--- title: "\"Pie King\" Tesla has finally made a triumphant return!" type: "Topics" locale: "en" url: "https://longbridge.com/en/dolphin/post/24700536.md" description: "The next "growth engine" is coming" datetime: "2024-10-24T03:27:12.000Z" locales: - [en](https://longbridge.com/en/dolphin/post/24700536.md) - [zh-CN](https://longbridge.com/zh-CN/dolphin/post/24700536.md) - [zh-HK](https://longbridge.com/zh-HK/dolphin/post/24700536.md) author: "[Dolphin Research](https://longbridge.com/en/dolphin.md)" generator: "portal-rs" --- # "Pie King" Tesla has finally made a triumphant return! $Tesla(TSLA.US) released its Q3 2024 earnings report after the U.S. market closed on October 23 Beijing time. Here are the key takeaways: **1\. Lower vehicle ASP dragged overall revenue below expectations, but it's not a big deal:** Automotive revenue this quarter was $20 billion, $500 million below market expectations. However, regulatory credit revenue exceeded expectations by $200 million, so the actual automotive revenue (excluding credits) was about $700 million below expectations, mainly due to lower-than-expected ASP, which declined by $730 sequentially. **2\. The positive surprise was automotive gross margin finally rebounding, significantly beating expectations:** Despite continued ASP declines, automotive gross margin (excluding credits) improved by 2.4% QoQ to 17.1%, well above buy-side expectations of 15.3% and sell-side expectations of 15.7%, primarily due to lower variable costs. **3\. Tight cost control drove operating profit higher:** While automotive gross margin boosted overall profitability, operating expenses continued to decline (likely due to Q2 layoffs reducing payroll costs). With fewer restructuring charges in Q3 (down $52 million QoQ, as layoffs were concentrated in Q2), operating profit rose to $2.7 billion, beating the $2.2 billion consensus. **4\. The next "growth engine" is coming:** With Model 3/Y aging and competition intensifying, Tesla lacks pricing power and must rely on cost cuts to maintain margins. However, the company announced its next-gen affordable model will enter production in H1 2025. Elon Musk expects 20%-30% volume growth next year, providing a new valuation catalyst. **Dolphin Research's view:** In our earnings preview, we noted being more optimistic about Tesla's 2025 outlook versus last year's 2024 expectations. Beyond long-term AI narratives, the core auto business is improving. A potential Trump presidency could also smooth AI adoption. 1) **2025 guidance unveiled early:** Musk pre-announced a "Model 2.5" - a stripped-down, cost-optimized variant bridging Model 3 and the true affordable Model 2 - for H1 2025 production. This drives Tesla's 30% volume growth target for 2025 (~360k-550k incremental units vs. ~1.8M 2024E), well above the ~250k consensus increment. 2) **Cost cuts shine:** The auto gross margin beat (~2%) was massive. While Q4 guidance appears conservative (management hinted at ~510k deliveries vs. <500k consensus), our analysis suggests sustainability from: a) Renegotiated material contracts (battery cost reductions?); b) Cybertruck GM turning positive. With Model 3/Y lacking pricing power, Tesla squeezed variable costs to lift margins. These two factors drove the earnings beat. AI narratives persist: FSD V13 will require 5-6x fewer interventions vs. V12.5, with unsupervised FSD expanding in California/Texas. However, we view these as call options contingent on a Trump victory. We previously hoped for sub-$200 entry points amid Q3 margin normalization, but the strong beat makes that unlikely now. Investors may need to wait for Q1 seasonal weakness. **Detailed analysis:** **1\. Tesla: Revenue slightly missed but gross margin crushed** **1.1 Revenue miss driven by autos** Q3 revenue grew 7.8% YoY to $25.2B (-1.2% vs. $25.5B consensus). Despite higher deliveries, automotive revenue of $20B missed ($20.5B consensus). Excluding $740M credits (above $530M expected), auto sales were $18.8B vs. $19.5B expected due to ASP declines. Energy revenue also missed as storage deployments fell 27% QoQ to 6.9GWh. **1.2 Auto gross margin surprise lifted overall profitability** Auto gross margin rebounded to 20.1% (vs. 17.9% consensus). Energy margin hit 30.5% (vs. 24.5% expected) on product mix and lower lithium prices. Services margin rose to 8.8% (vs. 5.8% expected) on charging network expansion. **1.3 Auto margin analysis** Ex-credit auto gross margin improved 240bps QoQ to 17.1%, beating buy-side (15.3%) and sell-side (15.7%) estimates. **2\. Unit economics: Cost cuts drove the beat** Auto ASP (ex-credits/leasing) fell $730 QoQ to ~$42k due to: a) Q2 price cuts' full-quarter impact; b) Model 3 mix up 2%; c) U.S. loan incentives ($5k/unit in Q3 vs. $6k-$8k in Q2). Variable costs dropped ~$1.7k/unit from: a) Renegotiated material contracts; b) Cybertruck GM improvement; c) Lower freight/tariffs. This offset ASP declines. Regulatory credits were $740M (above $530M expected) as U.S. EV adoption remains slow. **3\. Next growth engine** With Model 3/Y aging, Tesla's market share is declining globally. The affordable model (2025H1 production) could add 360k-540k units in 2025 (20%-30% growth vs. flat legacy models). FSD V13 will require 5-6x fewer interventions. Capex hit $3.5B (+55% QoQ) on GPU purchases (50k H100 chips by October). Free cash flow improved on margin expansion and cost cuts. Inventory days were stable. **4\. Cost discipline** R&D ($1.04B vs. $1.1B expected) and SG&A ($1.19B vs. $1.3B expected) were below consensus due to Q2 layoffs. Operating profit reached $2.7B (vs. $2.2B expected). **5\. Energy & Services** Energy revenue missed ($2.4B vs. $2.65B expected) on lower storage deployments (6.9GWh, -27% QoQ), but mix and lithium prices boosted margins to 30.5% (vs. 24.5% expected). Services revenue grew 29% to $2.8B, with margins up to 8.8% (vs. 5.8% expected) on charging network expansion. \ Historical reports: 2024-07-24: [Tesla: "AI Story" Sounds Good, But Reality Bites](https://longportapp.cn/zh-CN/topics/22660077?channel=t22660077&invite-code=4NOXYT&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN) 2024-04-24: [FSD Saves the Day - Who Says Tesla Is "Made of Paper"?](https://longportapp.cn/zh-CN/topics/20702629?channel=t20702629&invite-code=4NOXYT&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN) 2024-01-25: [Tesla Without AI Hype: Endless Price Wars, Bleeding Won't Stop](https://longportapp.cn/zh-CN/topics/11332623?channel=t11332623&invite-code=4NOXYT&app_id=longbridge&utm_source=longbridge_app_share) **Risk Disclosure:** [**Dolphin Research Disclaimer**](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [TSLA.US](https://longbridge.com/en/quote/TSLA.US.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**