There’s an art to translating Elon’s commentary into Tesla’s projected quarterly results. This art should be complemented with some science.
There are four key steps in reaching a conclusion:
- At the highest level, Elon has been clear that the June quarter will be “tough.”
- Elon has announced the company is laying off 10% of salaried staff while at the same time increasing hours for the manufacturing line.
- In June 2022, Tesla raised prices on six of their nine trims by an average of 4%. This is on top of a price increase impacting two models in April at an average of 2.5%, and all models in March at an average of 9%. In other words, since October of 2021, Tesla has raised prices by an average of 10%. Since last June, prices increased by an average of 18%.
- Average lead times for Models 3 and Y have increased by roughly 10% since April to the current 8.5 months. Models S and X had a lead time increase of 12% in the past two months, now averaging at 12 month lead times.
Interpreting the art and science
My bottom line: the Shanghai shutdown will likely negatively impact June deliveries by about 8%. For the September quarter, we expect the company to strike a cautionary tone based on the macro unknowns. As a testimony to the unknowns, Honda’s US industry was down 57% in the month of May. That said, I expect Tesla to repeat their eight-year 50% compound delivery growth target.
Laying off 10% of salaried staff
On June 3rd, Elon announced he is prepared to lay off of 10% of salaried workers and increase production of hourly employees. Elon appears to be on a productivity binge, based upon his request that salaried workers return to the office and his commentary that staff cuts are on the horizon. While Tesla is new to this approach, the concept of reducing the bottom 10% of the workforce is an accepted approach to management. As for the increase in production hours, a logical interpretation is that demand for Tesla vehicles remains healthy.
Price increases are adding up
Tesla continues to raise prices despite Elon’s commentary that it will be a tough quarter for the company. Since October, Tesla has raised car prices 3 times, averaging at a total increase of 18% (including the recent March and June quarters). I expect the profit of said price increases to offset increasing component costs. Regardless of where the additional revenue will be applied to, it is unlikely that the company would raise prices for any reason if demand was softening.
The table below outlines the price increases over the past year:
Lead times increasing
We track lead times on a monthly basis for nine Tesla trims in eight countries (US, China, Germany, Netherlands, Denmark, UK, Mexico and Japan), and we have found lead times to be increasing across the board. What’s most important are the lead times for the Model 3 and Model Y given they account for about 90% of Tesla’s overall revenue. Average lead times for these models have increased about 10% since April, now averaging at about 8.5 months. Our observations of Model S and Model X show lead times increasing by 12% over the past two months, now at about 12 months.
The Apple Watch is ready to take a step forward, thanks to Rune Labs. They just got FDA approval on an app to detect, monitor and manage Parkinson’s disease.
Gene, Doug and Rune founder, Brian Pepin, discuss the company’s approach to clinical neuroscience and why the Apple Watch is a sure pathway for patients to track symptoms.
Redwood Materials just announced a partnership with Toyota to recycle hybrid batteries and materials, and the deal only scratches the surface of the company’s true potential to disrupt the auto industry.
The Toyota partnership
The first Toyota Prius was sold in 1997, and I estimate there have been between 3-5m cars sold in the US since launch. Those vehicles are getting old, many of those batteries can be refurbished and others can be recycled. For those deemed reusable, Redwood pulls out the raw materials (Copper, Lithium, Cobalt and Nickel) and remanufactures them into cathodes and copper foils that can be used in new battery production. This process is closed-loop battery manufacturing.
Closed-loop battery manufacturing
Redwood is aiming to build closed-loop battery manufacturing. This approach will convert the current logistics mess of global battery production (geologic mining, copper foil and cathode production) into a vertically-integrated process that can be effectively localized in one country. In 2024, Redwood Materials proposed that Cathode Active Material (CAM) production would be near OEM’s and can cost-effectively transform materials into cells for vehicle production. Redwood’s goal is to begin CAM production in 2024.
Scratching the surface towards scale
Toyota is a unique partner to Redwood because they have mastered the art of making hybrid cars, and is one of the only traditional car makers in battery deployment. The 3-5m vehicles sold in the US dwarfs the battery output of other OEMs, which means it’s unlikely that Redwood will sign new OEM partners that can move the supply needle in the next year. Over time, that will change. Eventually all cars will be EV, and those OEMs will likely want to partner with the incumbent which—while early—appears to be Redwood.
Long-term, the Toyota partnership will help Redwood win over additional OEM partners. It follows a string of deals with other automakers such as Ford, Volvo, Panasonic and Proterra. With more partners comes more scale of batteries that can be recycled, and this can bring Redwood to its big opportunity of reimagining cathode manufacturing in the EV value chain.
The cathode is the pressure point
Four examples of commercialized cathode formulations.
Taking a step back, the cathode is—at a most basic level—the element that makes a battery work. It is the positively-charged part of a battery which discharges electrons used to power an electric motor. The battery in an EV is expensive, accounting for between 15-20% of the overall cost of a vehicle. For example, in a $55K Model Y, the battery accounts for about $10-$12K of costs. The cathode makes up about half the cost of a battery cell, or about 8-10% of the cost of an EV.
The biggest factor in the cost of the cathode is the CAM, which is the pressure point that Redwood plans to address.