Like I have done with previous earnings calls, I have compiled notes that I wanted to share from today’s 2022 Tesla Q4 Earnings Call. Enjoy!
- Opening remarks from Elon Musk
- General
- 2022 fantastic year for Tesla, best year ever on every level
- Over 1.3M cars delivered in 2022, 17% operating margin, highest of any car maker
- Generated $12.5B in net income and $7.5B in free cash flow
- Tesla achieved these records despite numerous headwinds
- Most common question from investors is how is demand
- As of January 2023 Tesla has noticed the strongest ever demand year to date
- Demand is almost 2x the current production rate
- Model Y price has been increased due to increased demand
- Tesla expects the automotive industry as a whole to contract so price is very important with current state of economy
- Making very good progress on cost control and seeing the cost of production in Berlin & Texas drop as production ramps
- FSD
- FSD Beta has been deployed to 400,000 customers
- 100 million miles of FSD usage for city streets
- FSD released in light of exemplary Safety Statistics that the Tesla team has been closely tracking
- 4680s
- 4680s production reached 1000 cars per week at in 2022 Q4
- 4680 production capacity increased by 100 GWh with expansion plans for Giga Nevada
- Will continue to use other cell providers as well as cells produced internally
- Ultimate goal is to produce 1000 GWh per year
- Energy & Mission
- Energy storage saw record growth in 2022 and that continues to accelerate
- Tesla’s main goal is to continue accelerating the advent of sustainable energy & transport
- Tesla wants to make as many cars as possible
- Tesla wans to be the best manufacturer including that of technology
- General
- Opening remarks from Zach Kirkhorn
- Revenue increased over 50%
- Operating income doubled
- Margins remained industry leading
- Sequential and annual margins were impacted by ASP reductions
- Rising interest rates in US increased cost of each vehicle by 10%
- Energy business had its strongest year yet
- Plan is to move aggressively
- Demand – Customer interest remains high
- Cost reduction
- Holding steady while rapidly increasing volume while increasing efficiency
- Accelerating implementation of improvements in Austin & Berlin where inefficiencies are the highest
- To ensure competitiveness going forward, prices have been adjusted accordingly so ASPs are expected to lower slightly going forward
- More to come on March investor day
- Q & A from retail investors
- IRA EV Tax Credits
- Long term Tesla expects the value of these tax credits to be significant especially as they ramp in the 100s of GWHs
- Since these incentives require domestic manufacturing they are splitting the credits with Panasonic in 2022 but expect that to change as they bring more domestic battery capacity online later this year (and in 2024)
- They expect the value of these incentives to be $150M-200M and growing as volumes grow
- Pretty well positioned as IRA incentivizes domestic battery production which Tesla already had in their immediate & future plans
- Expected ASP After Price Cuts
- In current forecast Tesla believes they’ll be above 20% automotive gross margins (excluding leases & $47k ASP across all models)
- The ASP reduction is not as large as reduction in configurator prices
- Most focused on operating margin
- Every time Tesla sells a vehicle they have the potential for future revenue from software (ex. FSD especially as it continues to get better)
- Elon still expects FSD to result in the biggest value increase in history
- Elon & Politics
- Elon states due to his follower count on Twitter he is popular and therefore mostly favorable
- Tesla does not officially monitor favorability of Elon
- 4680 Ramp (Texas)
- 1K vehicles / week was years in the making, big accomplishment for the Tesla team
- 1 of 4 4680 manufacturing lines in Giga Texas are in production, 3 are in the commissioning / install stage & continue
- Plan is to appropriately (cost effective) ramp 4680 production before start of production of CyberTruck
- Drive factory yields up as much as possible
- 2024 is planned to be a major year for 4680
- HW4
- CyberTruck will have HW4
- For 2023 CyberTruck will not be a significant contributor but it will be in 2024
- Elon said CyberTruck will be his personal vehicle of choice
- Upgrading cars w/ HW3 should not be needed as long as they can get to 200-300% safer than humans, HW4 may be 500-600% safer
- What really matters to Tesla is that they continue to improve the average safety on the road
- Cost and difficulty of retrofitting (for HW3 vehicles) would be quite significant and therefore not economically feasible
- Insurance
- Currently $300M premium run rate
- 20% QoQ growth
- States in which they are operating, 17% of customers are using Tesla insurance products
- This percentage keeps creeping up
- Most commonly see adoption occur when vehicle purchased vs after the fact
- Motivation of starting this business is to improve TCO of their vehicles
- Want to keep costs low and accessible to customers
- Competition helps drive costs down across the board
- Adjusted design of car and software to minimize cost of repair
- Avoid accident first and foremost by encouraging use of Autopilot
- Most accidents are fairly small
- CyberTruck
- Production to start sometime this summer
- Going to be very slow at the start
- Future Factories
- Will provide an update in the future and thinking about very carefully
- What’s the fastest path to 1000 GWh
- IRA EV Tax Credits
- Q & A from Financial Analysts
- Production & Increasing Efficiencies
- Current production capacity is actually closer to 2M but saying 1.8M to be conservative due to potential external headwinds (like we have seen the last few years)
- If you look at size of Giga Nevada that is allocated to make 100 GWH, it is noticeably smaller than the space used to produces 35 GWh
- Elon expects competitors to struggle to keep up with Tesla’s manufacturing prowess
- New products are going to blow people’s minds
- Elon believes they have the most exciting product roadmap of any product on earth
- “More great ideas than they know what to do with” -Elon Musk
- Expect bumps along the way including a recession in 2023
- Long term Elon believes Tesla will still be the most valuable company on earth
- Lithium costs per car expected to rise in 2023 and therefore do not expect COGS to get back to $36k
- Continue to re-design supply chain to reduce costs
- Fleet is starting to mature and gathering a lot of data to optimize for margin going forward
- Later this year they’ll be looking at the powertrain side materials where they are paying for perf than they need or more content without sacrificing reliability
- Elon expects to see a deflation in input costs which should improve margins
- 1.8M unit forecast estimate is production capacity constrained, not related cell supply
- Not all of 4680s produced in Giga Nevada will go into the Semi
- According to Elon future products will use the 4680
- Elon believes it is counterproductive to ramp number of products without appropriately scaling battery production
- Autonomy / FSD
- Excitement around FSD continues to grow and is resulting in an increase in take rate
- Tesla is both a software and hardware company and many forget that according to Elon
- HW3 is still the most efficient inference computer out there even though its 5 years old from design
- Fully recognize EAP cost, recognized a portion of deferred revenue for FSD for features that are available, some deferred until they are ready for public consumption
- Tesla still believes nobody is close from a general autonomous driving perspective
- “You can’t see 2nd place with a telescope” -Elon Musk
- Elon doesn’t expect that to last forever
- Whoever can keep up with EVs will be there
- Going to keep focus on total vehicle space and
- Car companies in China are most competitive in world
- Elon thinks a company out of China is most likely to be in 2nd
- Tesla China team is winning in China
- Dojo & Optimus
- Dojo slated to be used by Tesla by end of 2023
- Optimus continues to be developed and potential is endless with this product alone
- Tesla thinks Dojo will be competitive with NVIDIA H1 at end of 2023, surpass it in 2024
- They are going to focus on energy usage per frame of video when training
- Do see potential for order of magnitude in training performance compared to traditional GPU training clusters
- Very similar to ASICs being CPU for specific tasks
- Communication between Dojo modules is extremely efficient
- Efficiency w/ inference not going away especially when you expand outside of vehicles
- Captive Financing
- Captive financing has been used to plug gaps in markets for existing 3rd party products
- Couple offerings in Europe
- Energy loans in US
- Leasing
- Using captives to support vehicle sales
- Zach believes there is an opportunity to grow captive financing and plumbing is in place to do more
- Cash is required to grow so want to be careful on how much they invest into this aspect of the business
- Captive financing has been used to plug gaps in markets for existing 3rd party products
- Production & Increasing Efficiencies