$Tesla(TSLA.US) The third quarter performance has been revealed, and as the core of every performance report, let's look at the automotive business:

① The selling price of cars is slightly lower than market expectations, but it's not a big issue. Although Tesla did not adjust the prices of its main models, Model 3/Y, in China and the United States in the third quarter, it even raised the price of the Model 3 in Europe by 1,500 euros due to European tariff issues, but because

a. The impact of the price reduction in the second quarter did not cover the entire quarter, but the impact on the third quarter was for the entire quarter;

b. Model structure impact: The proportion of the lower-priced Model 3 in the model structure increased by 2 percentage points quarter-on-quarter;

c. Incentive measures impact: Tesla provided low-interest loans throughout the third quarter in the United States, but this only covered a few weeks in the second quarter;

resulting in the average selling price of cars ultimately declining by about $730 quarter-on-quarter.

② However, what is astonishing this quarter is that the automotive gross margin has finally emerged from the low point of the second quarter. Excluding the impact of carbon credits on revenue, the automotive gross margin increased by 2.4% quarter-on-quarter to 17.1%! This significantly exceeds the current buyer expectations of only 15.3% and 15.7% seen by Dolphin.

And since the average selling price continues to decline, the main reason for the increase in gross margin this quarter is the significant decrease in costs.

The decrease in costs comes from the scale effect of increased production, but the main driver of the decrease in sales costs this quarter is the reduction in variable costs. Dolphin believes the possible sources are

a. Tesla's renegotiation of raw material procurement contracts fully reflected in the third quarter, leading to a reduction in raw material costs.

b. The improvement in the gross margin of the Cybertruck, which has achieved positive gross margin for the first time.

In addition to the performance itself, another major positive news is that Musk finally has a timeline for the new vehicle. The new generation of affordable models will begin production in the first half of 2025, initially using the current production line (Tesla's current maximum capacity is about 3 million units), and driven by this new vehicle, Musk expects vehicle growth to reach 20%-30% next year, providing a new growth engine for the valuation of the automotive business.