Tesla is out with the company's Q2 2022 earnings results, and the stock is moving in after-hours trading. The EV company reported earnings of $2.27/share and revenues of $16.9 billion, with earnings beating analyst expectations of $1.81/ share and missing revenue estimates of $17.2 billion.
Listen to the Tesla (TSLA) Q2 2022 earnings call
We will be streaming the TSLA Q2 2022 conference call on our Shacknews Twitch channel. Stop by if you want to chat with us as we react to the news.
Tesla (TSLA) Q2 2022 Earnings Release
Here are the highlights from Tesla's Q2 2022 earnings report:
- Operating cash flow less capex (free cash flow) of $621M in Q2
- In total, $0.8B increase in our cash and cash equivalents in Q2 to $18.3B
- $2.5B GAAP operating income; 14.6% operating margin in Q2
- $2.3B GAAP net income; $2.6B non-GAAP net income (ex-SBC1) in Q2
- 27.9% GAAP Automotive gross margin in Q2
- More than 1,000 vehicles produced in a single week at Gigafactory Berlin
- Highest solar deployment in over four years
We continued to make significant progress across the business during the second quarter of 2022. Though we faced certain challenges, including limited production and shutdowns in Shanghai for the majority of the quarter, we achieved an operating margin among the highest in the industry of 14.6%, positive free cash flow of $621M and ended the quarter with the highest vehicle production month in our history.
New factories in Berlin-Brandenburg and Austin continued to ramp in Q2. Gigafactory Berlin-Brandenburg reached an important milestone of over 1,000 cars produced in a single week while achieving positive gross margin during the quarter. From our Austin factory, the first vehicles with Tesla-made 4680 cells and structural battery packs were delivered to our U.S. customers. We are continuing to invest in capacity expansion of our factories to maximize production.
The Energy business made meaningful progress in Q2 as well, achieving higher volumes with stronger unit economics. This resulted in an overall record gross profit. Customer interest in our
storage products remains strong and well above our production rate.
With each of the Fremont and Shanghai factories achieving their highest-ever production months and new factory growth, we are focused on a record-breaking second half of 2022.
- Total revenue grew 42% YoY in Q2 to $16.9B. YoY, revenue was impacted by the following items:
- growth in vehicle deliveries (+)
- increased average selling price (ASP) (+)
- growth in other parts of the business (+)
- Our operating income improved YoY to $2.5B in Q2, resulting in a 14.6% operating margin. YoY, operating income was primarily impacted by the following items:
- increased ASP (+)
- growth in vehicle deliveries (+)
- profit growth in other parts of the business (+)
- lower stock-based compensation expense (+)
- higher raw material, commodity, logistics and expedite costs (-)
- higher per unit fixed costs in Shanghai due to shutdowns (-)
- negative FX impact (-)
- Bitcoin impairment (-)
- Quarter-end cash, cash equivalents and short-term marketable securities increased sequentially by $902M to $18.9B in Q2, driven mainly by free cash flow of $621M, partially offset by debt repayments of $402M. As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency. Conversions in Q2 added $936M of cash to our balance sheet.
- 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, factory uptime, operational efficiency and the capacity and stability of the supply chain.
- We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses.
- 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.
- The pace of production ramps in Austin and Berlin-Brandenburg 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.
Tesla's cash flows would have actually been negative in Q2 2022 without the sale of their Bitcoin position. The company also attributed the EPS beat to increased average selling prices of their vehicles. While this quarter certainly beat expectations, it has some investors asking questions about how much of an impairment was taken on the sale of the Bitcoin position. Despite the financial engineering this quarter, gross margins did decline from the previous quarter and the year ago period.
Some interesting stories of note from Tesla's Q2 2022 earnings release:
- Tesla (TSLA) had 27.9% automotive gross margins in Q2 2022
- Tesla (TSLA) German Gigafactory achieves 1,000 vehicles/week production pace
- Tesla (TSLA) liquidated 75% of its Bitcoin holdings in Q2 2022
- Over 100,000 Tesla drivers have access to the Full Self-Driving (FSD) Beta
- Tesla (TSLA) hit from Bitcoin sale & impairment amounted to $106 million in Q2 2022
- Elon Musk says lithium refining business is a 'license to print money'
- Tesla (TSLA) has enough 2170 cell supply to meet 2022 EV production targets
- Musk says Tesla Cybertruck will be available by the middle of 2023
- Musk says Tesla vehicle prices are 'frankly at embarrassing levels'
Tesla (TSLA) Q2 2022 conference call transcript
Tesla's earnings results conference call is set to kick off at 5:30 p.m. EDT. Keep an eye on this article for a transcription of the earnings call right here.
- Call begins at 5:31 p.m. EDT
- Elon is on the call
- Elon has opening remarks
- As a Q2 recap, it was a unique moment with the Shanghai shutdown
- We have the potential for a record second half of the year
- factories are ramping
- it's been supply chain hell for multiple years
- Thanks Tesla and Shanghai team for achieving record progress in June
- Giga Texas expected to achieve over 1000/week volumes in the next few months
- Currently making cars without the 4680 cells, using 2170 cells
- sufficient 2170 cell supply to make cars this year
- second generation 4680 equipment is being installed in Texas
- Over 100,000 FSD drivers out there
- More autonomous miles driven than almost the rest of car companies combined
- 5-6 years ago, we said we wanted to become the best manufacturer in the world
- we a pro manufacturing and want to encourage other companies to join in on that goal
- "we need to make stuff, and make it efficiently"
- Many advances in manufacturing processes.
- We make the world's largest castings
- Lighter, cheaper, superior noise vibration
- Improved seatbelt tech
- With computer vision, the company is able to increase seatbelt tension before an accident
- Over the air update
- FSD Beta on track to launch in all of North America by the end of the year
- AI Day coming up
- Tremendous stuff to look forward to
- Zach with opening remarks
- Congratulates Tesla team
- Thanks Tesla team
- Thanks suppliers for support
- Cost structure affected by inflation and logistics issues
- Storage business remains component-constrained
- $106 million cost from Bitcoin sale
- Made money from the Bitcoin sale, lost money from the impairment charge taken
- We were uncertain when the COVID lockdowns would end in China, so we sold Bitcoin - Musk
- Tesla may add to Bitcoin position in the future
- We still have our Dogecoin
- Q&A - Chinese EVs
- Elon - Lot of respect for the car companies in China
- Elon on unified subvector space: linking things on the neural net instead of C++ heuristics would be an architecturally better way
- Probably not necessary to achieve FSD
- Would improve efficiency of FSD
- Confident in improving the frame rate of all 8 cameras up to 36fps
- Comfortably above 24fps
- Q - Elon on lowering prices due to inflation slowing down
- Elon - since we have quite a long waitlist to buy the car, we have to anticipate what the probable inflation rate will be over time
- that is what we are trying to do
- When we see any indication that inflation is slowing, we may be able to decrease prices
- It is not something that we control
- If I were to guess, I think inflation will decline towards the end of this year
- Commodities trending lower
- Making economic prognostication is fraught with error
- Zach - the price of lithium has shot up
- not every situation is that bad
- carbon, steel, and aluminum have started trending down
- benefits will start to hit the income statement early next year
- Elon urges entrepreneurs to enter the lithium refining market
- Software margins on lithium refining business
- "You can't lose"
- "License to print money"
- Tesla remains focused on accelerating the transition to a sustainable energy future
- The fundamental good of Tesla is to have the day of sustainable energy come sooner
- We are neither here nor there on cryptocurrency
- Elon on structural packs
- Zach - Structural packs are A architecture
- Elon - over time will be subtaintially superior to a car that is carrying batteries like cargo
- Cost improvement question?
- Two things that improve costs: tech and scale
- Getting to the optimal design will improve battery pack costs
- Still a lot of opportunities to reduce mass - Elon
- We are not just evaluating the pack in isolation - Zach
- Q - How do you feel about the progress of FSD and did Karpathy leaving hurt?
- Elon - Karpathy sarcastically said Andrej was writing all the code by himself
- We've got a team of 120 people in our software AI group that are extremely talented
- I am highly confident that we will solve FSD sometime this year
- Q - How is the 4680 cell ramp going?
- Zach - we expect 4680 to reach 1,000/week by the end of year at Texas
- Yields throughout the Texas factory are approaching target levels
- Cell design was revised
- There are some new ramp challenges in Texas and Berlin
- Target for Texas is to begin production soon
- Q - with regards to ramp of Austin and Berlin, how is supply of chips and battery components?
- Tesla procures a lot of semiconductors
- Things are more stable
- On the cell front, our partners have boosted supply to make that less of an issue
- No major issues in supply chain seen
- Q2 was our largest increase of commodity inflation so far
- As we look forward through the end of the year, Q3 looks to be less painful
- We are managing inflation with pricing and conversations with suppliers
- When will Cybertruck be available?
- Middle of next year - Elon
- Analyst Qs begin
- Question of 4680 and structural battery pack, where do you stand on the energy density roadmap?
- Simplicity and scale were the focus on day one
- Didn't put all the bells and whistles in at first
- as we hit the ramp we need to hit next year, we are certainly planning on using new chemistry
- not holding back
- Elon - our focus right now is on the dozen of little issues that slow the ramp of 4680
- Feeding the anode and cathode material is a challenge
- Using a revolutionary dry electrode process
- Confident on solving those unknowns
- Making rapid progress on that front
- Focusing on higher reliability
- We are expecting a positive outcome
- We have made a huge advance in dry electrode process
- Tesla does not intend to displace our suppliers with our own battery ramp up
- We want our suppliers to grow their cell supply as fast as they can
- Lithium ion battery cell supply is the fundamental constraint for the global transition to sustainable energy
- Q about 50% sustainable revenue growth target being hampered by supply constraints
- Do you have enough lithium? How much do you have secured?
- Elon Musk hopes civilization is still around in 10 years
- We do see constraints around refining of the materials that go into lithium ion batteries
- Lithium refining is a hard thing to scale
- Maybe 2/3 of batteries will be iron phosphate
- Ridiculous amount of iron on Earth - Elon
- There is no fundamental barrier here, but the rate at which lithium ion pack production that is the constraint
- One concern is the machinery to refine the critical ingredients of lithium ion cells
- All stationary storage will eventually be iron phosphate
- Need nickel for long range vehicles
- We are making our own investments
- Building a cathode factory
- Tesla is working on lithium refining themselves
- Q - Vehicle demand and supply
- Any pressure on order book due to consumer demand?
- Elon - Right now our problem is very much production
- Model Y deliveries slipping to next year
- Zach - on macroeconomic demand issues for their product? Not yet
- Demand is not something we spend any time talking about
- Elon - we have raised our prices quite a few times
- They are frankly at embarassing levels
- A 40,000 car week is within reach by the end of the year - Elon
- Q - Talk a little about the FSD pricing strategy
- We will increase the price of FSD sometime later this year
- Probably just before we go to wide beta
- When anyone who wants to use the beta software can use it, we may raise the price
- FSD's value is not understood by most people
- Q - battery materials side, which supply chain elements are potential issues for 4680 production?
- No comment on purity specs of lithium
- Contaminents not an issue - Elon
- Q - another demand question
- Elon - Tesla does not have a demand problem, it has a production problem
- and I think that will remain the case
- We don't want a long backlog
- Because we see daily orders for our cars from around the world, it is like a mood barometer
- but one can't read too much into that
- consumer sentiment is all over the map
- it is manic depressive
- we have so much excess demand that it is not an issue for us
- Q for Elon - can you comment on your personal role and if you see it changing over the next 3-4 years?
- If there is only good news, I won't be on the call - Elon
- I will work at Tesla as long as I can help the mission - Elon
- Q - on Dojo and Optimus
- Elon - tune in on AI day
- Q - followup on semiconductor supply any internal effort to make your own chips?
- Elon - we don't currently intend to make chips ourselves
- we have been working closely with our chip suppliers
- Our suppliers are making investments in key supply chain components
- Elon thanks suppliers very much
- Zach says they do have a lot of custom silicon in the vehicles already
- We go after areas where there is a technological advantage
- Tesla is as much a software company as a hardware company - Musk
- Says they have re-written software to use less chips
- Turns out we had more chips than we needed
- From a supply chain standpoint, we are partnering with key partners who can make investments
- Less chips mean less failure points
- Conference call ends at 6:33 p.m. EDT
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.
At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions:
Long Tesla via TSLA shares
Short Tesla via out-of-the-money TSLA put options