• 3Q23 results were in line with our estimates. 9M23 revenue/PATMI was at 72%/70% of our FY23e forecasts. 435K vehicles were delivered in 3Q23, and it is still on track for 1.8mn target in FY23e (+37% YoY).
• Cost per EV improved to US$37.5K (-5% YoY) due to lower material and freight costs. Auto gross margin at 15.9% excl. credits was down 1050bps YoY due to: 1) price cuts; 2) factory downtime; 3) Cybertruck ramp-up. Cybertruck ramp-up is expected to be a margin headwind for 12-18 months.
• We cut our FY23e/FY24e EBITDA estimates by 8%/12%, respectively, to reflect further margin compression, with a reduced DCF target price of US$240 (prev. US$265). We maintain an ACCUMULATE recommendation. We believe TSLA is still well positioned for long-term growth given its leading position in the EV industry. Our WACC/growth rate assumptions remain the same at 9%/5%, respectively.

The Positives

+ Still ahead of FY23e deliveries target despite factory downtime. Despite delivering only 435K vehicles in 3Q23, TSLA maintained that it was still on track to reach its 1.8mn delivery target for FY23e. It needs to deliver ~476K vehicles in 4Q23e in order to reach this target, which we believe is attainable given that it is only ~10K more deliveries than 2Q23. TSLA also expects to begin Cybertruck deliveries later this year, with >1mn reservations for Cybertruck so far.

+ Affordability improving due to lower material and freight costs. In line with the company’s constant effort to reduce costs, average cost per EV improved ~5% YoY to US$37.5K due to lower material and freight costs, and has decreased ~US$2K since the beginning of this year – helping to alleviate some of the ongoing margin compression due to price cuts. We believe that this is quite a feat given its ongoing ramp-up at new factories and idle factory downtime. TSLA has slashed the prices of its vehicles by ~20% since Jan 23.

The Negatives

– Margin compression due to price cuts, idle factory downtime, and Cybertruck ramp-up. TSLA issued 15.9% auto gross margin excl. credits in 3Q23, a decline of -1050bps YoY, and -200bps QoQ. The weakness in margins was attributed to: 1) price cuts across most of its vehicles; 2) idle factory downtime due to upgrading and retooling; 3) initial ramp-up in Cybertruck production. Cybertruck production is expected to be slow and challenging due to complexities from advanced technologies in a brand new product, with TSLA giving it a 12-18 month time frame before contributing significantly to cash flows.