OPINION: Supercharger Program Layoffs - Is the Sky Falling?!?
We took at look at some numbers today, and had a chat at the office, to better understand what may be underlying Tesla's decision on laying off many of the Supercharger team.
We think the decision is based on the unit economics of the stations, the economic outlook over the next few years, their position as the leader and standard, and a potential change in rollout strategy.
Unit Economics:
Here are some very rough numbers on how the Supercharger program potentially looks on paper, using 2023 financial data:
Revenue: $1.7B (we estimate it's 20% of the "Services and Other")
Profit: $166M (Based on Musk's target of 10%, noted below)
Revenue/Station: $1.7B / 2,100 = $792,286 per station.
Profit/Station: $166M / 2,100 = $79,228 per station.
Profit/Station: $166M / 2,100 = $79,228 per station.
With 500 employees on the team, earning an average of $100,000 each, totaling $50M, that’s potentially 30% of the profit, and lowers overall profit to 9%.
Economic Shift?
Elon has better economic data than most on the planet, both micro (Tesla sells to consumers) and macro (SpaceX sells to governments). With no indication of a lowering of interest rates, Tesla sales growth slowing, and several indicators of consumer weakening (check Starbucks Q2 2024 numbers), we think that he expects pain over the next 18 months.
Cutting cost ahead of time helps get through that period. But why Supercharger, you say?
Strategic Change?
Margins at 9% is just not a great business. Of course, it doesn’t matter if you are dependent on it for your core business (for now), selling cars.
But what if that’s not as relevant anymore?
But what if that’s not as relevant anymore?
Tesla’s NACS is now the standard, and their network, at least in the US, is by far #1. They’ve won. There are diminishing returns by spending all that capital expenditure (CapEx) on their own, into a low margin business.
We predict that they will start doing licensing deals for future network expansions, especially outside of major markets, might sell off the lower profit generating locations, but maintain the most important locations on their own. Look at what telecoms or gas stations do once their retail footprint reaches scale.
If they are headed in this direction, a team of 500 is likely not needed. Doing licensing deals is far easier than finding real estate, contractors, and a maintenance team. Some part of the team was also working on new cutting-edge technologies, such as wireless charging, which is less important if you are in a consolidation phase. Cutting the team down to a minimum, and not expanding into as many new locations themselves, means they will have higher profits for the Supercharger program, and a lower CapEx.
With all of these (albeit numerous) assumptions in mind, cutting the team and changing direction is the right move. We will see if that’s true long term.
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