Investor's Corner
Tesla’s more experienced rivals in the US auto market are feeling the Model 3’s presence
When Elon Musk wrote about his secret Master Plan in 2006, he envisioned a reasonably-priced electric vehicle that can take on the best-selling fossil fuel-powered cars in the market. It took years, but the electric car that Musk mentioned 12 years ago is here, and it’s called the Tesla Model 3.
The Model 3 is Tesla’s first attempt at creating a mass-market car. The company’s vehicles prior to the Model 3 — the Model S and Model X — sold well, but they were premium vehicles that compete in the luxury segment. The Model 3 was designed to be something else. It was an electric car designed to provide a viable and superior alternative to fossil fuel-powered automobiles. The Model 3 is even priced aggressively, starting at $35,000, or roughly the price of a top-tier Toyota Camry.
Tesla’s ramp of the Model 3 was not easy. In an interview earlier this year, Elon Musk described the past 12 months, much of which was spent ramping the electric sedan’s production, as one of the most painful and difficult years of his career. As Tesla released its Q3 production and delivery numbers, though, it appeared that the electric car maker has finally left Elon Musk’s self-dubbed “production hell.” Tesla produced a total of 80,142 electric cars in Q3, 53,239 of which were Model 3. Deliveries totaled 83,500 vehicles, which included 55,840 Model 3.
There is no denying that Tesla’s production and delivery figures for the Model 3 in Q3 were encouraging. Tesla has not revealed the monthly sales figures of the Model 3 yet, but early estimates of the electric car’s sales in September point to more than 22,000 units being delivered during the month. This particular number is just an estimate, but the rest of the US auto market, including some of the auto industry’s most respected brands, are starting to feel the presence of the Model 3.
One of these carmakers is BMW AG. In a statement to Bloomberg, Bernhard Kuhnt, Chief Executive Officer of BMW North America, acknowledged Tesla’s increasing presence in the auto market. BMW was among the carmakers that saw a small gain in September, though its 1.3% rise was primarily due to the strength of the BMW X3, a crossover SUV that would eventually be challenged by Tesla’s upcoming Model Y. With the Tesla Model 3, BMW’s passenger cars such as the 3-Series and the 5-Series are seeing intense competition.
“Tesla is now ramping up their volumes, and it’s putting pressure on that market segment. In that environment, I’m very, very pleased to say we were up,” Kuhnt said.
The Model 3’s presence could also be seen in the performance of Mercedes-Benz on September. The legacy carmaker’s deliveries dropped 9.8% overall, and the Mercedes-Benz C-Class, which is among the United States’ best-selling luxury sedans, saw a steep 24% plunge. Lexus, Toyota Motor Corp.’s luxury brand, saw a 6.1% decline in September as well.
Perhaps most notable, though, was the drop in the sales of a vehicle that is as ubiquitous as they come — the Toyota Corolla Family. Last August, auto sales tracking website GoodCarBadCar listed the Model 3 as the 5th best-selling passenger car in the United States, directly behind the Toyota Camry, Honda Civic, Honda Accord, and the Toyota Corolla Family. Toyota revealed that the Corolla Family sold 20,797 units in September, a ~20% decline over its sales in August, when 26,155 units of the vehicles were sold. If the 22,000-unit estimate for the Model 3’s September sale proves accurate, then Tesla’s first attempt at a mass-market electric car might have just dethroned one of America’s favorite low-cost automobiles.
What is particularly impressive with the Model 3 is that the vehicle is priced higher than its competitors at the top of the passenger car segment. If the Model 3 did beat the Corolla Family’s September sales numbers, it would mean that the electric car, whose selling price currently averages $60,000 (only premium variants are available for now), just outsold a vehicle that tops out at $22,730 (Corolla Family XSE). With Tesla seemingly setting the stage for the $35,000 base Model 3, cars like the Honda Civic and the Toyota Camry could find themselves facing some steep competition.
Things are looking optimistic for Tesla’s next quarters. Gigafactory 1 is set to receive upgraded battery cell production lines from Panasonic, and new Grohmann machines are expected to make module production “three times faster and three times cheaper.” Wall Street analyst Romit Shah from Nomura Instinet also noted that the company’s numbers this past quarter could prove as Tesla’s break-even point. Shah further stated that when Tesla’s deliveries increase to about 100,000 vehicles per quarter, the company could be profitable and sustainable.
Tesla has scheduled its Earnings Call for Q4 and Full Year 2025 for next Wednesday, January 28, at 5:30 p.m. EST, and investors are already preparing to get some answers from executives regarding a wide variety of topics.
The company accepts several questions from retail investors through the platform Say, which then allows shareholders to vote on the best questions.
Tesla does not answer anything regarding future product releases, but they are willing to shed light on current timelines, progress of certain projects, and other plans.
There are five questions that range over a variety of topics, including SpaceX, Full Self-Driving, Robotaxi, and Optimus, which are currently in the lead to be asked and potentially answered by Elon Musk and other Tesla executives:
- You once said: Loyalty deserves loyalty. Will long-term Tesla shareholders still be prioritized if SpaceX does an IPO?
- Our Take – With a lot of speculation regarding an incoming SpaceX IPO, Tesla investors, especially long-term ones, should be able to benefit from an early opportunity to purchase shares. This has been discussed endlessly over the past year, and we must be getting close to it.
- When is FSD going to be 100% unsupervised?
- Our Take – Musk said today that this is essentially a solved problem, and it could be available in the U.S. by the end of this year.
- What is the current bottleneck to increase Robotaxi deployment & personal use unsupervised FSD? The safety/performance of the most recent models or people to monitor robots, robotaxis, in-car, or remotely? Or something else?
- Our Take – The bottleneck seems to be based on data, which Musk said Tesla needs 10 billion miles of data to achieve unsupervised FSD. Once that happens, regulatory issues will be what hold things up from moving forward.
- Regarding Optimus, could you share the current number of units deployed in Tesla factories and actively performing production tasks? What specific roles or operations are they handling, and how has their integration impacted factory efficiency or output?
- Our Take – Optimus is going to have a larger role in factories moving forward, and later this year, they will have larger responsibilities.
- Can you please tie purchased FSD to our owner accounts vs. locked to the car? This will help us enjoy it in any Tesla we drive/buy and reward us for hanging in so long, some of us since 2017.
- Our Take – This is a good one and should get us some additional information on the FSD transfer plans and Subscription-only model that Tesla will adopt soon.
Tesla will have its Earnings Call on Wednesday, January 28.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
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