The Hidden Concern Behind Tesla's Glamour: Production Exceeds Deliveries for Five Consecutive Quarters

The continuous price reductions have stimulated Tesla's sales, and in the second quarter, Tesla's single-quarter deliveries reached a new high. However, upon closer examination of production and delivery volumes, it is evident that Tesla's production has exceeded its deliveries for the fifth consecutive quarter. In the future, the key to stimulating Tesla's sales may lie in whether it can penetrate the market of conventional gasoline vehicles in the United States.

Benefiting from several price reductions and the federal electric vehicle tax credit, Tesla delivered over 466,100 vehicles to global customers in the second quarter, representing an 83% year-on-year increase. This exceeded analysts' predictions by approximately 24,000 vehicles, and the market is increasingly optimistic about the boost in sales resulting from Tesla's price war, with overnight gains of 6.9% in the U.S. stock market.

On July 3rd, The Wall Street Journal pointed out that investors should not only focus on sales but also pay attention to Tesla's production. In the second quarter, Tesla's production reached 479,700 vehicles, surpassing its deliveries. This marks the fifth consecutive quarter in which Tesla's production has exceeded its deliveries, indicating that inventory is still increasing.

The fact that Tesla's production consistently exceeds its deliveries highlights concerns about the demand for electric vehicles in the market. However, Tesla is actively seeking to expand production. In March of this year, Musk announced Tesla's plans to build a new factory near Monterrey, Mexico, and is considering expanding the Shanghai Gigafactory.

Increasing the annual maximum capacity of the Shanghai Gigafactory to over one million vehicles is crucial for Tesla to gain cost advantages.

Currently, Tesla is intensifying its efforts to enter the Chinese market, where it needs to stimulate sales through continuous price reductions. The price reduction strategy has indeed struck a chord with consumers, resulting in three consecutive months of month-on-month sales growth, with total sales reaching 229,000 vehicles in the first quarter.

In the Chinese automotive market, the fierce competition between new energy vehicles and traditional gasoline vehicles is evident, with new energy vehicles continuously eroding the market share of traditional gasoline vehicles, reaching 27%. However, in the United States, Tesla currently dominates the electric vehicle market, with a market share of 60%. Gasoline vehicles remain "unscathed," as sales of new energy vehicles in the United States accounted for only 7% last year. The key to increasing Tesla's sales in the future lies in whether it can penetrate the domestic gasoline vehicle market.

Tesla's price reductions are threatening the profitability of the electric vehicle industry.

Tesla's "price reduction frenzy" in the first half of the year has also put pressure on its profitability indicators. The decline in Tesla's gross margin in the first quarter attracted market attention (19.3%, a year-on-year decrease of 980 basis points). However, starting from the second quarter, Tesla eagerly launched new price reduction strategies. In the face of the dilemma of not being able to have both, Tesla clearly chose the former in terms of sales growth and profit improvement. After the earnings conference call, Tesla CEO Elon Musk stated that in the long term, a 20% gross margin is still the performance bottom line that Tesla must adhere to. However, in the short term, scale is more important to Tesla than profits.

In response to this, many Wall Street analysts believe that Tesla's automotive gross margin will inevitably fall below 20% by the end of this year. Deutsche Bank analysts wrote in a report, "We still believe that there is a risk of further price reductions for Tesla in the remaining time of this year and in 2024."

As a global leader in new energy vehicles, Tesla's pricing strategy has had a profound impact on the new energy vehicle industry, and competitors have always closely monitored every price change by Tesla.

In the face of Tesla's price war, the most affected is Ford's electric vehicle business. In 2022, Ford's electric vehicle losses expanded to $2.1 billion, and in the first quarter of 2023, the electric vehicle business lost $700 million. As for the full-year performance in 2023, Ford expects the losses from electric vehicles to expand to $3 billion.

But it has no impact on the profits of gasoline vehicles

It is worth noting that Ford's profits from gasoline vehicles have not been affected at all. In 2022, Ford's profits from gasoline vehicles increased from $3.3 billion to $6.8 billion, and Ford expects gasoline vehicle profits to reach $7 billion in 2023.

The Wall Street Journal analysis pointed out that Tesla's price reductions have not had any impact on the entire gasoline vehicle sector. Although the supply chain is gradually recovering, gasoline vehicle prices remain high. Data provider J.D. Power's data for June showed that the average selling price of cars, including both gasoline and electric vehicles, reached $46,000 in June, the same as the same month last year, despite last year's more severe supply shortage.

At the same time, Cox Automotive raised its forecast for U.S. car sales in 2023 to 15 million vehicles, an 8% increase from 2022's 13.9 million vehicles. Strong sales recovery combined with price stability is good news for gasoline vehicle profits in 2023.

The fact that Tesla's price war has not spread to gasoline vehicles is also related to its relatively low market share in the United States. In 2022, sales of new energy vehicles accounted for only 7% of total sales. For Tesla, how to defeat domestic gasoline vehicles in the United States may be its ultimate challenge.

So far, the damage caused by Tesla to the entire automotive industry is mainly reflected in capital budgets: existing automakers have invested billions of dollars in new products and production. However, the moment when electric vehicles directly affect the profits of domestic gasoline vehicles has not yet arrived.