Tesla (TSLA) Q4 2021 earnings results and conference call transcript

Tesla has just released their latest earnings report, and the stock is reacting in afterhours trading. The company reported earnings of $2,54/share and revenue of $17.7 billion during Q4 2021, both metrics beating Wall Street expectations. The EPS number does come in below the elevated whisper number of $2.71/share Check out all of the important details in this article below.

Listen to the Tesla (TSLA) Q4 2021 earnings results conference call on Shacknews Twitch channel

We will be streaming the TSLA Q4 2021 conference call on our Shacknews Twitch channel. Stop by if you are into that sort of thing.

Tesla's Q4 2021 Earnings Release

Highlights

Cash

Operating cash flow less capex (free cash flow) of $2.8B in Q4

In total, $1.5B increase in our cash and cash equivalents in Q4 to $17.6B

Profitability

Profitability $2.6B GAAP operating income; 14.7% operating margin in Q4

$2.3B GAAP net income; $2.9B non-GAAP net income (ex-SBC1) in Q4

30.6% GAAP Automotive gross margin (29.2% ex-credits) in Q4

Operations

Record vehicle deliveries of 0.94 million in 2021

Annualized vehicle production run-rate of over 1.22 million in Q4-2021

Summary

2021 was a breakthrough year for Tesla. There should no longer be doubt about the viability and profitability of electric vehicles. With our deliveries up 87% in 2021, we achieved the highest quarterly operating margin among all volume OEMs, based on the latest available data(2), demonstrating that EVs can be more profitable than combustion engine vehicles.

Additionally, we generated $5.5B of GAAP net income and $5.0B of free cash flow in 2021 – after spending $6.5B to build out new factories and on other capital expenditures.

After a successful 2021, our focus shifts to the future. We aim to increase our production as quickly as we can, not only through ramping production at new factories in Austin and Berlin, but also by maximizing output from our established factories in Fremont and Shanghai. We believe competitiveness in the EV market will be determined by the ability to add capacity across the supply chain and ramp production.

Full Self-Driving (FSD) software remains one of our primary areas of focus. Over time, our software-related profit should accelerate our overall profitability. More importantly, FSD is a key component to improve automobile safety as well as further accelerating the world’s transition to sustainable energy through higher utilization of our vehicles.

While 2021 was a defining year for our company, we believe we are just at the very early stages of our journey. Thank you for being part of it.

FINANCIAL SUMMARY

Revenue

Total revenue grew 65% YoY in Q4 to $17.7B. YoY, revenue was impacted by the following items:

growth in vehicle deliveries

growth in other parts of the business

Profitability

Our operating income improved to $2.6B in Q4 compared to the same period last year, resulting in a 14.7% operating margin. This profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $245M in Q4, driven by the final two operational milestones becoming probable. YoY, operating income was primarily impacted by the following items:

further per vehicle cost (COGS) reduction

growth in vehicle deliveries

improved profitability of automotive leasing and Service & Other business

increase in SG&A driven mainly by $340M payroll tax on 2012 CEO award option exercise

rising raw material, commodity, logistics and expedite costs

increased warranty and recall cost related to a specific batch of vehicles

Cash

Quarter-end cash and cash equivalents increased sequentially by $1.5B to $17.6B in Q4, driven mainly by free cash flow of $2.8B, partially offset by net debt and finance lease repayments of $1.5B. Our total debt excluding vehicle and energy product financing has fallen to just $1.4B at the end of 2021.

OUTLOOK

Volume

We plan to grow our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. The rate of growth will depend on our equipment capacity, operational efficiency and the capacity and stability of the supply chain. Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022.

Cash

We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses.

Profit

While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied with an acceleration of software-related profits.

Product

The pace of production ramps in Austin and Berlin will be influenced by the successful introduction of many new product and manufacturing technologies in new locations, ongoing supply-chain related challenges and regional permitting. We are making progress on the industrialization of Cybertruck, which is currently planned for Austin production subsequent to Model Y.

For more details from Tesla's Q4 2021 earnings release, head on over to their investor relations website. Shares of Tesla (TSLA) initially dropped on the release of today's report, but have since recovered.

Tesla shares are moving in afterhours trading, but the conference call will likely lead to more volatility in the shares.

Investors and traders will be keeping their eyes on the TSLA Q4 2021 earnings report conference call which is set to begin at 5:30 PM ET. Tune into our livestream over on Twitch, or check back here for a transcript of the call and Q&A session.

Tesla (TSLA) Q4 2021 conference call transcript

The conference call is set to kick off at 5:30 PM ET, and Elon Musk is expected to be in attendance.

Call begins at 5:30 PM
Elon opening remarks
Grew volumes by 90% in 2021
Highest operating margin in the industry during Q4 2021
$5.5 billion net income, brings Tesla to a profit over its full history
Texas and Berlin have begun vehicle production
Not the most important thing
Volume production remains a bigger goal
Texas is making Model Y with 4680 cells
Not ready to announce new factory locations, but looking at new ones to announce in 2022
In 2022, supply chain will be a fundamental limiter
Chip shortage, better than last year, still an issue
Last year was difficult to predict
Hopefully this year will be easier
Nonetheless, we do expect to see significant growth
Comfortably above 50% growth in 2022 still expected
FSD is still a focus
Robotaxi TAM "Nutty Good"
Confident that they will achieve FSD this year (LOL he always says that)
The cars becoming self-driving via an over-the-air update will provide additional value to customers
On the product roadmap front, there is quite a lot to talk about
Not going to go over everything they are working on
The fundamental focus of Tesla this year is scaling output
Both 2021 and 2022, our total vehicle output would decrease if we introduced a new vehicle
If we had a new car last year, our total output would have been the same
We will not be introducing new vehicle models this year
Development will continue on new products, but production will wait
The foundation of the economy is labor
Optimus robot addresses that
Elon views the robot as very important
CFO Zack on the call too
working on improving costs on 4680 packs
We still expect to be chip limited in 2022 - Elon
That's the thing that is driving our focus
Chip limitation should alleviate in 2023
Zack's additional opening remarks
2021 was a financially transformative year for Tesla
Automotive gross margin rose by 6 basis points
Utilization of Shanghai factory for exports helped
regulatory credits accounted for a relatively small part of the company's profitability
Best ever auto margin in Q4 2021
Supply chain issues and port congestion affected expedite costs in Q4
CEO options from 2012 cost the company nearly $700 million cuz Elon got paid...
Expect 2022 to be another significant and exciting year for Tesla
As Elon mentioned, pace of growth will be dependent on supply chain
Higher fixed and variable costs should ramp as Texas and Berlin factories ramp
Expect stronger operating margins as volumes grow
optimistic about expansion of margins
Software-based profits will become a stronger part of earnings as FSD development improves
Both Zack and Elon thank suppliers for their work
Q&A begins
How is the progress of the $25k car? Any update?
Elon - we are not currently working on the $25k car
Says FSD is a priority
Question about HVAC system?
Zack says they have learned about heat pumps and are excited about working on that problem one day
next Q - Would you consider a perpetual license for FSD?
Elon - No, sounds too complicated
We are just hear to focus on what is the lowest cost per mile of driving
That's what matters
How do we maximize efficiency
Including the charging infrastructure
Next Q - Is Dojo on track for Summer 2022?
Other Q - When should we expect Teslabots to be implemented, and where?
Elon - when does it become better than a GPU cluster for training will determine the win condition for Dojo
GPU super cluster team has to tell Elon that they want to use Dojo instead
Wouldn't say success is 100% certain with Dojo
But it does seem that we might pass that threshold next year with Dojo
Dojo is not needed for FSD, but it lowers costs via optimization
Also provides a rate of improvement with the neural net
If Dojo is competitive, we will offer it to other companies looking for a neural net implementation for FSD
Better to build Dojo that repurpose GPUs as is the case now
We are not saying Dojo will succeed, but we think it will
(There goes Elon talking down his stock)
Regarding Teslabot's first use
Elon calls it Optimus Subprime
If we can't find a use for it, we can't expect others would
First implementation would be at Tesla moving parts around the factory
Next Q - Broader insurance roll out?
Texas, Illinois, Ohio, Florida, all informatic based
Cali not
Those are the five states currently supported
Tesla insurance with informatics encourages safer driving
On the right track to scale across the US, according to Zack
Slow process due to insurance being regulated on the state level
Internal goal is to be in enough locations at the end of the year that 80% of our customers could sign up for Tesla insurance
Next Q - What is your max capacity on each plant?
Elon - it's always possible to increase capacity at most plants
Look at the big picture, logistics, cost of transporting needs to be considered
You want to have factories closer to customers
Increasing output at a factory might not be the smart thing to do
Texas will fulfill Eastern US
Fremont and Nevada will focus on Western US
2022 is a year where we will be looking at new factory locations
potential announcements
next q - what are the biggest challenges with Cybertruck volume production?
Elon - batteries will probably not be the limiting supply constraint
Lots of new tech in the vehicle
You can make something infinitely desirable, but if it costs too much no one will buy it
How do we make Cybertruck affordable? That will set the rate of production
Next Q - Where is the margin improvment coming from?
Zack - four major factors:
1. mix of Model Y is increasing, more profitable than Model 3
2. localization in Shanghai has helped margins
3. Transition to new Model S and X has helped
4. New factories being closer to geographies also helps
Ramp ineffiencies in Texas and Berlin
Inflation in supply chain
Driving to increase margins
But launching two factories will put a damper on that
Software part of the business is the one to pay attention to
Elon - basically everything pales in comparison to the value of FSD and robotaxis
You go from having an asset that has 12 hours of utlilty to 50 hours per week
costs will change
value proposition changes
Last Q from investors - Level 4 economy FSD?
Elon - Dojo is not required for FSD, but it should have a positive effect
March of 9s
What percent of reliability...
Being better than a human is not hard according to Elon
He should know, he's a damn robot
Being better than human is relatively straight forward
Being 1000% better is the challenge that Tesla is facing with FSD
FSD is progressing with respects to interventions per mile
Pace of improvement is fast
I would be shocked if we do not achieve FSD this year - Elon
Analyst Q - Cannacord
Elon, my question is around the Megapack/energy business
Given strategy and supply constraints, wondering if you can talk about LFP for the Megapack
Elon - we do think that all stationary storage will transition to an iron-based system (Nickel-free)
There is a ridiculous amount of iron on Earth - Elon
Manganese is a wild card
We did short change the energy business last year in that vehicle production took priority on chip availability
Terawatt/year energy business
It will be vast
2022 is the opening the of the energy business reaccelerating?
Elon - hard to say due to chip shortages
Chip supply issues will alleviate in 2023
The sheer amount of chip fabs being built is a sight to behold
Tesla Energy will grow this year, but its growth is muted due to supply concerns
Our plans are ambitious for Megapack this year - Zack
Tesla Energy will grow faster than vehicle business when supply chain issues dissipate
We are trying to stay true to our primary mission
Q from Baird
How do you organize R&D efforts?
We don't have incubators - Elon
We don't have research centers
We work on things that go in our products
LOL Zack dropped an F Bomb
Elon - prototypes are easy, production is hard
We have a bazillion ideas
Tight feedback loop with production
next Q from Bernstein
2 questions
Can you share your current FSD attach rate?
How much deferred revenue from FSD was drawn down in 2021?
Long-term every car will have FSD
The value of that will be "a very big number"
Elon says that FSD will increase traffic, and mentions the Boring Company may be the solution
It may be cheaper to go point-to-point via robotaxi than a bus or subway
If that is an option, who would take a bus?
People do not understand how profound a change this is - Elon
Most valuable software upgrade maybe in history...
Elon remains bullish of FSD
I don't know how to quantify that - Elon
Follow up q for Elon - If there is no $25,000 vehicle being worked on, how do you get above 3.2 million run rate in 2024?
The gravity of FSD is not fully appreciated - Elon
Next Q - New Street Research
Great to hear 4680 is being sold in cars in Q1, but how do you think of the 4680 as a form factor your suppliers could adopt as well?
Will you deploy is all cars? Do you expect other companies to use that form factor as well?
Zack - Yes, we have engaged with our partners and suppliers on the form factor
They look at it the way we do, to lower costs and increase ease of production
We are all engaged because we think it is a good form factor
regarding competitors? There are some physics-based differences that may lend to other form factors depending on solutions
Question on chip shortage effects on products
Should we expect Tesla to work with additional suppliers?
Zack and Elon - simple control chips, oscillators are the constraints
They literally couldn't make seats fast enough due to the chip shortage
Elon Musk was not sure the toilet paper shortage was real, until he confirmed it himself at HEB in Texas
A lot of companies over-ordered chips, and we are seeing some alleviation in those areas.
Output of vehicles is constrained by the most problematic supply chain component in the car
Which one is going to be the least lucky one this time?
Zack - going forward we are focused on simplification of our products
There's still room to grow without needing more fab capacity, but more fabs are coming online
Time is up!
TSLA shares currently trading slightly up at $943/share.

Well that about wraps up this article. Be sure to follow our TSLA topic for more news on today's Q4 2021 earnings release.