Tesla (NASDAQ: TSLA) published a solid set of delivery numbers for Q3 2021 late last week, noting that it had delivered a record 241,300 vehicles for the quarter, a sequential increase of 20% and a year-over-year increase of almost 73%. The impressive numbers indicate that Tesla is able to overcome the considerable supply chain issues that are impacting the broader auto industry. For perspective, even Toyota, which has the most well-oiled supply chain in the automotive business, had to slash worldwide vehicle production by 40% in September on account of the global semiconductor shortage. So how did Tesla deliver despite the odds? We think there could be three broad reasons.
Firstly, Tesla focuses on more premium vehicles, and its automotive gross margins stood at almost 26% in Q2 2021, excluding regulatory credit sales, compared to margins of under 10% for the broader auto and truck space.  This puts the company in a better position to secure supply, as semiconductor companies could prioritize higher value players. We’ve seen something similar in the consumer electronics space as well, with high-margin Apple managing its chip supply much better versus the broader industry.
The current chip shortage in the automotive space is largely due to the fact that semiconductor fabs have transitioned production capacity from tried and tested legacy chips used by automakers (often 40-nanometer process node and above) to more modern chipsets with more advanced process technologies. It’s possible that Tesla’s more modern vehicle architecture is helping it adapt to the current situation more quickly. Tesla’s solid software engineering capabilities are also helping. Over Q2 2021, Tesla said that it was able to source alternative chips and write out updated software for them in a matter of weeks to integrate them into its vehicles.  This is probably something mass-market automakers can’t do so easily.
It’s also likely that Tesla’s Chinese business played a strong role in its deliveries for this quarter. EV sales in China have been booming, and it appears that Chinese players have had less trouble securing chip supply. For example, China’s premium EV players Nio and Li Auto posted 100% and 190% year-over-year growth respectively over Q3 2021. Tesla now has a big presence in China, with its Shanghai facility accounting for over 40% of its total current production capacity. This probably helped the company.
Tesla stock has largely held up despite the broader market sell-off over the last month, returning about 4%, compared to the S&P 500 which was down by close to 4%. So will Tesla stock rise further in the near-term or is a decline looking likely? Per the Trefis Machine learning engine, Tesla stock has a 61% chance of a rise over the next month. See our analysis Tesla Chance of Rise for more details.
That said, we value Tesla stock at just about $560 per share, a discount of almost 30% versus the current market price, due to mounting competition in the EV space from mainstream automakers and concerns of higher inflation and rising interest rates, which could hurt valuations for high-growth stocks. Check out our analysis on Tesla Valuation: Expensive Or Cheap