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On Wednesday, Tesla released their third quarter results. There is a lot going on underneath that hood, which is funny because the mechanics underneath the hood of a Tesla car are pretty simple.
Auto sales were a little uninspiring, with revenue up just 6%. That has been the theme over the last few years. Although there are some signs of life, thanks to lower interest rates and a strong following in countries that don't care much about US politics. Sales in South Korea, Japan and Singapore set new records, while the Model Y remains the top-ranked vehicle in Norway and Switzerland.
The energy business was the shining light. It grew by 43.7% with gross profit margins of 31.4%, well above that of the auto business. The biggest challenge for renewable energy is managing the base load with batteries. Tesla aims to solve those problems and is doing a good job of it. They are building really large commercial battery storage systems called Megapack 3s which are currently being installed at their own manufacturing plants. Tariffs, unfortunately, were a big headwind for this part of the business.
Now for the exciting stuff, self-driving software (FSD), robotaxis and robots. Musk says that Tesla is the leader in real-world AI and I think he is right. The AI we usually talk about is asking a chatbot to make you a logo for your weekend cricket team. Real-world AI is directing cars through traffic without a driver. Version 14 of FSD has been launched and seems to be working well. Only 12% of Tesla owners have FSD so this represents a big opportunity.
The robotaxi service has been growing well in Austin since it launched last quarter. They have just launched in San Francisco. There are still safety supervisors in the passenger seats of these cars, watching over the software, but the plan is to get rid of them in Austin next year.
The Optimus robot version 3 is launching next year and the goal is to build 1 million of these by 2027. Though one should take Musk's goals with a pinch of salt.
There are many exciting things going on with plenty of synergies amongst the projects and Musk's other businesses. The current auto fleet is providing data for the robotaxis. The robotaxis will provide a lot of practical data back to the fleet. This should speed up the process to full autonomy. Soon any Tesla owner could simply turn their car into a robotaxi to make money on the side. Grok (X's chatbot AI) has been integrated into the cars in North America. Optimus production can be done in the auto factories using SpaceX ideas and expertise.
Tesla trades at lofty valuations and is not for everyone but if you back Elon Musk and want in on his genius, then Tesla is worth a small punt in your portfolio.
