Tesla Q1 2023 Financial Results and Q&A Webcast

Music Introduction

The video starts with a music introduction.

Foreign Music

Foreign music plays.

Opening Remarks

Elon Musk gives opening remarks about Q1 results, challenges in production and delivery, and the current macro environment. He also talks about the importance of autonomy and the Cybertruck's progress.

Q1 Results

• Model Y became the best-selling vehicle of any kind in Europe and the best-selling non-pickup vehicle in the United States.

• Despite challenges in production and delivery, Tesla achieved great results.

• Operating margin remains among the best in the industry.

• Tesla took a view that pushing for higher volumes and a larger fleet is better than lower volume and higher margins.

Autonomy

• Tesla believes it's better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as they perfect autonomy.

• Autonomy is an extremely important point.

Cybertruck Progress

• Alpha versions of Cybertruck are being built on their pilot line for testing purposes.

• The installation of volume production line at Giga Texas is being completed.

• A delivery event will happen probably in Q3.

• Production starts out slow but accelerates as with all new products.

Energy Storage Deployment

Elon Musk talks about energy storage deployment reaching 4 gigawatt hours during Q1, thanks to ongoing ramp at Mega Factory in Lathrop California. He also mentions that stationary storage growth will significantly exceed vehicle growth.

Neural Net Training and Dojo

Elon Musk discusses the limitations of neural net training capabilities in achieving full autonomy. Tesla is investing in Nvidia GPUs and Dojo, which has the potential to improve training costs by an order of magnitude. Dojo may also become a sellable service.

• Tesla is investing in Nvidia GPUs to improve neural net training capabilities.

• The company is also putting a lot of effort into developing Dojo, which has the potential for significant improvement in training costs.

• Dojo may become a sellable service that Tesla offers to other companies.

Q1 2021 Earnings Call Highlights

Martin Viecha and Zachary Kirkhorn discuss Tesla's Q1 2021 earnings call highlights.

Automotive Gross Margin and Operating Margin

• Automotive gross margin and operating margin reduced sequentially but remain at healthy levels.

• Automotive gross margin was impacted by additional actions taken to improve vehicle pricing, warranty adjustments on older SNX vehicles, and increased deferred revenue for certain autopilot features.

• Progress on vehicle cost reduction continued in Q1 with meaningful improvements on logistics and commodity cost reductions.

Regional Mix of Build and Deliveries

• Q1 was the third quarter of Tesla's multi-quarter plan to move towards a more regionally balanced mix of build and deliveries.

• This results in lower delivery Zen production within a quarter due to higher volumes of cars in transit at the end of the quarter.

• This has an associated impact on quarter-ending free cash flows.

Energy Storage Business

• The storage business is starting to take shape after many years of investment and focus.

• It reached its highest level yet in Q1 driven by an increasing rate of deliveries for Megapack products.

• Progress on storage profitability generated its highest gross profit yet in the quarter.

Philosophy for Operating Business

• Tesla plans to grow volumes as quickly as possible in both its vehicle and energy businesses.

• The company plans to continue investing heavily into future plans, including the Cybertruck, Next Generation platform, in-house cell production, energy storage business, and autonomy and AI-enabled products.

• Tesla will remain focused on cost efficiency and working capital while keeping the business financially healthy.

Auto Pricing Adjustments

Elon Musk discusses the process of making auto pricing adjustments.

• Tesla evaluates production output, macroeconomic conditions, and other factors when making pricing decisions.

• The company does not disclose specific variables or how frequently it reviews pricing.

Tesla Energy and Mega Pack Guidance

Elon Musk clarifies that he believes Tesla Energy will be bigger than the automotive business in terms of total gigawatt hours deployed. He expects more stationary energy storage to be needed than mobile energy storage for transitioning to a sustainable energy economy. The company is not providing specific guidance on margins yet, but they are working towards mid-20 gross margins for any program launched.

Tesla Energy Guidance

• The company plans to provide guidance on the storage business once it grows and smooths out.

• They plan to include these volumes in their day two production and deliveries release soon.

Mega Pack Business

• The mega pack business has a lot of volatility currently due to small volumes and diversification of customers.

• It may take a few more quarters before the company can provide formal expectations over the coming year.

4680 Cells Meeting Expectations

On Battery Day, Tesla established a cost-down roadmap through 2026 across five areas of effort: cell design, cathode materials, structural pack concept, cell factory itself, and recycling. Progress has been made across all aspects since then.

Cell Factory

• Texas 4680 Factor will have 70% lower capex per gigawatt hour when fully ramped up.

• Pursuing densification and investment reduction opportunities in future factory buildouts like in Nevada.

Cell Design

• In production with both first-generation tablet cell unveiled on Battery Day and second more manufacturable version in Texas today.

Cathode Material Side

• Corpus Christi lithium refinery breaks ground for lithium refining process with reduced process costs and lower embodied energy.

Structural Pack Concept and 4680 Cell

In this section, the speaker discusses the benefits of the structural pack concept and the 4680 cell. They also provide updates on the progress made by the 4680 team in Q1.

Benefits of Structural Pack Concept and 4680 Cell

• The structural pack concept is simpler and allows for a 50% lower capex and a 66% smaller factory for the same output in gigawatt hours per year.

• The team believes that structurally loading cells and using packs as the floor of vehicles is a good concept.

• The Austin Factory's cost journey involves stabilizing production, optimizing costs, and improving yields. The 4680 cell is an input into Austin's cogs.

• Berlin Factory's journey to complete localization is still ongoing. As volume increases, more localization occurs leading to cost reduction.

Progress Made by 4680 Team in Q1

• Texas production increased by 50% quarter over quarter through yields increased by 12 percent.

• Cato P grade increased by 20%, three yields improved by 20 percent altogether.

• The team accomplished a 25% reduction in cogs over the quarter.

• On track to achieve steady-state cost targets over the next twelve months.

Anticipated Automotive Gross Margins Tax Credits for 2023

In this section, speakers discuss their approach to projecting anticipated automotive gross margins tax credits for Tesla at current pricing levels.

Approach to Projecting Anticipated Automotive Gross Margins Tax Credits

• Difficult environment to make a projection due to macro uncertainty, headwinds, and tailwinds.

• The company controls some costs while others are subject to what's going on in the macro world.

• The philosophy is progressively going across every cost bucket that they can within the world they don't control.

• Logistics optimization and taking advantage of reduced spot rates have helped reduce costs.

• Commodity prices are expected to come down and have a more meaningful impact in the second half of the year.

Global Order Intake Since Recent Price Cuts

In this section, speakers discuss how global order intake has tracked since the most recent round of price cuts.

Global Order Intake Since Recent Price Cuts

• Orders are in excess of production.

Introduction

In this section, Elon Musk introduces the product and mentions that it is an incredible product. He also states that a product like this only comes along once in a long while.

Introduction to the Product

• Elon Musk introduces the product and describes it as an incredible one.

• He mentions that such products come along once in a long while.

Analyst Questions

In this section, Alex Potter from Piper Sandler asks about Lathrop's facility utilization and Tesla's ability to serve other markets out of Shanghai. George from Kenner Court asks about FSD take rates and EV-related commodity prices.

Lathrop Facility Utilization

• Alex Potter asks when Lathrop's facility might be closer to full utilization.

• Elon Musk explains that there are some classic factory ramp aspects of what's going on at Lathrop. He also mentions that they have two phases of capex there, with ramps on both the sell side and power electronic side. The overall facility was phased with the second phase of topics coming online towards the end of this year.

Serving Other Markets Out of Shanghai

• Alex Potter asks about Tesla's ability to serve other markets out of Shanghai.

• Elon Musk explains that there are still many parts of the world where Tesla does not yet serve with respect to vehicles. However, they expect to open up new markets around the world soon.

FSD Take Rates and Commodity Prices

• George from Kenner Court asks about FSD take rates and whether Tesla needs to reduce prices for FSD as well.

• Elon Musk explains that the value of a car that is autonomous is enormous. He also mentions that for those using the FSD beta, improvements are quite dramatic. The trend is very clearly towards full self-driving and towards full autonomy.

• George from Kenner Court asks about the dramatic change in EV-related commodity prices and whether it's a reflection of any recent overcapacity in mining and refining or a coincident indicator on global EV demand.

• Elon Musk states that he doesn't know if they can provide an answer with any value. He mentions that these are uncertain times, and if someone has a crystal ball, he would like to borrow it.

Conclusion

In conclusion, Elon Musk introduces an incredible product and mentions that such products come along once in a long while. Tesla expects to open up new markets around the world soon. Additionally, there are still many parts of the world where Tesla does not yet serve with respect to vehicles. The trend is very clearly towards full self-driving and towards full autonomy. Finally, Elon Musk states that these are uncertain times regarding EV-related commodity prices.

EV Materials Markets and Refining Capacity

In this section, the speakers discuss the EV materials markets and refining capacity.

Lithium Carbonate Market

• The lithium carbonate market has seen a dramatic decrease in pricing from 85,000 a ton to about 26.

• Small mismatches in supply and demand drive large price swings, making it hard to read into price points.

• Tesla was able to take advantage of low lithium pricing earlier on with fixed-price contracts.

• Companies are becoming more ambitious about finding more upstream resources and exploring locations in Africa as well as South America.

Refining Capacity

• The chokepoint is much more on refining capacity than it is on mining.

• Lithium is very common throughout the world, including in the US.

• Tesla is building its own lithium refinery capability at Corpus Christi and cathode refinery outside of Austin.

• Tesla will have by far the most lithium refining capability and cathode refining capability in North America.

Monetizing Existing Fleet

In this section, Emmanuel Rosner from Deutsche Bank asks Elon Musk about ways to monetize existing fleets.

Monetization Strategies

• Maximizing volume increases the size of the fleet as fast as possible because you'll be able to monetize this over the life cycle of the vehicle.

• Autonomous driving seems to be a big piece of it. Robo taxi would probably be for next-generation vehicles rather than existing ones.

Robotic Taxi and Automotive Growth Margin

Elon Musk discusses the current hardware capabilities of achieving full autonomy for a robotic taxi. Zach asks about the automotive growth margin, which has been affected by macroeconomic factors such as interest rates and uncertainty in the economy.

Automotive Growth Margin

• The Q1 miss was attributed to adjustments made in pricing in the second half of the quarter. This lowers the floor for gross margins.

• Pricing adjustments have also been made so far this quarter, further bringing down gross margins.

• About half of the Q1 miss was attributed to non-recurring factors such as warranty adjustments and autopilot-related deferrals.

• Two macro factors that are tricky for gross margins are high interest rates and uncertainty in the economy, which can lead to people postponing new car purchases.

Robotic Taxi

• The current hardware is believed to be capable of achieving full autonomy for a robotic taxi.

Dojo and Heat Pumps

Elon Musk talks about Dojo being a long shot bet with multi-hundred billion dollar potential outcome. He also mentions that heat pumps are on their list to do really well for homes and commercial offices.

Dojo

• Dojo is considered a long shot bet but has multi-hundred billion dollar potential outcome if it pays off.

• It's worth making but not one you can take to the bank type of thing.

Heat Pumps

• Tesla has big beliefs in heat pumps and aims to do a really good heat pump for homes and commercial offices over time.

• They have technology that's really good, but it's still a backbone item.

Tesla's Real-Time Data Advantage

In this section, Elon Musk talks about how Tesla has an advantage over other car companies because they have real-time data on their production and sales.

Real-Time Data Advantage

• Tesla has a daily real-time update of how many cars were ordered and produced.

• Other car companies have latency in their data, which makes it difficult for them to figure out how many cars are sold.

• Tesla adjusts its pricing based on achieving a clearing price for vehicle production and immediately sees the results of the change.

• Musk believes that gasoline cars will be looked at as collectors' items in the future.

Variable Cost Structure of Tesla Vehicles

In this section, Colin Rush from Oppenheimer asks about the variable cost structure of Tesla vehicles.

Variable Cost Structure

• Most of the cost structure of a Tesla vehicle is variable.

• Improved costs from suppliers are expected, including a crash in lithium prices.

Stationary Storage Demand and Vehicle Volume Upside Case

In this section, the speakers discuss stationary storage demand on a utility scale and the volume of vehicle sales.

Stationary Storage Demand

• The speaker asks about the volume of quotation for stationary storage demand on a utility scale.

• The response is that they are not engaged in the interconnection queue but are focused on ramping up mega pack as quickly and efficiently as possible. They have visibility into pipelines of different renewable energy and pure stationary storage developers, and they develop their own projects. They pick projects that best fit their mission and objectives.

Vehicle Volume Upside Case

• The speaker asks if Tesla still sees two million units as an upside case for volume this year.

• The response is that if things go well, they have a shot at two million vehicles this year, but 1.8 million feels comfortable. It depends on how this year unfolds.

Feedback on Tesla's Charging Network

In this section, the speakers discuss feedback from Tesla owners and non-Tesla owners regarding Tesla's charging network.

• The speaker asks about feedback received from both Tesla owners and non-Tesla owners regarding Tesla's charging network.

• The response is that they opened their first V4 post in Europe and Magic Dog posts in North America in Q1. This indicates their direction towards universal compatibility for all vehicles regardless of charge port location in all major markets. They will continue to roll out improved offerings as they build new stations while balancing serving their customers with serving new customers.

Leveraging Cost Position and Margins in the Auto Business

In this section, the speakers discuss leveraging Tesla's cost position and margins in the auto business.

• The speaker asks about leveraging Tesla's cost position as others struggle with unit economics and taking into account lifetime revenue.

• The response is that it depends on what the macroeconomic environment is like. For example, if the FED were to lower rates, that would be super helpful for demand. It's difficult to say what the margin will be since these are volatile times.

Tesla Q2 2020 Earnings Call

In this section, the speakers discuss their outlook for the company's future and how they plan to invest in it.

Investing in the Future

• Optimistic about middle of next year and beyond.

• Important to invest in what 2024 and 2025 will look like.

• Reinvesting cash generated from sales into future investments.

• Margins over next few quarters only matter in context of ability to reinvest into 2024 and 2025.

Affordability and Strategic Position

• Affordability is a fundamental question for most people when buying a car.

• Tesla is in a uniquely strong strategic position because they are the only ones making cars that technically could sell for zero profit now but yield tremendous economics in the future through autonomy.

Potential Benefits of an X.com or Super App

In this section, Adam Jonas from Morgan Stanley asks Elon Musk about how an x.com or super app could be potentially accelerative to Tesla's business model.

• Elon Musk suggests that such an app could make it easier to buy cars.

Manufacturing Strategy

In this section, Adam Jonas asks Elon Musk if history is repeating itself with regards to Tesla's recent pattern of cuts being ahead of the cost curve compared to competition.

• Recent pattern of cuts is part of a calculated strategy rather than just a reaction to competition or changing supply demand in the market.

Tesla's Unique Strategic Advantage

Elon Musk discusses Tesla's unique strategic advantage and how it can afford to sell its cars at zero profit.

Making the Product Better

• Tesla is focused on improving service and making the product better.

• The company wants to ensure that customers can afford their cars.

Unique Strategic Advantage

• Tesla has a unique strategic advantage in making a car with important autonomy.

• The asset will be worth more in the future than it is now, so it is technically possible to sell it at zero profit and still have significant net present value of future cash flows associated with that asset.

• Other ongoing revenue streams such as service, charging, and insurance give Tesla an advantage over other companies.

Helping Competitors

• Tesla is not trying to destroy competitors but rather help them in any way they can.

• The company has opened up superchargers and made patents available for free.

Ramping Supply at Austin and Berlin

Elon Musk talks about ramping supply at Austin and Berlin, increasing volume, and improving margins.

Increasing Volume

• In the absence of a macro shock severe enough to stop people from buying cars, Tesla will continue to grow output at a rapid clip.

• Historically, the company has been operating at the pace allowed by its supply constraints rather than gauging demand.

Margin Profile of Austin and Berlin

• Once vertical integration benefits are in place, margins associated with Austin and Berlin are expected to make significant improvements but may not be quite as good as Shanghai due to different cost structures.

• As localization improves, days on hand requirements will decrease.

Direct Selling Business Model

A question is asked about whether there is a limit to Tesla's direct selling business model as they build up market share globally.

Direct Selling Business Model

• Tesla's direct selling business model seems to be working well so far.

• There is no set date for a change in the business model, but the company is always open to feedback from customers and willing to make changes if necessary.

The Importance of Feedback Loops with Services

Elon Musk discusses the importance of having a feedback loop with services to adjust the design and make the car need less service. He explains that having a dealer network reliant upon service as revenue creates a misalignment of incentives.

Incentive Structure

• Having a feedback loop with services provides the right incentive structure.

• The best service is no service, meaning that the car doesn't break down.

• A dealer network reliant upon service as revenue creates a misalignment of incentives.

Spare Parts and Servicing

• Traditional competitors profit from selling spare parts and servicing.

• Tesla does not have an existing fleet, which was seen as a short-selling argument against Tesla for some time.

• Newcomers can only succeed if they have a product so compelling that people are willing to pay a premium over the incumbent product.

Conclusion

Elon Musk concludes by thanking everyone for their time and stating that this is all they have time for in this quarter.

End of Call

• Elon Musk thanks everyone for their time.

• This is all they have time for in this quarter.