After a crazy busy day I finally had some time tonight to sit down & digest everything that was mentioned during today’s 2020 Q3 Tesla Earnings Call. I have summarized my rough notes into several categories and shared them below for your reference.
- Financials
- Best quarter in company history
- Record production & deliveries
- Record revenue
- Record net income (GAAP & non-GAAP)
- 5th sequential quarter of profitability
- Nearly double-digit operating margins
- Automotive gross margins including regulatory credits increased from 18.7% to 23.7%
- Some programs achieving greater than 25% gross margins
- Factory shutdowns did indeed have a negative effect on gross margins
- Small revenue of FSD released & recognized $10M
- Record cash balance which grew to $14.5B
- Record free cash flow of $1.4B
- Operating free cash flow of $2.4B
- Regulatory credits more than expected, tracking 2x as much as they were receiving this time last year
- Tesla’s success not possible without all of the hard-working employees and suppliers
- 70% of cars are produced locally, up from <50% last year
- Seeing financial benefits from improved vehicle reliability across the fleet
- Services and other margin improved thanks to more efficient used vehicle business along with streamlined service business
- Tesla treats each new product line as a startup internally
- Tesla is essentially made up of 12 individual startups
- Tesla is not dependent on typical enterprise software solutions as they write their own thanks to their internal applications team (Vertical integration across all aspects of the business)
- Tesla is trying to spend as much money as possible without wasting it to ensure continued growth
- Still aiming to aiming to achieve FY2020 guidance of 500,0090 vehicle deliveries
- As of now Tesla is aiming to produce somewhere between 800K – 1M vehicles in CY2020 however exact guidance will be provided at the next earnings call
- Battery Update
- Elon believes Tesla’s main strength in the future being manufacturing
- Based on what was announced at Battery Day, Elon believes batteries will cost half as much in the next years thanks to their first principles approach to battery manufacturing
- Capex to produce batteries will be a 1/3 or less than they are today
- While the tabless design of the 4680 battery cell results in less heat thanks to higher power density it does not directly impact the charge rate (since it doesn’t address the lithium plating problem)
- Pure lithium anode (Solid State Battery) isn’t as great as it sounds according because lithium is less volumetrically dense in pure metal form than in silicon
- Total anode cost is $1 or $2 per KWh so removing anode material is insignificant
- With that said, if the pure lithium anode becomes a better alternative, they can easily integrate such a change into their existing battery manufacturing process
- Elon believes in several years the skateboard battery design will be made obsolete by a structural battery pack design in 3-5 years
- FSD Update
- FSD beta began rolling out to a select number of early access program participants on Tuesday, October 20th
- “Starting very slow and very cautiously because the world is a complex & messy place” -Elon Musk
- Plan is to wait a few days to see how initial deployment goes
- If all goes well, they will release the FSD beta to more early access program participants and continue to scale the deployment from there
- As Tesla’s system collects more data it gets more robust, just like Google’s search engine as an example
- The data collection really helps address weird corner cases that cannot be simulated
- The FSD beta uses what’s known as a general neural net approach (no need for HD maps or cellular connection)
- This allows a given Tesla to go where no Tesla has been before without requiring any cellular connection or HD maps of that given area and drive just like a person
- Goal is to release the FSD beta to all who bought FSD by the end of CY2020
- When asked about the ability to transfer FSD licenses possibly even for a fee between vehicles, Elon responded with “We’ll give it some thought”
- Elon would not use LIDAR even if the equipment was free
- Gigafactory Update
- Giga Shanghai continues to ramp, Elon impressed with speed & progress of Tesla China team
- Giga Austin & Giga Berlin build outs continue to progress nicely, aiming for deliveries to start in CY2021
- Giga Berlin will be the first 4680 production line at scale
- Due to new technologies being deployed such as the 4680 battery cells along with the new paint facilities, the ramp will start slow and exponentially increase from there
- 12-24mos to reach full manufacturing capacity, especially when using new technology like Tesla is doing
- Scaling a factory is one of the most difficult challenges Elon has ever seen
- Return on investment for these facilities may take longer
- The pilot battery line in Fremont will support Giga Berlin as it comes online & ramps
- Tesla Energy Update
- Tesla Energy saw record deployments thanks to positive reception of the Megapack and Powerpack products
- Solar deployments doubled and continues to quickly ramp
- Megapack will be a larger growth segment for the business, continues to ramp with more demand than supply through 2021
- Order book currently filled up through 2023 at GWh scale
- Large scale solar + energy storage solutions are more cost effective than traditional fossil fuel solutions across the globe
- Costs will continue to shrink as Tesla reduces cost through further manufacturing efficiencies
- Autobidder is another popular product being used by utilities to maximize returns by using bidding strategies that outperform the market
- Strong demand for residential storage and as a result there is a large Powerwall backlog
- Powerwall production still being ramped
- Stationary energy storage is continuing to ramp and will double year over year
- Solar cost of $1.49 per watt is lowest in the industry
- Fixed cost remains flat as volume & efficiency increase which results in increased profitability
- Tesla Energy has learned a ton about Solar Roof after completing many installs and can now perform an installation in 1 day
- NOTE: This does not include the 1-2 days it takes to remove the previous roof & prepare for the Solar Roof
- Biggest constraint is getting enough trained installers on board w/ ample experience
- Next biggest roadblock is improving material flow on the job site
- Continuing to drive efficiencies across the business and reduce spending where needed
- CyberTruck Update
- Tesla has always built vehicles with a mindset of releasing a better vehicle at time of production than what was announced at the unveil & the CyberTruck is no exception here
- CyberTruck will be better than what was originally showed
- Production dependent on Giga Austin since that is where it will be produced
- Still planned for some deliveries end of CY2021 with more coming in CY2022
- Tesla Semi Update
- Semi development continues
- 350kW Supercharging not enough for Semi, looking for something much more powerful than that
- Goal is to fully charge the Semi in the time a driver would take during a rest break so zero time is wasted charging
- Working with other parties to ensure there is a charging standard that could be deployed for all customers
- Consumes ~5x the number of battery cells compared to a typical vehicle so still waiting on cell production ramp in order to ramp Semi
- Miscellaneous Updates
- Insurance could very well be 30-40% of the value of the car business according to Elon
- With a better feedback loop, it can be much more specific and benefit all involved as it will cost less & “be better”
- Rather than focus on bringing Turo-like functionality to Tesla’s robotaxi offering, they will continue to focus on an experience similar to that of Airbnb, Lyft, and Uber
- When talking about home HVAC product, Elon believes conceptually they could come up with something that unifies air filtration, HVAC, water heating, and more
- Model Y production costs should match those of the Model 3 and when one decreases in production cost the other should follow