Tesla, GM and Ford each reported their full-year 2022 earnings recently. In the areas that matter most, Tesla’s financial performance beat a great earnings showing by General Motors. Tesla actually out-earned GM in 2022, posting net income of $12.56 billion versus net income at GM of $9.93 billion. And with Ford’s reported net loss in 2022 of $1.97 billion, CEO Jim Farley essentially admitted during the earnings call that Ford is less inefficient than others when he stated that “we left about $2 billion of profit on the table due to cost and especially continued supply chain issues.”
In 2022, Tesla grew its revenue 50% to $81.5 billion versus 2021. Since 2018, the year after the launch of the company’s first volume vehicle (the Model 3), Tesla revenue has increased an amazing 280%. In 2022, GM and Ford generated revenue of $156.7 billion and $158.7 billion respectively, which are nearly double that of Tesla. Yet, it seems that Tesla is the more efficient automaker because the company is able to keep more of its revenue as shown by its much better profit margins. Tesla’s 2022 gross margin (25.6%) and operating margin (16.8%) are dramatically better than GM’s gross and operating margins (13.4% and 6.6%), as well as better than the gross and operating margins of Ford (15.0% and 4.0%).
Many analysts claim that Tesla’s business and financial strength are due to it being more of a technology company than legacy automakers. I disagree. There are no particular technology core competencies at Tesla that don’t exist at other automakers. It is Tesla’s automotive business efficiency that is decidedly better than most legacy automakers. Much of this better efficiency comes from the fact that electric vehicles are more efficient to produce than the internal combustion engine cars primarily manufactured by legacy automakers. Another is the fact that Tesla does not share any of its margin with a dealer network like legacy automakers. Additionally, Tesla has no marketing and advertising expenditures. Legacy car companies spend billions on marketing every year. It is these Tesla business advantages that should worry legacy automakers the most.
Although it may be uncomfortable, it should be clear to all that the global automotive industry is in a period of disruption primarily initiated by Tesla. How each automaker overcomes their legacy disadvantages will determine the losers from those car companies that actually close the gap to compete with Tesla. But why plan to just close the gap? What will legacy automakers have to accomplish to actually win in this new automotive world? It is not a lost cause. I believe some legacy automakers actually have reasonable strategies to become a disruptor themselves. I will explain further in a follow-up newsletter update.
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Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.