveries began in China and Europe in October. The modest refresh hasn’t spurred a big demand boost. The updated Model 3 is now available in the U.S. market, with only RWD and LR variants for now. Production has been severely limited.

Meanwhile, various reports said that the Model Y won’t get a “Project Juniper” refresh in 2024.

Tesla Cybertruck

tesla tsla bev BYDTesla began deliveries in November. Two variants, the AWD Cybertruck and Cyberbeast, start at $79,900 and $99,990, respectively. For the next several months, Tesla is selling “Foundation” versions of the AWD and Cyberbeast variants, but for an extra $20,000.

Many early owners have complained of a slew of problems, including breaking down after a few miles. In late April, Tesla recalled all Cybertrucks to fix an accelerator pedal that can get stuck.

A base-model Cybertruck will start at $60,900, with a claimed 250-mile range, but won’t be available until 2025.

When the Cybertruck was first unveiled in 2019, Tesla said it would start at $39,900 with a top-variant range of 500 miles.

On the Q3 earnings call, Musk said that Tesla dug its own “grave” with the difficult-to-produce design. He added that it won’t be financially positive for Tesla in the first year.

The Cybertruck is the EV maker’s first new passenger vehicle since the Model Y launched in early 2020. But the Cybertruck will largely be a North American vehicle, so Tesla may not have a new vehicle for most markets for several more years.

In late 2022, Tesla handed over a few dozen Semi trucks to PepsiCo (PEP), but still hasn’t declared any Semi deliveries yet, or revealed prices and actual specs.

Small EV Vs. Robotaxi

Tesla has teased a next-generation EV, but hasn’t even shown images. It was originally set to be built at a Mexico plant, but Elon Musk said the $25,000 EV, but Tesla hasn’t broken ground on that location and may be putting those plans on hold.

On April 5, Reuters reported that Tesla had scrapped plans for a $25,000 EV in favor of a robotaxi with no steering wheel, something Musk had pushed for in the past. Musk wrote on his social site X that Reuters was “lying,” but didn’t elaborate. Late on April 5, he announced that Tesla will unveil a robotaxi on Aug. 8.

But an actual robotaxi would require Tesla to achieve at least L4 self-driving, which may be years away at best.

Musk has made further comments suggesting that he’s making the robotaxi and Full Self-Driving the main priority.

That appears to suggest that Reuters and other reports are correct, and that a small EV could be on hold for many years.

One reason for a small EV delay may be a lack of batteries that would comply with getting the $7,500 IRA credit in the U.S. Outside the U.S., a cheap Tesla already would face a slew of competition, especially from BYD.

Tesla vehicle plans will be the key focus of the Q1 earnings call on April 23.

Tesla Production

Tesla capacity has increased at its Berlin and Austin plants after significantly expanding its mammoth Shanghai factory last year.

But demand hasn’t kept up with expanded output, even with Tesla slashing prices and curbing production well below capacity.

Tesla’s European sales weakened as 2023 wore on, a problem that has continued with the loss of key subsidies there. That may mean even fewer Tesla Shanghai exports to Europe.

Tesla reportedly has cut Shanghai production significantly starting in March due to insufficient demand, with signs that output may be cut even further.

The recent price hikes and global layoffs suggest production cuts worldwide.

BYD Expansion

BYD is ramping up EV and battery production. It’s already building an EV factory in Thailand, set to begin production in the third quarter. It has a joint venture knock-down assembly plant in Uzbekistan that should begin production in Q3. BYD recently broke ground on a factory in Brazil, with plans to start output in early 2025.

BYD also has announced plans to build plants in Hungary and Indonesia. The company has signaled it could announce plans for a Mexico plant later this year. The Mexico production reportedly would not target the U.S. market, with BYD wary of U.S-China tensions.

BYD does build EV buses in Lancaster, California.

While BYD is making noise with price cuts, it’s also expanding its premium lineup.

BYD’s super-premium brand Yangwang began U8 deliveries in late 2023. BYD officially launched its high-performance Yangwang U9 supercar on Feb. 25. with a price tag around $233,500, though deliveries haven’t started.

BYD’s FangChengBao brand has also started deliveries of the Bao 5, with the larger Bao 8 and smaller Bao 3 unveiled on April 16, along with a sports car.

The Yangwang and FangChengBao lines and, to some extent, the Denza brand, offer significantly higher margins and are a place to showcase cutting-edge tech first.

On April 9, BYD unveiled its long-awaited pickup, a plug-in hybrid with a total range of 1,200 kilometers (746 miles). The event is taking place in Mexico. With China’s severe restrictions on pickups, this BYD PHEV has been designed with overseas markets the priority.

With hybrids coming back in favor with the industry, BYD is selling more PHEVs to start 2024 after BEVs led in 2023. A more-advanced hybrid system this year could further fuel BYD PHEV sales later this year.

BYD is expanding massively overseas. Thailand has become a big market, but it has entered most of Asia. It’s the No. 1 EV seller in Israel and has entered Europe. BYD is making a big push throughout Latin America, especially Brazil.

Exports are still a small share of sales, but have skyrocketed from almost nothing in mid-2022. Notably, BYD is generally selling EVs overseas at higher prices than at home, boosting margins even after shipping and other related costs.


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Tesla Vs. BYD Batteries

Tesla traditionally has not mass produced its own batteries. For lithium-ion batteries, its joint venture partner Panasonic makes the cells and Tesla packages them. It also buys lithium-ion batteries from South Korea’s LG. Tesla also has bought lithium iron phosphate (LFP) batteries from China’s CATL.

Tesla is working on 4680 batteries, first touted at the 2020 Battery Day. The 4680 batteries are standard lithium-ion chemistry, but the larger form factor offers the potential for various benefits and cost savings. Tesla’s 4680 production has picked up output in recent months, but is still relatively low.

Also, more than three years after the much-hyped Battery Day, Tesla hasn’t solved key technical hurdles to allow for 4680 mass production and cost savings. It’s also not clear if some of the battery benefits are coming to fruition.

If nothing else, the focus on the 4680 batteries meant that Tesla did not focus on expanding production or sourcing of traditional 2170 cells that would comply with IRA tax credit rules.

In early 2024, Tesla reduced the estimated range substantially on key Model Y variants, as well as the Model S and X, following new EPA testing rules. The new estimates are more in line with real-world experiences with Tesla drivers. The Justice Department has been investigating whether Tesla exaggerates battery range.

BYD, meanwhile, is one of the world’s largest EV battery makers. Its Blade batteries are a specialized LFP. BYD is ramping up battery plants to supply third-party EV makers as well as storage, above and beyond its own EV needs.

In fact, Tesla uses BYD battery packs for a Model Y variant at its Berlin plant.

BYD, like CATL and some others, is working on sodium-ion batteries. Those could be useful in smaller EV vehicles as well as for energy storage.

BYD reportedly will unveil a next-generation Blade battery in the third quarter. It’s expected to unveil a fifth-generation hybrid system, offering significantly longer range, at some point after May.

Both Tesla and BYD are expanding in battery storage for home and business applications or utility-scale projects, though Tesla gets its batteries from CATL. BYD also teamed up with South Korea’s LG for storage in North America and Europe.

Tesla’s Other Businesses

Tesla has its own Supercharger network in its markets. That’s especially important in the U.S. and countries like Australia, where third-party charging facilities are limited.

Tesla has struck deals with Ford, GM, Rivian and others to give those automakers’ EV customers access to Superchargers in the U.S. They’ll also adopt Tesla’s charger standard soon. Those deals, and some related charging subsidies, will provide a nice boost to revenue. But they will reduce Tesla’s charging moat in the U.S., which encouraged people to buy Tesla EVs

Tesla also has a solar installation business, but it’s been struggling.

Tesla’s self-driving ambitions continue. Autopilot and Full Self-Driving help bolster Tesla’s image of cutting-edge technology, while FSD is a key source of revenue and profit, especially in the U.S. However, even FSD Beta remains a Level 2 driver-assistance system vs. a Level 4 or 5 fully autonomous system.

There has been buzz over the latest version of FSD Beta. That does come as bulls are desperately looking for growth drivers.

On April 12, Tesla, slashed the FSD subscription price to $99 a month from $199. That could spur more FSD subscriptions, but will likely hurt FSD sales. On April 20, Tesla cut the FSD purchase price to $8,000 from $12,000.

With Musk touting a robotaxi event, Tesla is putting even more of its growth prospects on self-driving.

BYD Other Businesses

BYD, notably, makes its own chips. That, along with the in-house batteries and other vertical integrations, helped BYD expand rapidly when many rivals struggled from chip and other supply shortages.

The EV and battery giant also has solar operations.

BYD will introduce at least Level 2 driver-assistance systems in its Yangwang and Denza vehicles, as well as some BYD-brand EVs, over the next year. Level 2 systems, many with Lidar, are increasingly common in China, especially in premium models.

Rolling out quality Level 2 systems will be a priority for BYD’s brands in the coming year, as that’s increasingly becoming standard in mainstream and entry-level premium vehicles in China.

BYD detailed its autonomous driving efforts at a Jan. 16 event, disclosing massive R&D spending and staffing. It’s rolling some Level 2 systems, starting with premium models, but with mainstream models set to get them over the next year.

BYD Co. is largely known for its BYD Auto operations. BYD Electronics, which accounts for an increasingly smaller share of overall revenue, is involved in mostly low-margin businesses such as smartphone components and assembly.

In December 2023, BYD Electronics closed its $2.2 billion deal for the mobility business of Jabil (JBL). That will boost the unit’s exposure to Apple (AAPL).

Tesla Earnings

Tesla earnings plunged 40% to 71 cents a share while revenue grew just 3.5% to $25.2 billion. Both slightly missed views.

Ongoing price cuts have propped up vehicle demand, but at the cost of margins.

Tesla gross margin fell to 17.6% from 17.9% in Q3 and 23.8% in Q4 2022.

Auto gross margins ex regulatory credits rose, slightly beating forecasts.

Operating margins rose 8.2%, breaking a long slide to 7.6% in Q3. It was 16% in Q4 2022. That’s in the normal range for traditional automakers.

Those margins improved with some cost reductions, but Tesla’s CFO said those savings have largely run their course. That suggests that ongoing price cuts will continue the downward pressure on Tesla’s once-mighty margins.

Analysts, who have been slashing Tesla estimates since the end of 2022, now see 2024 EPS sliding 15% to $2.66 after skidding 23% to $3.12 in 2023.

Those estimates may have further to fall. If a small EV is pushed back significantly, Wall Street may be more aggressive about cutting profit estimates for 2026 and beyond.

BYD Earnings

BYD earnings had been booming, but faced headwinds in Q4 amid significant discounting.

Q4 earnings rose 16% vs. a year earlier, with revenue up 12% to a record $25.4 billion. But profit was below Q4 levels.

Recent big price cuts and discounts will be offset to a large extent due to lower battery costs and other savings, but will likely continue to pressure margins in 2024.

BYD will likely release preliminary Q1 results in late April.

Tesla Stock Technicals

Tesla stock is down 40.8% so far in 2024 as of April 19, hitting 52-week lows, according to MarketSmith analysis. Shares surged 102% in 2023.

Shares briefly rallied after Musk announced the robotaxi event late on April 5, but then sold off on concerns that Tesla will not see growth for several years.

Even though Tesla stock has plunged, it’s not getting cheaper relative to earnings.

The relative strength line has been hitting its lowest levels in more than year.

BYD Stock Technicals

BYD stock is down 7.3% in 2024 through April 19. Shares have rebounded from a 52-week low at the end of January. Shares climbed 12.7% in 2023.

BYD is back above its 50-day and 10-week lines but below its 200-day line. It has a lot of repair work ahead.

The EV giant hit a 52-week high of 36.27 on July 31, but trended lower amid concerns that the China EV price war would hit sales and profits.

Warren Buffett’s Berkshire Hathaway (BRKB) has been a longtime major investor in BYD. But Berkshire has sold slices of its H-shares in BYD, starting in late August. The latest was disclosed on Oct. 31. Berkshire still owns about 5% of BYD, based on all share classes, but has halved its stake.

Tesla Vs. BYD Market Cap

Tesla stock has a market cap of $468.32 billion as of April 18, well off its peak of about $1.2 trillion. That’s still far above BYD’s $70 billion.

With Tesla margins now more like a traditional automaker, and with growth constrained for the near future, Tesla stock has a high valuation for its EV-led operating businesses. Much of Tesla’s valuation is clearly based on hopes that Musk will achieve breakthroughs in self-driving, robotics and AI.

BYD stock is listed in Hong Kong and Shenzhen, and only trades over the counter in the U.S. That also means the BYDDF stock chart shows a lot of minigaps.

Tesla Stock Vs. BYD Stock

BYD sells far more EVs than Tesla, though the latter has regained the “BEV” title, at least for now. More broadly, BYD in many ways is the EV maker Tesla has claimed or aspired to be. BYD makes its own batteries and chips, and sells those batteries to third parties such as Tesla. Musk has talked about making a $25,000 Tesla; BYD makes EVs profitably at far below $25,000.

With Tesla no longer “production constrained,” it shifted to price cuts to support demand. Now it sees to be shifting to production cuts and firming up pricing.

BYD has expanded in several big markets, and that is key to its efforts to be a global auto giant. Its model lineup continues to expand dramatically, with big moves upscale and adding tech to its more-affordable offerings.

Tesla has begun Cybertruck deliveries, but significant shipments won’t occur for several months. Musk has said the vehicle will be a financial drain in 2024. A next-generation vehicle may not arrive for many years.

Tesla stock doubled in 2023 but has been trending lower in recent months, with sharp losses to start 2024.

BYD stock, meanwhile, plunged on China EV price war concerns, though they have steadied over the past couple of months.

Both EV giants are delivering far more electric vehicles than rivals. Tesla profits tumbled in 2023. BYD earnings growth remains strong, though it cooled late last year.

So keep your eyes on BYD and Tesla, as well as Tesla stock vs. BYD stock.

Please follow Ed Carson on X/Twitter at @IBD_ECarson, Threads at @edcarson1971 and Bluesky at @edcarson.bsky.social for stock market updates and more.

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