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Tesla (TSLA) Q1 2020 earnings results and conference call transcript

Tesla has just reported results for the first quarter of 2020. Find out all the details from the earnings release and conference call here!

Asif Khan

April 29, 2020 1:25 PM

2

Tesla posted a profit in Q1 of 2020, and shares are jumping afterhours on the news. This is the first time in the company's history that they achieved positive GAAP net income in the seasonally weaker first quarter. 

Tesla's Q1 2020 Earnings Release 

Highlights

• Cash
  • $1.8B increase in our cash and cash equivalents in Q1 to $8.1B
  • Operating cash flow less capex (free cash flow) negative
• Profitability
  • $283M GAAP operating income; 4.7% operating margin in Q1
  • $16M GAAP net income; $227M non-GAAP net income (ex-SBC) in Q1
  • Gross margin at Giga Shanghai approaching level of US-made Model 3
  • Model Y gross margin positive in Q1
• Operations
  • Model Y deliveries began, significantly ahead of schedule
  • Increased Model S range to 391 miles with no increase in battery capacity
  • Reached production of 1,000 Solar Roofs in a single week

Summary

Q1 2020 was the first time in our history that we achieved a positive GAAP net income in the seasonally weak first quarter. Despite global operational challenges, we were able to achieve our best first quarter for both production and deliveries.

Although impacted by inefficiencies related to the temporary suspension of production and deliveries in many locations, our gross margin remained strong. At Gigafactory Shanghai, further volume growth resulted in a material improvement in margins of locally made Model 3 vehicles. In addition, Model Y contributed profits, which is the first time in our history that a new product has been profitable in its first quarter.

Despite the expiration of various government incentives at the end of last year, Q1 was pacing to be the strongest quarter of deliveries until our operations were interrupted in March. As a result, we remain confident in growing global production capacity as quickly as possible.

We are continuing to significantly invest in our product roadmap, including improvements in technology, as well as localizing production in Shanghai and Berlin.

At the same time, we are diligently managing working capital, reducing non-critical spend, and driving productivity improvements. We believe we are well-positioned to manage near-term uncertainty while achieving our long-term plans.

Outlook

• Introduction
  • It is difficult to predict how quickly vehicle manufacturing and its global supply chain will return to prior levels. Due to the wide range of potential outcomes, near-term guidance of net income and free cash flow would likely be inaccurate. We will again revisit our 2020 guidance in our Q2 update.
• Volume
  • We have the capacity installed to exceed 500,000 vehicle deliveries this year, despite announced production interruptions. For our US factories, it remains uncertain how quickly we and our suppliers will be able to ramp production after resuming operations. We are coordinating closely with each supplier and associated government.
• Cash Flow
  • While near-term cash flow guidance is currently on hold, we are continuing to significantly invest in our product roadmap and long-term capacity expansion plans as we have sufficient liquidity. Model Y production lines in Shanghai and Berlin remain our most important near-term projects.
• Profit
  • While near-term profit guidance is currently on hold, we believe we will achieve industry leading operating margins and
    profitability with capacity expansion and localization plans underway.
• Product
  • We expect that production of both Model Y in Fremont and Model 3 in Shanghai will continue to ramp gradually through Q2. We are continuing to build capacity for Model Y at Gigafactory Berlin and Gigafactory Shanghai and remain on track to start deliveries from both locations in 2021. Lastly, we are shifting our first Tesla Semi deliveries to 2021.

Check out the full press release on the official Tesla Investor Relations website.

Here are some highlights from the Tesla Q1 2020 earnings results conference call, which starts at 6:30 PM ET:

• 6:30 PM ET - call starts TSLA at $876.50/share
• Tesla CEO Elon Musk and CFO Zachary Kirkhorn to make opening remarks.
• 6:34 PM ET - Elon opens
• Q1 strong quarter despite many challenges
• GAAP net income
• We've learned a lot
• New products ramp faster
• Model Y ramp even faster than Giga Shanghai Model 3 ramp
• Model Y already profitable
• Autopilot updates
• "We are only exposing functionality we feel good about"
• Soon we will be collecting data from a billion intersections a month
• Training the neural net
• Advantage no one else has
• Difficult to appreciate
• Drive from home to office can almost be done with leading edge alpha builds now
• Increased range of Model S and Model X
• 6:38 PM ET - TSLA at $879/share
• As soon as the EPA reopens for testing, we are confident that the Model S will have a 400 mile range
• For Model Y, we introduced a revolutionary two-piece casting.
• Pushing the envelope on structural engineering 
• Positive effects in every way essentially
• Revolutionary new heat pump
• remarkable range
• slightly better than the Model 3 despite being a bigger car that weighs more
• excellent at low temperature driving
• We are confident that this product (Model Y) will be our best selling product ever
• We are absolutely continuing our build out for the Model Y ramp
• We are pedals to the metal on new products and expanding the company
• We are looking forward to being a global manufacturer with a capacity of well over 1 million vehicles per year
• 6:42 PM ET - Zack is here
• Zack is proud
• Successful launch, ramp, and profitability of Model Y
• Shanghai margins improving despite not running at full capacity
• Long range of Model 3 to positively effect ASPs in China
• Zack is stoked about that first ever Q1 profit
• Good job, Zack
• 6:44 PM ET - TSLA at $882/share
• Model Y in Shanghai and Berlin are proceeding
• Shanghai Giga remains operational
• Fremont remains down
• 14,000 increase in vehicle inventory due to delivery issues
• sales and delivery operations have paused, but still seeing orders
• extended shutdown in Fremont will affect short-term performance
• Working Capital management will be the most important lever in managing costs
• Comfortable from a liquidity perspective
• Touts cost efficiencies over the past years
• Q&A begins from institutional investors
• Most Tesla owners have yet to experience FSD, could you consider offering it as a subscription?
• Elon - We will, but probably later towards the end of this year.
• Buying FSD is an investment in the future, and we are confident it will be a benefit
• Our goal is to maxmize the happiness of the customers
• Next Question on China Tesla manufacturing subsidies
• Elon - rapid progress on lowering cost in China
• Lowering the price of the Standard Range Model 3 tomorrow below the subsidy limit
• Cost of vehicles produced in China is lower than in California, additional opportunities to expand margin while lowering costs - Zack
• Next question, how has Tesla improved during the COVID-19 pandemic?
• Elon - The right move is to continue to advance
• Clearly an uncertain future ahead, but the long-term prospects are really good
• Both Zack and Elon highlight the companies focus on lowering costs
• Elon highlights touchless delivery and ease of purchasing a Tesla.
• Next question, Can you give us a brief preview of battery day?
• Elon - We don't want to preempt Battery Day
• There will be a lot of exciting news to tell
• It will be one of the most exciting days in Tesla's history
• Third Week of May? Maybe
• Either in California or Texas, depending on what they can do
• Next Question on FSD revenue recognized
• Zack - Currently $7000 in NA, half goes into revenue, 
• deferred revenue is currently $600 million
• upward pressure to margins created by the FSD rollout
• 6:56 PM ET - TSLA at $886.65/share
• Retail investor question 1 - Question about Elon's vehicle sales growth target for Tesla
• Elon - hard to predict the macro situation
• in the absence of some massive event, I think 50% is the likely compound growth number
• I would be very shocked if it were less than 40%, short of World War 3
• Uh oh, WW3 confirmed....
• Question about the next Gigafactory
• Elon - may say something next month
• (That's when Battery Day is)
• In the US, within three months
• No idea how many gigafactories in 5 years
• several more than today
• Zack - Gigafactories are getting bigger
• Elon - Might start calling the Tera...
• Elon is such a nerd
• Update on the solar roof ramp?
• Elon - we were gaining momentum before COVID-19
• install and permits are tough right now
• long-term trend for solar roof is extremely good
• demand is good
• production is good
• all about the install and building up the team to install
• 1000/week install target
• seeing interest outside NA
• tremendous amount of interest from China
• significant product for the company over time
• Tesla entering residential HVAC market?
• Elon - as I said on Twitter, I am personally excited to create a kick ass HVAC system
• Filters out viruses, bacteria, pollutants, particulates, etc
• Quiet and efficient
• Model S and X both have hospital room quality HEPA filters
• Elon is very proud of the quality of the air filters in their vehicles
• it could be a hell of a product
• We are seeing tremendous demand for stationary storage
• more than we can supply for 2020
• When will Tesla start acquiring utilities instead of selling them battery backup
• Elon - Not out of the question, but our brain is full
• lol
• 7:06 PM ET - TSLA at $877/share
• We don't have specific market share goals, focused on acceleration of the adoption of sustainable energy.
• Adam Jonas from Morgan Stanley asks
• Zack, update on company liquidity in April?
• Zack - no additional comment, over $8 billion in cash
• makes note of delivery of existing inventory in April
• Ups and downs to the liquidity concerns of the shutdown
• long-term, we feel pretty comfortable with the liquidity
• Elon - We are a bit worried about not being able to resume production in the Bay Area.
• The extention of the Shelter in Place 
• "forcibly imprisoning everybody in their homes against their constitutional rights"
• "not why people came to America" 
• "What the fuck?"
• Elon rages about the order
• There are many small companies will not weather the storm
• many suppliers facing super hard times
• causing a lot of strife to a lot of people
• 7:10 PM ET - TSLA stock drops to $871/share
• Question about advice to Congress 
• Elon - it's high time we invested in infrastructure in this country
• Not just a question of money, but a question of will
• we need to think about the transportation of the future
• Elon is pissed about Stay at Home orders in Cali...
• "This is fascist"
• "Give people back their god damn freedom"
• Model Y mix question about ASPs
• Zack said it is a lot like Model 3
• Lots of opportunity to take costs out of the car while making the car bettter (Model Y)
• I think the call just dropped?
• They are probably yelling at Elon for popping off about freedom.
• Question, Ben Callo with Baird
• Cell strategy?
•  Zack - just trying to find what's best for the product
• New board member question
• Elon - We all need a Hiro
• Elon praises Hiromichi Mizuno's investment and portfolio management career
• Elon - great relationship with Panasonic 
• Next question from Gene Muster, Loop Ventures
• Full Autonomy
• Can you explain the rollout of the Tesla Mobile app?
• Talking about an internal beta
• then early access
• then broad release
• many stages that these things go through
• software at the internal early stage is a lot more advanced than what is making to customers
• complex turns, situations, busy intersections, parking lots, special events, are extra hard cases for FSD
• Autopilot engineering team is extremely talented and I am deeply involved with the team
• Regulatory approval remains out of our hands
• Gene - Tesla Network App launch hope?
• Robotaxi launch?
• Elon - I think it's quite likely in my view, I could be wrong, we're ahead in some areas and behind in others.
• punctuality is not my strong suit, but I always come through in the end
• robotaxis in some markets, not all, some time next year
• Question on Gross Margins
• Zack didn't really hear the question, but the shutdowns definitely hurt margins in the quarter
• If you removed those factors, it is fair to say that there would have been an incremental improvement on gross margins 
• We feel very optimistic about improving margins as Fremont ramps back up
• Last question on battery storage capacity, high level, where is the inflection point on battery supply?
• Zack - timeline, interally and with partners, it is about lowering the cost of adding cell capacity
• energy storage is really just the cells
• it's all about cell investments
• that will be one of the things we address on Battery Day
• 7:34 PM ET - Call wrap up
• TSLA shares end the conference call trading at $874/share.

Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions: Long Tesla via TSLA shares

Asif Khan

CEO/EIC/EIEIO

Asif Khan is the CEO, EIC, and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.