Tesla (TSLA) Q1 2022 earnings results and conference call transcript
Published , by Asif Khan
Tesla's Q1 2022 earnings results have just been released, and the stock is reacting in after-hours trading. The electric vehicle company reported earnings of $3.32/share and revenues came in at $18.8 billion, both beating analyst revenue expectations of $17.75 billion as well as the EPS whisper number of $2.41/share.
Listen to the Tesla (TSLA) Q1 2022 earnings results conference call
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 (TSLA) Q1 2022 Earnings Release
Here are some highlights from Tesla's Q1 2022 earnings report:
Cash
Operating cash flow less capex (free cash flow) of $2.2B in Q1
Total debt ex. vehicle and energy product financing under $0.1B
Profitability
$3.6B GAAP operating income; 19.2% operating margin in Q1
$3.3B GAAP net income; $3.7B non-GAAP net income (ex-SBC1) in Q1
32.9% GAAP Automotive gross margin in Q1
Operations
Production & Deliveries started from Gigafactory Berlin in March 2022
Production & Deliveries started from Gigafactory Texas in April 2022
Summary
The first quarter of 2022 was another record quarter for Tesla by several measures such as revenues, vehicle deliveries, operating profit and an operating margin of over 19%. Our outstanding recourse debt has fallen below $0.1B at the end of Q1. Public interest in a sustainable future continues to rise, and we remain focused on growing as fast as is reasonably possible.
Expansion of our production capacity is core to our decisionmaking. In the past two months, we began deliveries of Model Y from Gigafactory Texas and Gigafactory Berlin-Brandenburg (negligible impact on Q1 gross profit). At the same time, we are putting significant efforts into in-house cell production, raw material procurement and supplier diversification.
Challenges around supply chain have remained persistent, and our team has been navigating through them for over a year. In addition to chip shortages, recent COVID-19 outbreaks have been weighing on our supply chain and factory operations. Furthermore, prices of some raw materials have increased multiple-fold in recent months. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.
We would like to thank everyone who attended our factory opening events or watched live at home. We’re excited to see people so passionate about mass manufacturing and a sustainable future.
Revenue
Total revenue grew 81% YoY in Q1 to $18.8B. YoY, revenue was impacted by the following items:
+ growth in vehicle deliveries
+ increased average selling price (ASP)
+ growth in other parts of the business
Profitability
Our operating income improved to $3.6B in Q1, resulting in a 19.2% operating margin. This profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $48M in Q1. YoY, operating income was primarily impacted by the following items:
+ growth in vehicle deliveries
+ increased ASP
+ reduced cost (COGS) per vehicle despite inflationary pressures
+ lower stock-based compensation expense
+ increase in regulatory credit sales
- rising raw material, commodity, logistics and expedite costs
- increase in operating expenses
Cash
Quarter-end cash, cash equivalents and short-term marketable securities increased sequentially by $0.3B to $18.0B in Q1, driven mainly by free cash flow of $2.2B, partially offset by debt repayments of $2.1B. Our total debt excluding vehicle and energy product financing fell to less than $0.1B at the end of Q1.
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 the rest of 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 and ongoing supply chain-related challenges. Factory ramps take time, and Gigafactory Austin and Gigafactory Berlin-Brandenburg will be no different. We are making progress on the industrialization of Cybertruck, which is currently planned for Austin production subsequent to Model Y ramp.
For more details from Tesla's Q1 2022 earnings release, head on over to their investor relations website. Shares of Tesla (TSLA) initially jumped above $1,000/share on the release of today's report, but have since pared some of those gains in after-hours trading.
Tesla's stock has jumped back above $1,000/share in after-hours trading.
Some interesting stories of note from Tesla's Q1 2022 earnings release:
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) Q1 2022 conference call transcript
The conference call is set to kick off at 5:30 PM ET. Keep an eye on this article for a transcription of the call right here.
Conference call set to start in three minutes, stock at $1037/share as of 5:27 PM ET.
It's 5:30 PM ET and the call has not started.
The call begins at 5:31 PM ET with just silence
Elon and Zack are on the call
Zack has some opening remarks
Q1 was a challenging but extremely successful quarter for Tesla
Best ever vehicle delivery numbers, revenue, gross margins, and automotive gross margin
Higher pricing helped
Most vehicle delivery wait times are still high
Per unit vehicle costs increased
One time benefit of $288 million
Credit revenue would have declined otherwise
Storage products suffered due to chip supply chain issues
Achieved record operating margin
costs of Berlin and Austin factory ramps will be in automotive going forward
Elon, with respect to FSD, I have never really seen any more false dawns than I have seen in full self-driving
You need to solve real-world AI
the whole world is built of biological neural networks and eyes
Need to create computer visions neural net that surpasses humans
I think we will do that this year
We have over 100,000 people in the Tesla FSD Beta program
Experience it for yourself
Putting out a new release almost every two weeks
Two steps forward, one step back
Overall rate of improvement is great
Next question, How much impact of Shanghai shutdown in Q2?
Berlin Model 3 ramp question
Elon - we lost a lot of important days of production
Tesla Giga Shanghai is coming back with a vengeance
I think we will see record output per week from Shanghai during the quarter, in spite of the shutdown
Could be close to Q1 output despite the COVID lockdown
Q3 and Q4 Shanghai output will be substantially higher
Likely that we can produce over 1.5 million cars in 2022
Ramp will take 5 months or so
How much flexibility do you have on COGS in the short term vs long term?
On the price increase front, the waitlist for our cars is quite long
Prices of vehicles ordered now are anticipating supply chain cost growth
A car ordered today will arrive in some cases a year from now
We are not demand limited, we are production limited
Zach adds, there are different ways to calculate raw materials exposure
10-15% of Tesla cost structure is related to raw materials
inflationary pressures have been felt for several quarters
The timing for the costs to hit the income statement are a bit delayed due to contracts being negotiated
Pricing is tied to the upcoming renegotiated raw materials contracts
Another question, Why does Tesla fight dealership laws on a state-by-state basis?
Elon - We would love to have federal regulation about direct to consumer sales of cars
Unfortunately, we have to fight it on a state by state basis
Volume production required for a move to 800 from 400 volts to be worth it
Bigger vehicles that need higher power during charging on the powertrain side, there are some semiconductor savings for 800 volt, so Tesla Semi and Cybertruck might be better use cases
How are the 4680 packs performing?
We are working in all the areas we shared on battery day, and are on track for our five-year goals
We do not control all commodity costs
Similar to Model 3, it will take several years to hit the goals we have
Elon - In a nutshell, 4680 as a structural pack will be competitive with the best alternatives, later this year
4680 will be better than the competition later this year
We are saving huge on capex, utlities, and personnel with 4680
The cost model is understood, but rate and yield remain unknown variables
Question on raw material expense management for scale growth
Where does the tonnage demand of nickel, lithium ion, cobalt, phosphate go for the world as a whole over time?
Tesla focused on limiting factors
Mining and refining of lithium appear to be a limiting factor
Lithium is the biggest cost growth factor
2-3% of the pack is Lithium
The most expensive and heaviest item is the nickel cathode
We are trying to figure out the right amount of supply production to get to escape velocity for growth
committed to recycling at all factories
Elon hints at possible news on the mining front coming later this year
Aluminum scrap is already being reused
wheels from practically any car can be used too
At what rate do you think Giga Berlin and Texas will ramp production compared to Shanghai?
Elon - Both should ramp faster than previous production ramps
Lars - if you are waiting for the best Tesla, you will be waiting forever
Question about Robo Taxi
Elon - will this be something people can own or service?
We don't want to jump the gun on a fun product announcement
Robo Taxi reveal event planned for 2023
Last investor question
What is the 4680 run rate now? What is expected for end of year?
Berlin is not constrained by 4680
Elon - end of Q3 should have more clarity on the 4680 ramp across factories
4680 production is not a risk to the 1.5 million vehicle target this year but does risk 2023 growth potential
Analyst Dan Levy asks can you talk through the drivers of cost improvements?
Zach - At a high level, cars produced in Shanghai are lower cost than cars made in Fremont
Also seeing efficiencies in S and X lines in Cali
Expedites in Q1 were lower than Q4 2021
Elon - Kudos to Fremont on achieving record output at the factory
Next question about the affordability of Model 3 and Y, supply constraints, how do you look at the progress of prices?
Elon - we absolutely want to make EVs as affordable as possible
Inflation is at a 30-50 year high
That inflation appears to be likely to continue in 2022
Suppliers are under severe cost pressure
Suppliers requesting 20-30% increases in part costs
Especially with Robo Taxi and autonomy, we will end up providing consumers with the lower cost/mile transport they have ever experienced
Elon - I encourage entrepreneurs to get into the lithium business
Lithium margins are practically software margins
Can more people get into the lithium business? - Elon Musk
Impressive to see the modest improvement in COGS for vehicles despite inflation and supply chain issues?
Economic benefits of Robo Taxi?
Zach - we will evaluate after shipping Optimus and Robo Taxi to figure out what is next
Trip Choudry with a question
Regarding Cybertruck, how will it compare to other pickup trucks with respect to total parts?
Elon - we have not done a comparison
Lars - the simplicity of our structure is significant
Architecture is always working to reduce parts counts
Ignoring the battery, we are about 20-30% less
Does Tesla expect to expand in Nevada?
Elon - we do expect to increase output from Nevada
Piper Sandler with a question
The extent to which other plants outside of China are insulated from supply chain issues?
is there a point at which it could affect other facilities?
Elon - Yes, there are some things that could affect production globally
Giga Shanghai is back in production
So are our suppliers
we don't think that other factories will be affected
Other question on Elon's next compensation plan
Elon - there are no discussions underway regarding my compensation
Next question from Wells Fargo
How quickly can raw materials supply be grown?
Is there even enough time to build that mining capacity?
How fast can you switch to LFP?
Lars - half of our vehicles were LFP in Q1
specifically on the cathode side, flexibility is key
If you look past this year to 2023 or 2024, we need everybody to do more in the lithium space than they currently are
Last question
Goldman Sachs asks when Supercharger network will be made available to rival EVs?
We do plan to provide third party access, working on solutions in North America
We are moving in that direction
We want to do the right things with respect to the charging network - Elon
Zach - overall charging capacity is important
Second question about Tesla Insurance
Tesla is the second-largest insurer of Teslas in the state of Texas
Customer response has been positive
A lot of folks are reporting saving money compared to traditional insurance
Trying to get to 80% availability for American customers
Insurance models different in the new states
Becoming fully vertically integrated insurer
Still scaling
Elon - side note, having real-time feedback for driving habits is causing Tesla owners to drive in a safer way
Zach - extremely high retention, and Tesla Insurance has become a passion project for us
Elon - it is also a feedback loop for Tesla as we can see the exact cost of accidents that helps iteration of parts included in vehicles
Repair costs to improve as a result of data provided by Tesla Insurance
That's all folks!
TSLA stock at $1,029/share at the end of the conference call, holding most of its gains since the earnings release was published
This article is only meant for educational purposes, and should not be taken as investment advice. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.
Full Disclosure:
At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions: