CA - Tesla: Low Margins Are Not A Problem But Still Too Risky

2024-02-06 17:47:35 ET

Summary

• Tesla, Inc. margins have declined due to price reductions and increased costs, causing concern among investors.
• The automotive industry is evolving to favor higher margins for companies like Tesla, which has strong competitive advantages.
• CEO Elon Musk is the driving force behind Tesla's success, yet his pivotal role also presents significant risks, especially if he were to leave the company.

Context

The Tesla, Inc. (TSLA) fiscal 2023 report was disappointing, showing weaker margins and low revenue projections for 2024. The company's EBITDA margin dropped to 14% from 22% in 2022, as shown in Figure 1. This decline in margins is attributed to a 15% price reduction, while costs have increased significantly—cost of revenue grew by 31% compared to a 38% increase in deliveries, so it is normal, and operating expenses, excluding amortization, rose by 27%....

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