How bad are things at Tesla? So bad that it would have lost money in the first three months of the year had it not been the sale of regulatory credits, credits that could be going away if the Trump administration gets its way on auto emissions rules.
Okay, so people really need to understand what’s going on at Tesla and their profits because while things aren’t great, it’s not as dire as you might be hoping.
Are their profits down, absolutely.
Does Tesla get a lot of money from ZEV credits, yes.
Are things as dire as everyone seems to be thinking, not quite.
Tesla knows they are getting the ZEV credits, and have for years, and they plan their business around it. All those years, and even this quarter, where someone looks at it and says, they only made a profit because of those credits, misses the point entirely (although this quarter I’m sure was unexpected for them)
When you know you have 400-500 million in credits coming in, that means you can plan to spend 400-500 million extra on capital expenditures and R&D and that’s what they do. Tesla is spending billions on capital expenditures and research & development to expand, making their own battery cells, building a lithium refinery, scaling their energy business by building 2 new factories (1 in California, 1 in Shanghai), building a massive AI datacenter etc.
It’s always been like this at Tesla. They’ve always been highly profitable if they wanted to be, but have been plowing money back into the business.
So yes, there have been many years or quarters where their profits were entirely ZEV credit based, but that’s intentional. Its how you grow a business.
If this sales slump continues, all they need to do is slow growth, or not slow growth because they have something like $35 billion in cash and almost no debt. Is slowing growth bad? Absolutely. But they aren’t going to be magically losing money unless they choose to not slow growth and take the hit. (Note: The cybertruck might be the exception there, that might be a money pit)
Is this bad for the stock price? Hell yes.
Is Tesla in dire trouble? Not really.
The thing is: in the past they used the R&D for things like model 3 and model y, huge commercial successes, now they are investing it in cybertrucks, robotaxis, humanoid robots and AI, which are either proven failures, vaporware, non-monetizable or a combination of all the above.
As they slow down sales, the credits will also slow down, and if (when) he is thrown under the bus by Trump, will go away completely.
2025 tesla is completely different from 2017 tesla. Both overvalued, but with very different outlooks.
No doubt there that R&D is being spent differently now, and a lot of it can fail and end up being a waste.
A lot of it is going to their new batteries though which they’ve stated are now cheaper than all their suppliers. That doesn’t mean it’s cheaper to produce than others, but they don’t have to pay a profit markup, so it ends up being cheaper. The refinery is just going go make those even cheaper.
That kind or investment will pay off if they keep it up and stay in that position.
Then yes they’re spending billions on the cybercab, which might be a failure, but the whole new manufacturing process they’ve created for it is transferable to other vehicles if they have to admit failure on the cab itself due to FSD failure. But the whole new process itself could also be a failure. That would be very bad.
The cybertruck is a flop, but a lot of the tech is transferable.
Optimus is an easier problem to solve than FSD at least for commercial stuff IMO, and it derisks their heavy R&D into AI stuff as now there’s 2 things counting on it instead of 1. But yes still a huge risk.
There are a lot of gambles right now on certain things absolutely, but I wouldn’t say all the R&D is wasted.
They can only have so many failures / flops though they can handle while also going through a sales slump. If that worsens they’ll rearch a point where they have to reassess their goals and plans or it risk becoming a dire situation.
Thank you for the well reasoned insightful post
Great points all around, well thought out and reasoned. There’s just one problem: slowing growth won’t save them if nobody buys their rolling dumpsters anymore lmfao.
I mean we’ll have to see how bad things get, but there’s a long ways to go from now to sales so low even the energy business can’t cover the costs of the facilities and staff even if they stop most of the capital intensive projects, idle the lines, and try to turtle while working on kicking Elon out and reorganizing.
Edit: just to clarify, the commercial energy business isn’t going to get hit as hard as the consumer vehicles market. I don’t expect to see such a huge slump there compared to the consumer vehicles.
But what if that income disappears?
Then they spend 400-500m less on capital expenditures or research and development. It means slower growth and give others an advantage, but it’s not the end of the world.
That or they say fuck it and eat into their 35b cash for a bit.