2023 Tesla Q1 Earnings Call Notes

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Like I have done with previous earnings calls, I have compiled notes that I wanted to share from today’s 2023 Tesla Q1 Earnings Call. Enjoy!

  • Opening remarks from Elon Musk
    • General
      • Model Y became best selling vehicle of any category in Europe & best-selling non-pickup truck vehicle in the United States
      • Lots of uncertainty with macroeconomic climate
      • Lowered prices while still maintaining some of the best margins in the industry
      • Elon believes higher volume and lower cost is the right way forward for Tesla (vs low volume / high margin)
      • Elon believes more margin to be unlocked thanks to autonomy
      • Tesla is taking advantage of the current economic conditions as well as their position in their market
    • Cybertruck
      • Alpha versions of the Cybertruck continue to be built on the pilot line at Giga Texas
      • Completing installation of volume production Cybertruck line at Giga Texas
      • Cybertruck delivery event tentatively planned for Q3
      • Like all new products, Cybertruck production ramp will take time and follow S-curve (slow and accelerates over time)
      • “A hall of famer” -Elon Musk (regarding Cybertruck)
      • “Cybertruck is a very radicular product and not made in the same way other cars are made” -Elon Musk
    • Energy & Mission
      • Energy storage deployment in Q1 reached nearly 4GWH, thanks in part to production ramp at Lathrop
        • Shanghai also mentioned
      • Elon reiterated that stationary storage growth will exceed vehicle growth
    • FSD
      • Crossed over 150M millions driven by FSD Beta and this number continues to grow exponentially
      • Tesla has key data advantage here due to the sheer size of the data training set (which constantly grows)
      • Very focused on NN training capabilities which is a key factor in achieving full autonomy
      • Making significant purchases of GPUs while simultaneously continuing to develop Dojo (which still has potential to replace traditional GPU clusters for training use cases)
      • Dojo as a service is still on the table (think AWS-like offering)
  • Opening remarks from Zach Kirkhorn
    • Record vehicle production & deliveries
    • Record energy volumes
    • Automotive gross margin and operating margin reduced sequentially but still remain at healthy levels
    • Automotive gross margins were impacted:
      • Additional action to improve vehicle pricing
      • One-time items like warranty adjustments on older Model S & X vehicles
      • Deferred revenue on certain Autopilot features
    • Further progress in reducing vehicle costs was made thanks to several logistical improvements as well as the start of commodities savings
    • Giga Texas & Giga Berlin will continue to be margin headwinds until they reach their target volumes
    • Q1 was the 3rd quarter in a multi-quarter plan to move to more regionally balanced mix of build & deliveries
      • Results with lower deliveries than production in a quarter due to higher number of vehicles in transit at EOQ
      • Particularly important & applicable to Model S & X as they started to deliver internationally
    • Storage business is starting to take shape
      • Growing at % of total revenue
      • Growth driven by increasing demand for energy storage
      • Highest gross profit yet in Q1
    • Approach is to grow volumes in vehicle & energy businesses as quickly as possible while focusing on:
      • Cybertruck
      • Next-gen platform
      • I\n house cell production
      • Autonomy & AI products
      • Keeping the business healthy
  • Q & A from Retail Investors
    • Pricing
      • Pricing is reviewed weekly based on where they are at globally
    • Energy Storage
      • Elon predicts Energy Storage to eclipse Vehicle business in terms of GWh (vehicle business may still be bigger in terms of revenue)
      • As business grows and smooths out they will start including volumes in their reports later this year
      • The goal is to get margins to match automotive business (~20%) by EOY
    • 4680s
      • Texas 4680 factory (about 50% complete) will be about 70% lower CapEx per GWh than typical cell factories (when fully ramped, inline with what was discussed at battery day)
      • Still continuing to produce first-gen tabless cell (Kato Road Facility in California) as well as 2nd gen (more manufacturable version) at Texas today
      • Corpus Christi Lithium refinery breaks ground in May and is expected to be partially online by end of this year
        • Refinery uses sulfate-free spodumene refining process (produces beneficial byproduct which can be used in construction products)
      • Demonstrated cathode precursor process (discussed at battery day) is now in final detailed design phase
      • Cathode production is 50% equipment & 75% utilities installed at new Cathode plant in Austin
        • Dry & wet commissioning this quarter and next quarter, first material production will be ready by end of year
      • Big improvements with 4680 structural pack manufacturing
        • 50% lower CapEx, 66% smaller factory for same output
        • Will continue to use this design going forward and iterate design to B level (from current A architecture)
        • Q1 was all about cost & quality
        • Texas 4680 production increased 50% QoQ, through yields increased 12%
        • Kato 4680 peak rate increased by 20%, through yields increased by 20%
        • All together 25% reduction in COGs in quarter and on target for steady state cost targets over next year
        • Steadily ramping production ahead of mass Cybertruck production next year
    • Financials
      • Expectations that all factories continue to improve all key metrics
      • Still at max pain for commodities but starting to see a little bit of improvement here
      • Lithium has dropped significantly and should result in a noticeable impact in Q2 / 2H 2023
      • Orders are in excess of production
    • Cybertruck
      • No details will be shared until Q3 delivery event
      • “Incredible product” -Elon Musk
  • Q & A from Financial Analysts
    • Regional Exposure
      • Many areas Tesla does not currently serve however there are plans to address this
      • “High time Tesla offers its cars to the rest of the world” -Elon Musk
    • FSD
      • Elon declined comment on FSD take rate
      • Current price is based on future value of having an autonomous vehicle
      • Elon expects more “2 steps forward, 1 step back” with near future FSD updates
      • “I think we’ll do it this year (regarding FSD)” -Elon Musk
      • “Robotaxi” terminology is really a generic term for Tesla’s next-gen vehicle
        • More details to come on this down the road
      • “All of the vehicles that have HW3, which is vast majority of our fleet, will achieve full autonomy” -Elon Musk
      • “Model 3 or Model Y will be a robotaxi, robotic taxi” -Elon Musk
      • FSD has potential to create the largest value increase in history if it pans out
    • General
      • “We are in uncertain times” -Elon Musk
      • Elon expects economical stormy weather for next 12 months and then assuming no geopolitical wild cards, things should heat up next spring
      • Lithium bottleneck is more related to refining capacity vs mining capacity
      • “Tesla will have the most lithium & cathode refining capacity in the world” -Elon Musk
      • Elon mentioned they are doing this because they are forced to since others are not doing this
      • About half of miss re: margin is attributed to pricing adjustments, other half related to things that are not reoccurring
      • Elon believes no other company in the industry has more realtime data than Tesla and that allows them to quickly make intelligent decisions
      • Tesla expects improved costs from suppliers but also reducing logistical overheads
      • From a production perspective, they could possibly hit 2M but 1.8 remains their goal
      • Tesla is not dropping prices in response to competition however Elon mentioned several times they could in fact sell cars for $0 profit however thanks to autonomy recoup margin later (a unique advantage for Tesla)
      • Tesla is not trying to crush the competition and they gave an example of allowing 3rd party EVs to use the Supercharger network
      • Tesla leadership does not see any limitations with direct sale model and is one of the fastest growing, complex product manufacturer ever
    • Energy
      • Should be closer to full production utilization in 2H 2023
      • Still a goal to develop heatpump for homes & commercial environments (on back burner for now)
      • Tesla opened first Supercharger V4 location in Europe and first Magic Dock locations in NA in Q1
        • Key site layout & stall design will emphasize universal compatibility (no matter where the charge port is located)
        • Going to continue to roll out these new offerings as they build new stations
        • Always balancing servicing their own customers as well as non-Tesla EV customers
        • Tesla has done a great job with this especially when you look how they’ve done in Europe