Tesla (TSLA) Q2 2022 earnings results and conference call transcript
Published , by Asif Khan
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:
Cash
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
Profitability
$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
Operations
More than 1,000 vehicles produced in a single week at Gigafactory Berlin
Highest solar deployment in over four years
SUMMARY
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.
FINANCIAL SUMMARY
Revenue
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 (+)
Profitability
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 (-)
Cash
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.
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, factory uptime, operational efficiency and the capacity and stability of the supply chain.
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-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 loyalist seen here waiting for the Q2 2022 earnings call to begin. Source: Image: Tesla
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.
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At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions: