1/2025 Forecast Thread

This thread will cover the entirely of my 2025 Tesla forecast. I will cover all the individual elements that contribute to each of Tesla’s businesses.

This analysis was originally shared with subscribers on Oct 27.

First, let’s take a look at the key findings from the model. There are 4 scenarios, each with an estimated average probability of occurring:

- Base Case (40% probability)
- Bear Case (30% probability)
- Bull Case (29.5% probability)
- Uber Bull Case (0.5% probability)

Each of these scenarios leads to a unique EPS calculation. The weighted average of each scenario is what is used to provide the 2025 FC of $3.99/shr in adjusted earnings per share. This compares to the estimated 2024 eps target of $2.47 and estimated 2025 eps target of $3.24 – both of these from Yahoo Finance.

Please note: Cells shaded in yellow are INPUTS, while cells shaded in white are results from calculations/formulas which derive from one of the other inputs either on the main table, or from other tables.

Overall, we can see that I think Tesla has a higher probability of over-achieving in 2025 vs the market expectations. Key assumptions driving this:

- Surging energy volume and sales at a healthy gross margin.
- Expansion of operating leverage as revenue growth outpaces growth in operating expenses.
- Stabilizing automotive gross margin due to:

1. Model Y refresh spurring organic demand and limiting need for future price cuts (above and beyond what we see in Q4-24).
2. Interest rates declining globally which will help Tesla reduce its financing costs to maintain aggressive vehicle financing rates.
3. Cost/vehicle decline mostly driven by much better factory utilization – especially in Austin and Berlin.
4. Still high regulatory credit sales.

I will first cover my assumptions for Energy since Energy volume and sales remain the same in all scenarios. 2/ENERGY

Powerwall

I used 260k for sales in 2025 because Tesla is currently installing Powerwall at a rate of 260k/year (company post). This means sales probably exceed 260k/yr since Powerwall is sold to 3rd parties that carry a small inventory. 260k is therefore conservative because it doesn’t account for the inventory and it assumes no growth in sales rate, when Tesla has consistently shown growth in sales rate over the years (see screenshot of my post).

$9,300 is what Tesla currently sells Powerwall for. This yields 3.51 GWh of storage and ~$2.4B in sales for the year.

Megapack

Lathrop hit maximum production capacity in Q3-24 and is now building close to ~10k Megapacks/year. But while Tesla may be building 10k/yr, I am assuming they will only fully recognize the sale of 8.5k Megapacks in 2025 to account for the fact that revenue is recognized in stages and they probably won’t reach a perfect steady state where production = sales, because there is a lag time between sale and revenue. I also assumed a further 10% decrease in Megapack price on average for 2025.

Shanghai is expected to begin operations in Q1-25 and the factory is targeting a production rate of ~5k Megapacks/year to start. China is exceptional at ramping production and they may even exceed this. However, I am assuming – probably conservatively – that over the course of 2025, they will only sell 4k Megapacks.

At 3.9 MWh per Megapack, Tesla is projected to install 48.8 GWh of Megapack for $12.7B in 2025.

Where my Energy forecast differs between scenarios is in the margin assumption. My gross margin assumptions are as follows:

- Base case = 27.5%
- Bear case = 23%
- Bulls case = 30%
- Uber bull case = 30%

Given the excess battery supply in China, the falling battery component costs, the expanded factory utilization in Lathrop, and the high ongoing demand for battery storage globally, I think we should expect energy margin to stay high. My base case may even be conservative given that gross margin exceeded 30% in Q3 and I wouldn’t be shocked to see it increase further in Q4.

Solar sales are irrelevant to the analysis because they are small and I assume gross margin is either 0 or low single digit negative.

1/ Tonights’s new video on Tesla’s Optimus triggered a thought. Progress seems to be very impressive. But how impressive is it, really? To answer this, I wanted to understand how Optimus compares to other humanoid robots in the world. So I started doing some research. A thread. 2/ There appears to be two schools of humanoid robots.

1. Robots meant to be human-like, social, interactive; focus is on language, verbal & non-verbal communication, emotions, etc.

2. Robots meant to perform tasks/do work. Focus is on functionality & mobility.

1/Tesla SC network in the US; a 🧵.

Tesla’s SC network has played a very important role in both the success of Tesla the company and the EV movement. Range anxiety is a legitimate concern and barrier for EV adoption.

The SC network has also served as a competitive moat… 2/…offering the most seamless, reliable charging network and infrastructure perfectly integrated into Tesla’s GPS, which makes trip planning simple and hassle-free. This has been, up to now, a compelling reason to choose Tesla; especially for first-time EV buyers. And while…

1/ It makes good sense for Tesla to ask its Chinese suppliers to set up locally in Mexico to support Tesla's new factory.

Benefits to Tesla include:
1. Shorter distances lower costs and increase flexibility/responsiveness to Tesla's needs as it ramps.

insideevs.com/news/671244/te… 2/

2. Inventory: Tesla can afford to hold less or even better, ask its suppliers to store inventory, keeping these inventory costs off Tesla's books/very low.

3. Leverage: these suppliers will be highly motivated to keep Tesla happy bc of the connection to Giga Shanghai.

1/So per Troy’s survey data, FSD adoption rate is about 7.5% globally. On ~423k Q123 deliveries, that is ~32k new FSD purchases in Q123.

At $15k/purchase, revenue ~$480M.

Let’s look at this a different way. On ~423k deliveries, total FSD revenue was ~$1.1k/delivery. 2/ Let’s look 2 years into the future. FSD doesn’t need to be fully autonomous for it to be considered very valuable. Let’s assume that in 2 years, FSD will have progressed to the point where a driver only needs to intervene once/week, on average (robotaxi will need once/yr).

1/ In 2022, Tesla averaged 37,781 supercharger connectors across all 4 quarters .

Total theoretical capacity (in minutes assuming 100% up time) is therefore 37,781 superchargers *525,600 minutes = 19.8B supercharger minutes. 2/ At Investor Day, Tesla told us that the fleet averaged 1.5M supercharging sessions/wk.

52 wks * 1.5M = 78M charging session/yr.

We also learned that avg charging session is 27.5 minutes.

So total charging time of the fleet was 27.5 min/session * 78M sessions = 2.145B min.

1/The problem with constant and steady price cuts is they all eventually hit diminishing returns. You would think lower price = bigger TAM = higher sales, right? Nope. Why?

Answer = consumer psychology

-Consumers start to expect further price cuts and delay their purchase. 2/

When customers delay their purchase, this put pressure on Tesla’s inventory (bc everyone knows they’re committed to growing production + no dealerships), which inevitably leads to further price cuts…and this can very quickly turn into a self-fulfilling positive feedback loop

1/Megapack has been generating a lot of noise in the community lately. There has been a ton of great info shared by @Zerosumgame33 on most every aspect of the Megapack business.

At first glance, the numbers seem too good to be true.

How can Megapack be this disruptive… 2/…and these financials be this incredible without anyone noticing until now?

I admit that I felt the same way…until I gave it some thought and dug into the numbers.

This thread will walk you through the very high level ideas and facts that give me a lot of confidence

1/Tesla Energy…Management has been eerily silent on this business. But at a 25 Megapacks/day capacity at Lanthrop Megafactory in Sept 2022, is this the biggest corporate sandbag….ever?

Assuming Tesla gets the battery supply it needs, the answer is YES.

See this thread for..

https://twitter.com/zersosumgame1/status/1604589781325074432

2/…one of the most impressive analyses I have ever seen (and was happy to contribute to 😺) by @zersosumgame1. Follow him.

Even if the IRA credits don’t materialize as proposed, energy will still drive a massive increase in eps in 2023. And this analysis, btw, does not…

1/I have been asked by several ppl to comment on the rumour introduced by @TeslaPodcast yesterday night on a forthcoming production cut at Giga Shanghai.

First off, this is one of those “ill believe it it it happens” type things for me. I didn’t believe the rumors of the 2nd… 2/…price cut a few weeks ago, either.

I don’t think it makes sense for Tesla to slow production instead of simply export more or finish the quarter with higher inventory + cut price in January, if necessary. Seems counter-intuitive. If it happens & time period extends past Dec

1/Ok, ready to share my 2023-2025 model. I happen to be conservative in my expectations. I know there is a lot of upside.

Assumptions:

1. I did not include bots/robotaxi/autonomy/insurance.
2. I do not assume any benefis from the IRA... 2/

...advanced manufacturing credits ($35/kwh for 🔋production & $10/kwh for 🔋 module assembly)...don't yet understand how this will hit the income statement.
3. Auto GM% ex credits will revert down to 25% over time.
4. Linear increase in opex
5. No financial impact from 4680.

1/Here is what happens in the next few years in the auto market:

1. Prices soften amid the coming economic recession, but remain high by historical standards as legacy don't increase production in favor of higher prices.

2. Tesla aggressively ⬆️ market share in every market.. 2/

...as legacy volume falls. Tesla volume growth continues at ~50% YoY rate (albeit at lower ASP driven by small price cut + cheaper trims).

3. As a result, Tesla creates more loyal customers who are likely to buy another Tesla. Legacy auto fail to stop the bleeding from...

1/Let's play the "Is BYD winning in China vs. $TSLA" game.

Some disclaimers first:

1. This is a very silly analysis brought forward, by me, to refute equally silly claims by $TSLA bears-turned $BYD-bulls out of Tesla hatred.

2. The net income margin I use is from the... 2/whole company latest quarter. We don't know what individual contribution margins are for each product. So this is a proxy.

3. I am using data from @DKurac's recent tweet showing top 10 WHOLESALE EV sales from Jan-April.

Not China domestic (retail) sales. Tesla exports half...

This conversation between Elon and the Saudis, imo, prove that @elonmusk was not lieing about his intentions to take $TSLA private and in fact was deep in discussions with the Saudis and other parties to facilitate.

There seems to have been an unexpected change after his tweet

https://twitter.com/TechEmails/status/1518353213283442688

Look at how offended Elon was back then. The Saudis clearly stabbed him in the back.

His only mistake was trusting those terrible people.

1/Everyone talks about how $TSLA doesn't advertise and legacy auto players do, to the tune of billions of dollars, every yr.

This is impressive, of course,
bc $TSLA still cannot keep up demand. But few ppl appreciate the broader implications that this has on SGA costs. 2/How many Executive VPs of Marketing, Divisional Presidents of Marketing, Divisional Vice-Presidents of Marketing, Marketing Directors, Senior Brand Managers, Brand Managers, Associate Brand Managers, Marketing Assistants and related staff does $TSLA employ?

1/

Since I have started following Tesla (2018ish)...

Things $TSLA bears got RIGHT:

Late on new products (Semi, Roadster, CT, FSD, 4680).

Things $TSLA bears got WRONG:

-Model 3 won't ramp >3k/wk
-Model 3 demand, everywhere
-Profitability on 4 Q's
-Profitability ex credits 2/

- Profitability in a calendar year
- Model Y is fake
- Model Y demand, everywhere
- GF3 is a mud field
- Chinese sales will not exceed 35k/yr
- Solar roof is fake
- Sales in Norway down in 2020 = demand cliff
- Sales in Europe down in 2020 = demand cliff

1/The oil crisis will benefit $TSLA.

First, they may increase price further. This can be justified, from a PR perspective, by passing higher inflation costs on to the consumer.

Second, Tesla's strategy to drive the consumer to higher end trims & ASPs (already in place) - by... 2/...allocating a greater % of production to AWD/Performance 3/Y + less to RWD will be even more effective as demand FURTHER increases as a result from the greater number of consumers that will now consider EV for economical reasons + the ongoing supply issues in the auto market.

1/I often try and understand how one can be bearish on $TSLA. I think I have finally figured it out. 2 examples. I am not trying to rip on these guys, bc I like them, but it illustrates my pt.

#1. Never change opinion despite company fundamentally outperforming expectations. 2/

This is bad bc it shows that opinions/positions are formed - not on the basis information - but rather emotion/bias. If you do not try to understand why you were wrong, update your assumptions and change your approach to try and be less wrong, you will never learn.

1/IMO = Tesla's valuation only makes sense if you believe they will grow at at least 50% for the next few years, as they have guided, while maintaining a reasonable operating margin of ~15% or better. If demand slows, the story changes.

Is demand slowing? 2/ The answer is clearly NO.

Tesla has been able to raise price by 15-20% while ramping production to new highs, while simultaneously seeing its inventory drop to record lows.

There is no legitimate competition from any legacy/new EV OEMs that can match $TSLA speed,..

1/My thoughts on Tesla opening the SC network to other EVs:

Overall, I view this as a positive for Tesla. No, not bc it helps "the mission" (although the PR optics are good), but rather bc:

1. It creates brand exposure and association to Tesla. By getting ppl to use the Tesla.. 2/...app and Tesla chargers, with a Tesla account, Tesla has a way of connecting to consumers that are already sold on EV. When those consumers want to change their car or come to the realization that their non-Tesla EV sucks, it will be an easier sell to convert to Tesla.

1/ The subject of Tesla's market share is always a topic of great debate and controversy. This is because there is no accepted consensus on what the "market" actually is.

How we define the market determines how we view & interpret the performance of players within the market. 2/ At its highest level, the global auto market is the TL # of cars sold/yr. We can drill down & segment the market many ways:

- price
- form factor (sedan/SUV/pickup)
- size (ex: small sedan/mid-size sedan/large-sedan)
- brand (premium/mass)
- powertrain (petrol/EV/PHEV)

Etc.