Cybertruck might take some time for it to be profitable

“We dug our own grave with the Cybertruck. I just want to temper expectations for Cybertruck. It’s a great product, but financially, it will take a year to 18 months before it is a significant positive cash flow contributor.”

This was what Elon Musk had to say about its Cybertruck product. If you don’t know what it is, Cybertruck is Tesla’s entry into the pick-up truck market. Planning for it started in 2019, while pilot production began in July 2023. It plans to make its first deliveries by 30 November 2023.

So what’s the problem with Cybertrucks? Firstly, it is still in pilot production, meaning it is testing how many units of Cybertrucks can it produce and how much demand there is for it. The pick-up truck will be made in its Texas gigafactory where it has provided estimates that it can produce about 125,000 units per year.

In the 3Q, Tesla stated that its research & and development expenses have increased by US$428 million in just 3 months or 58% due mainly to the Cybertruck pilot production. Hence, there is still some form of uncertainty about the commercial viability of the Cybertruck.

What about its 3Q 2023 results then? Generally, Tesla’s results missed expectations. Here are a few key points.

• Revenue: 3.3% lower than the market forecast.

• Profit margin: 7.9% in 3Q 2023, lower than 15% in 3Q 2022.

The immediate market reaction to this was a 4.8% and 9.3% decline in share price on 18th and 19th October respectively. Revenue was slightly lower as Tesla’s aggressive cutting of selling prices has reduced the amount of revenue. In contrast, its lower profit margins are attributable mainly to higher R&D expenses from the Cybertruck pilot production.

Furthermore, news of Panasonic (Tesla’s supplier of batteries for its older Tesla models) reducing production of batteries also came as negative news for Tesla. Its 3Q 2023 production volume actually declined where seasonally, 3Q had seen an increase for both 2021 and 2022.

Why it matters for you: There are a couple of factors that you need to take note of for Tesla. Firstly, its Cybertruck product is still up in the air in terms of commerciality. Furthermore, the availability of electric batteries is also a major concern considering Panasonic’s concerning news of its lower production.