- Feb 28
- 5 min read

Tesla Supply Chain Expert: Why Margins Will Rise and Analysts Are Wrong!

Insights from a Tesla Supply Chain Expert on Margin Growth and Analyst Misconceptions: Challenging Traditional Views and Analyzing Cost Reduction Strategies

Questions to inspire discussion:

🤔 What are the analysts' predictions on Tesla's gross margins, and why may they be incorrect?

Many institutional analysts who follow Tesla believe that gross margins will be flat or actually fall, but in fact, if the cost of goods continues to fall at 3% per quarter, we might actually see a rise in automotive gross margins despite more price cuts.

🚗 How might the cost of goods falling at 3% per quarter impact Tesla's gross margins?

If the cost of goods continues to fall at 3% per quarter, it might actually lead to a rise in Tesla's gross margins despite more price cuts.

🤨 How did Tesla exceed planned cost reduction in Q4?

Tesla exceeded planned cost reduction in Q4 by implementing a bigger cogs reduction than planned, which exceeded the level of price changes they were making. This allowed them to get more price out of the product than the price changes they were doing.

🚗 How does Tesla's potential gross margins compare to Apple's strategy in the mobile phone business?

Tesla's potential gross margins are being compared to Apple's strategy in the mobile phone business in terms of aiming for a sustainable 25 to 30% gross margin. This was a key controversy for Apple in the late 2000s when the mobile phone business had a 20 to 25% gross margin.

📉What impact do design and event-driven elements have on suppliers' efficiency and cost of goods sold?

Design and event-driven elements impact suppliers' efficiency and cost of goods sold by continuously driving changes in the manufacturing process, such as combining parts, proposing process optimizations, or adjusting specifications based on performance. This ongoing evolution can lead to increased efficiency and cost savings for suppliers as they adapt to meet changing requirements and eliminate unnecessary elements.

Key Highlights:

Tesla's potential rise in gross margins due to falling cost of goods, debunking analyst predictions.
Tesla's improved cost reduction program exceeded price changes in Q4, leading to higher margins.
Discussion on the potential rise of gross margins for Tesla and comparison with Apple's mobile phone business.
Insights from Tesla's supply chain expert on the company's ability to sustain growth and overcome challenges.
Tesla's efficient supply chain leads to increased margins and challenges analyst predictions.
Tesla's improved reputation with suppliers is boosting their competitiveness and margins.
Tesla's efficient supply chain leads to faster production and lower inventory, resulting in quicker product changes and delivery.
Insight into Tesla's unique supply chain strategy and CEO's focus on cost structure.
Tesla's Cog Reduction Program is expected to lead to margin improvement despite potential risks and unpredictability.

Clips:

00:00 ⚡ Insights from a Tesla supply chain expert on margin growth and analyst misconceptions.

Tesla's approach to pricing changes shifted in the second half of last year.
Analysts often react negatively to any price change from Tesla.
Tesla made wholesale corrections to pricing in the first half of last year.
Tesla's new pricing approach led to smaller, regional, and less frequent changes.
The aggregate price changes from Tesla were very small overall.
Analysts' reactions were not aligned with the actual impact of Tesla's pricing changes.
It took Tesla a couple of quarters to catch up from the corrections made in the first half of last year.
A surprise in Tesla's margins is predicted for the second half of the year.

03:40 📈 Insights from supply chain expert and analyst about Tesla's gross margins and cost reduction strategies.

Tesla's gross margin has decreased significantly in the past 18 months, raising questions about sustainability.
The company's cost reduction program is expected to exceed the impact of price changes, leading to higher margins.
Tesla's approach to cost deflation is compared to that of an electronics manufacturer rather than a traditional automaker.
Analysts may need to reassess their assumptions about Tesla's margins and cost-cutting potential.
Tesla's cost of goods continued to fall in Q4, contrary to the expectations of many analysts.
The company's unique position as a 'software on wheels' allows for further cost-cutting opportunities.
The key focus is whether Tesla can operate as a sustainable auto manufacturer with lower gross margins.

06:56 🚗 Insights on Tesla's unique operating model and potential for margin growth.

Tesla's gross margin potential compared to other industries
Tesla's operating model resembling microelectronics more than car manufacturing
Significant cost reduction potential in Tesla's supply chain
Innovation in manufacturing components like battery packs and seats
CFO's cautious stance on cost reduction sustainability
Team's confidence in continued cost reduction

09:36 ⚙️ Insights from Tesla's supply chain expert on margin growth and analyst misconceptions.

Challenges in selling Tesla cars due to demand and production growth.
Difficulty in meeting 50% annual volume growth and cost reduction.
Significance of steady and growing volumes for suppliers' cost structure.
Tesla's approach of focusing on fewer models for efficient production.

12:56💡 Insight into Tesla's supply chain efficiency and industry influence.

Efficiency gains from multiple areas including design, process, and supplier side.
Continuous improvements in gigafactory operations and supplier collaboration.
Tesla's high volume production making them a coveted player in the industry.
Suppliers heavily competing for Tesla's business due to its industry influence.
Shift from initial reluctance to work with Tesla to now seeking awards from them.

16:35 🚗 Insights from a Tesla supply chain expert on factors driving margin growth and analyst misconceptions.

New competitive suppliers entering the market
Efficiencies in design and supply chain
Quarterly efficiency gains from suppliers
Risks and efficiencies in decision-making
Industry-leading inventory and production speed
Tesla's rapid cogs changes compared to legacy EV manufacturers

20:25 🚗 Insightful analysis on Tesla's cost reduction and supply chain strategies, challenging industry beliefs.

Belief in continued cost reduction and lowering of goods prices by Tesla.
Suppliers' anticipation of increased volume and lower prices for Model 3 and Y.
Unique culture and CEO focus on cost structure and manufacturability.

23:52 📈 Insights on Tesla's future margin trends and analysts' perspectives.

Tesla's cohesive team approach to deliver a sub $1,000 electric motor
Expectation of lumpy progress in next quarter's gross margins
Observation of consistent 8 to 10% Cog reductions over time
Anticipation of continued Cog Reduction Program with potential variation
Caution against immediate negative reactions to analysts' opinions on price cuts
Encouragement for a holistic approach in analyzing Tesla's supply chain and margins