2022 Tesla Q3 Earnings Call Notes

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After a long drive back from California I had the chance tonight to listen to the 2022 Q3 Tesla earnings call. Like I have done with previous earnings calls, I have compiled notes that I wanted to share below. Enjoy!

  • Opening remarks from Elon Musk
    • General
      • Q3 record quarter on many levels
        • Industry leading operating margins of 17%
        • Free cash flows surpassed $3B in Q3, $9B over last 12 mos
      • Q4 should be record breaking and tracking well so far
      • Giga Berlin reached milestone of 2000 cars per week (with very good quality), continues to rapidly ramp
      • Giga Texas should reach milestone of 2000 cars per week very soon
      • Demand continues to be strong especially for Q4 and Tesla expects to to sell every car they make for the foreseeable future
        • “Long way to go to reach 1% of global vehicle fleet” -Elon Musk
      • Stock buyback completely possible even with worst case scenario but still needs to go through formal board review
      • Long term trend for Tesla continues to be positive
      • Elon for the first time recognizes that Tesla has the potential to be larger than Apple & Saudi Aramco combined (without factoring in Optimus)
      • “Most exciting product portfolio on earth, some of which you have hard of and some which you haven’t” -Elon Musk
      • Final development stage for CyberTruck with production equipment being set up
      • Robotaxi platform design coming along nicely
      • Moving as fast as possible to achieve 1TWh of vertically-integrated battery production capacity in the US (including anode, cathode, lithium refining, etc.)
    • 4680s
      • 4680 production has tripled in Q3 compared to Q2
      • Elon expects 4680s to be a significant portion of vehicle production in Giga Texas in the near future
      • 2nd generation of manufacturing equipment for 4680s in Giga Texas continues to quickly ramp and will nicely compliment the existing Kato Rd Battery Pilot Plant
    • AI Day 2022 Follow Up
      • Recruiting goal accomplished as smartest AI folks are applying and considering careers w/ Tesla
    • Autopilot
      • 60M millions driven by FSD Beta as of September 2022
      • FSD Beta to move to wide release to all North American customers by end of 2022 (current target is November)
      • Anybody that has ordered FSD Beta (or subscribed) will have immediate access to FSD Beta
      • Tesla is seeing that safety increases with vehicles w/ FSD Beta enabled than those that don’t
  • Opening remarks from Zach Kirkhorn
    • Automotive Profitability
      • GAAP: 17.2%
      • Gross: 27.9% 
    • Operating margin best yet even with Giga Berlin & Giga Texas production ramps weighing heavily
    • With Giga Berlin, Giga Texas, and regulatory credits excluded, operating margins would have been strongest yet and gross margin would have been ~30%
      • With that said, Giga Berlin & Giga Texas are positively contributing to future profitability as they ramp further & further
    • Margin headwinds associated w/ macro economic conditions
    • Energy gross profits highest they have been thanks to record production of Megapack & Powerwall offerings
    • Free cash flows record despite decrease of cars in transit at end of quarter
    • Started to experience limits on outbound logistics capacity which was not anticipated
      • Definitely recognized with cargo ships leaving China as well as trucks within Europe
      • Previously, roughly 2/3 of Q3 deliveries occurred in month of September with 1/3 of those coming in the final two weeks
      • As a result, Tesla has begun to spread regional builds throughout the quarter to reduce transportation & logistic bottleneck (should also reduce costs, improve customer experience, etc).
    • Still on track for 50% annual growth in production in 2022 however some supply chain risks exist (out of Tesla control)
    • 50% annual growth for deliveries will be just below due to increase in cars in transit
      • Expect a gap in production & delivery numbers in Q4 however those vehicles will be delivered at the beginning of Q1 2023
    • Continuing to build cars as fast as possible while maintaining healthy operating margins
  • Q & A
    • Inflation Reduction Act (IRA)
      • Tesla plans to fully meet IRA’s requirements and sees it as a big accelerator for Tesla achieving their mission as well as battery supply chains here in America
      • Elon meets they will meet all thresholds outlined in the IRA
    • Worldwide Backlog (outside of North American)
      • Elon believes China is experiencing a recession of shorts (property market) while Europe has a energy-driven recession
    • New Products
      • “Tesla is committed to continuous improvement” -Elon
      • “Best Tesla is the latest Tesla” -Elon Musk
      • “Plaid Model S & X are the best cars on earth, nothing close, just try one” -Elon
    • Giga Berlin & Possible Power Cuts in Germany
      • Don’t foresee this as a large risk to the company
      • Cast front underbody as well as structural battery pack (Model Y) will be introduced to Giga Berlin later this year
    • CyberTruck
      • Facilities are actively being prepared for CyberTruck production
      • On track for early production in early 2023
      • Beta builds have started and will continue to ramp into 2023
      • “When can I drive my beta” -Elon Musk
      • Elon blamed delay on force majeurs including global supply chain crisis
    • Tesla Semi
      • First deliveries to Pepsi Co December 1st, Elon will be attending in person
      • Will initially ship with the 2170 battery cells and eventually 
      • 500 miles of range (on level ground) fully loaded w/ cargo
      • “I’d ask, what are your assumptions about wh/kg and wh/mi and they’d look at me with a blank stare, and say Hydrogen” -Elon
      • Elon believes hydrogen is not needed for heavy duty trucking
      • Takes a year to ramp production so expectation is to significantly ramp over next few years w/ production target of 50,000 units in North America by end of 2024
      • Plan is to expand Tesla Semi beyond North American
    • Batteries
      • 4680 production is expected to exceed 1000 car sets / week by end of Q4 2022
      • Focus is now shifting from production ramp to cost optimization and increasing production capacity in North America
      • 300-400TWh of battery production necessary to transition entire world to sustainable energy
      • Main cathode material will be iron since it can scale to very high tonnage
        • 2x as much iron as nickel
        • Manganese mixed in as well
      • Aggressively pursuing a North American cathode supply, more to come on this one
      • Tesla still believes they will meet the estimates they outlined on Battery Day
      • Drew has been daily driving a structural pack Model Y for some time, still going strong
    • Prolonged Recession
      • Not reducing production in anyway, recession or not
      • Elon believes Tesla is recession resilient (not recession proof) thanks to the fact the world has acknowledged they should move to EVs
      • Battery storage needed to realize larger rollout of renewables
      • Growth of energy storage business unit expected to grow at a rate of 150-200% per year, faster than vehicles by a lot
      • Tesla can withstand quite a bit of downside before having to tweak production, product roadmap, etc.
      • Even if 2023 is a horrible recession year, they still foresee generating noticeable amounts of cash
      • Primary focus of new vehicle development team is to create next generation vehicle
        • Half the cost of the Model 3 & Y platform
        • Will be smaller as well
        • Will quickly exceed the production of all other vehicles combined
        • Going to take everything they learned from other vehicles into next-gen vehicle
        • Goal is to create 2 cars with the same effort it takes to build a single Model 3
    • Vertical Integration
      • Only have done this out of necessity and if it is required for them to do mining, Tesla will do it
      • Elon has been meeting with senior US govt officials and he has asked for them to expedite permitting process for clean energy related projects
      • Gradual improvements as they redesign the whole supply chains, Tesla is figuring out dramatic inefficiencies
    • FSD Beta
      • Elon expects functionality to be good enough to take you from your house to a friend’s house, grocery store, etc.
      • “Almost never should have to touch the controls” -Elon
      • Elon believes next year they’ll have sufficient data to share w/ regulators that proves FSD Beta is safer than the average human driver
    • Operational efficiency
      • Many different areas that Tesla can optimize further
      • Costs of many commodities coming down however key elements like Lithium remain high
      • Shipping costs went from $20k per container to about $3.5k (lots of things have been deflationary)
    • Twitter
      • Elon is excited even though he and partnered investors are over paying for Twitter
      • He believes long term value far exceeds that of its current value
    • Dojo
      • Still a debate on whether or not it’ll be able to exceed performance of latest & greatest NVIDIA GPUs when it comes to NN training
      • Elon believes they’ll known within next 1 – 1.5 years if Dojo is more powerful than NVIDIA GPUs