Tesla
‘s annual shareholder meeting has wrapped up and the biggest surprise wasn’t about succession planning, or Twitter, or even about products. The bombshell was about advertising.
In response to a shareholder question, Tesla (ticker: TSLA) CEO Elon Musk said his company would try running some ads. The crowd at the shareholder meeting Austin went wild. Musk said he was surprised by the reaction.
Tesla stock is up 1.4% in Wednesday premarket. Shares closed up 0.1% Tuesday at $166.52 a share. The
S&P 500
and
Nasdaq Composite
closed down 0.6% and 0.2%, respectively.
Investor might like the news, but ads show again that the bigger that Tesla gets, the more it begins behaving like a traditional auto maker.
The first example of Tesla’s metamorphosis into a larger auto maker was first-quarter profit margins. Tesla’s decision last year to spur sales with price cuts ate into profitability. The first-quarter operating profit margins came in at about 11%, down from north of 19% a year ago.
Toyota Motor
‘s (TM) fourth-quarter operating profit margin came in at almost 10%.
Now there is advertising. Smaller auto makers such as
Ferrari
(RACE) don’t need to advertise. They have no problem selling out. But Ferrari sales are measured in the tens of thousands. Tesla’s are now measured in the millions and growing.
In the past, Musk has said that Tesla didn’t need to advertise as demand always exceeded supply.
Through Tuesday trading, Tesla stock is up roughly 35% year to date.
Musk said in response to a question about pricing that Tesla adjusts price, essentially, based on real-time information about order rates. Tesla delivered a record amount of cars in the first quarter. Musk believes the Tesla Model Y will be the best-selling car in the world, electric or traditional, in 2023, but the price had to come down to do it.
Ford Motor
(F) and
General Motors
(GM) spent $2.2 billion and $4 billion on advertising, respectively, in 2022. The $6-plus billion figure represents roughly 2% of combined 2022 sales. That’s an expense, but GM and Ford, of course, believe they get branding and sales benefits.
Down the road, investors will have the chance to evaluate just how effective any ads are. Musk told CNBC”s David Faber that ads should be truthful and aesthetically pleasing.
Coming into the meeting, investors were more interested in hearing about how Musk planned to spend his time, especially after he recently named a new Twitter CEO to replace him in that post. He said Twitter was a short-term distraction and that it was in a stable place, adding he doesn’t need to devote a lot of “incremental time” to his social media platform. He also added that he planned to stay Tesla CEO.
The advertising news will likely trump the succession concerns. They might trump product issues too. Musk said there are a few new products he is excited about. The humanoid robot Optimus was one he highlighted. Investors are familiar with Optimus, but Tesla showed off new videos of the robot moving around. Musk added he believes the majority of Tesla’s value in the future would be derived from the robot.
Another product is likely a smaller car, but details were thin. A new Tesla model has come up at meetings a few times recently. Details, to this point, about have new model have always been thin. The next model to ship with be Cybertruck which is due to be delivered later this year.
Below are some other tidbits from the 2023 annual meeting, along with some historical context.
Succession, Not the TV Show
There are a few reasons investors have been thinking more about succession. Twitter has a new CEO, Tesla board chair Robyn Denholm put out a video stressing the strength of Tesla’s management and board, and Musk appeared on CNBC.
The Board
Japanese businessman and investment professional Hiro Mizuno didn’t stand for reelection to Tesla’s board. Tesla co-founder J.B. Straubel was nominated to replace him. He served as Tesla’s chief technology officer from 2005 to 2019. Today, Straubel is running his EV battery materials company Redwood Materials.
He was elected to the board.
Other Product Notes
Musk said Tesla would move to 48-volt electrical architecture. That’s an “inside-baseball” reference for car wonks. Essentially, car electrical systems have been based on 12-volt architecture. Going to 48-volts can make things more efficient and save on copper usage.
Write to Al Root at [email protected]
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