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Tesla (TSLA) Q1 2021 earnings results and conference call transcript

Tesla is out with their Q1 2021 earnings report and the stock is moving in afterhours. Find out all of the details from the release here.

Captain Business

April 26, 2021 1:14 PM

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Tesla's stock is one of the hottest in the market over the past year, and the company reported earnings results for Q1 2021 this afternoon. The company has already been added to the S&P 500 after achieving profitability last year. The stock is currently trading lower as the revenue came in below Wall Street's whisper number expectations.

Listen to the Tesla (TSLA) Q1 2021 earnings results conference call on Shacknews Twitch channel

Here's a break down of the highlights from the earnings release.

Tesla's Q1 2021 Earnings Release

Highlights

Cash

• Operating cash flow less capex (free cash flow) of $293M in Q1
• Debt and finance lease reduction of $1.2B in Q1
• Net cash outflow of $1.2B related to Bitcoin in Q1
• In total, $2.2B decrease in our cash and cash equivalents in Q1 to $17.1B

Profitability

• $594M GAAP operating income; 5.7% operating margin in Q1
• $438M GAAP net income; $1.1B non-GAAP net income (ex-SBC1) in Q1
• SBC expense of $614M in Q1

Operations

• Model 3 was the best-selling premium sedan in the world3
• Production ramp of Model Y in Shanghai progressing well
• Record vehicle production and deliveries in Q1

Summary

In Q1, we achieved our highest ever vehicle production and deliveries. This was in spite of multiple challenges, including seasonality, supply chain instability and the transition to the new Model S and Model X. Our GAAP net income reached $438M, and our non-GAAP net income surpassed $1B for the first time in our history.

While the ASP of our vehicles declined in Q1, our auto gross margin increased sequentially, as our costs decreased even faster. Reducing the average cost of the vehicles we produce is essential to our mission. In 2017, as we began production of Model 3, our average cost per vehicle across the fleet was ~$84,000. Due to the launch of new products and new factories and the reduced mix of Model S and Model X, our average cost declined to sub-$38,000 per vehicle in Q1.

About three and a half years into its production, and even without a European factory, Model 3 was the best-selling premium sedan in the world, outselling long-time industry leaders such as the 3 Series and EClass. This demonstrates that an electric vehicle can be a category leader and outsell its gas-powered counterparts. We believe Model Y can become not just a category leader, but also the best-selling vehicle of any kind globally.

First deliveries of the new Model S should start very shortly, Model Y production rate in Shanghai continues to improve quickly and two new factories Berlin and Texas are making progress. There is a lot to be excited about in 2021.

Revenue

Total revenue grew 74% YoY in Q1. This was primarily achieved through substantial growth in vehicle deliveries, as well as growth in other parts of the business. At the same time, vehicle ASP declined by 13% YoY as Model S and Model X deliveries reduced in Q1 due to the product updates and as lower ASP China-made vehicles became a larger percentage of our mix.

Profitability

Our operating income improved in Q1 compared to the same period last year to $594M, resulting in a 5.7% operating margin. This profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $299M in Q1, driven by an increase in market capitalization and a new operational milestone becoming probable.

Year over year, positive impacts from volume growth, regulatory credit revenue growth, gross margin improvement driven by further product cost reductions and sale of Bitcoin ($101 million positive impact, net of related impairments, in "Restructuring and Other" line) were mainly offset by a lower ASP, increased SBC, additional supply chain costs, R&D investments and other items. Model S and Model X changeover costs negatively impacted both gross profit as well as R&D expenses.

Cash

Quarter-end cash and cash equivalents decreased to $17.1B in Q1, driven mainly by a net cash outflow of $1.2B in cryptocurrency (Bitcoin) purchases, net debt and finance lease repayments of $1.2B, partially offset by free cash flow of $293M

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

Check back for some highlights from the Tesla Q1 2021 earnings results conference call, which starts at 5:30 PM ET:

• Tesla call starts at 5:37 PM ET - shares trading at $725
• 5:38 PM ET - Elon opening remarks about record Q1 
• Seen a real shift in consumer demand for EVs
• Used to seeing a reduction in demand in Q1, that was not the case in 2021
• Model 3 - best-selling luxury sedan of any kind on Earth
• Quite remarkable - Elon
• We think Model Y will be the best-selling car of any kind by 2022
• Not 100% certain
• Quite likely
• FSD still needs some more work...
• We just need vision to work
• When vision works, it works better than the best human
• We basically have to solve AI real world vision to achieve Full Self Driving tech
• Having cars on the road collecting data helps
• Highly confident that we will get FSD done
• Q1 had some of the most difficult supply chain challenges in the history of Tesla
• Whole range of parts
• Chip shortage is a huge problem
• Unable to get critical engineers to China due to COVID limitations
• New Model S & X with new interior and battery tech 
• Quite a bit of development to make sure the new battery tech is safe
• Expect to ramp Model S production next month
• Start delivering new X in Q3
• Demand will be high for both new S and X
• Aiming to produce more than 2,000 S and X per week
• 2,400 the high end of run rate
• Great cars, cost less to produce to the old versions
• A lot to be excited about in 2021 and 2022
• Gigafactories being built as fast as we can
• Berlin and Texas will ship cars next year
• CFO Zack now talking
• No deliveries of S&X in Q1
• $200 million of direct profit and loss effect from the transition in the Fremont lines
• Supply chain impact
• "We did experience high expedite costs"
• Remains difficult and it is an evolving situation
• Auto gross margin improved YoY, despite reduction of global ASPs
• Feel optimistic about Gross Margin strength
• Other service revenues trending towards profitability
• Solar and Roof keeps a damper on energy profits
• Powerwall should help segment with profitability
• 4680 cell R&D expenses still ongoing
• Plans show that company is on track for sustained industry leading automotive gross margins
• Making progress reducing debt
• Made some money off of Bitcoin
• Say website Q&A begins
• Dojo question about AI for Elon
• Long-term people will think of Tesla as much as an AI robotics company as an EV and energy company
• We will be able to do things with FSD that others cannot
• We develop technologies to solve problems for FSD
• We designed and built our own neural net for FSD because there wasn't one out there
• We built our team from scratch
• We are developing the most advanced real-world AI on the planet
• Our brain is essentially a neural net computer, and the road system is designed for us
• We currently use Tesla training software and labeling software to be able to do surround video labeling
• Quite tricky
• All 8 cameras at 36 fps labeling video over time
• There wasn't a tool for this
• We designed our own labeling tool
• Getting quite good at autolabeling with trained system
• Dojo is a supercomputer optimized for neural net training
• An order of magnitude more cost efficient in hardware and energy usage when compared to next best computer vision solution
• Long answer to say, it isn't ready yet
• Say questions about Solar Roof pricing and challenges and goal of 1,000 roofs per week
• Elon says demand for Solar Roof remains strong
• Production is going fine
• We are choked at the installation point
• Made significant mistakes in assessing difficulty of roof installs
• Some roofs are easier to install than others
• Difficult roofs end up costing 3 times more than they expected, refund deposits for those customers
• Most important about Solar Roof situation, we are shifting the whole product to only one configuration
• Only PowerWall will be sold with Solar Roof installs
• Solar Roof homes will basically be their own utility with the PowerWall
• With a bunch of PowerWalls, customers could help support their grid in peak power events like Texas earlier this year
• This is profound and necessary
• Power needs at homes will increase significantly as EVs continue to grow in popularity
• Prosperous future for both Tesla and the utilities
• Very important to have solar and batteries at the house level and larger storage at utility level
• There must be solar + battery
• Master of Coin, tell us about your crypto plans? - Question from Say
• Tesla sold 10% of their stake in Bitcoin
• Elon and Zack were looking for a place to put cash that was liquid and provided a solid return
• With yields so low
• Or sacrificing liquidity
• Bitcoin has proven to be a good decision
• Good place to put our cash and be able to get some return on that
• A lot of reasons to be optimistic about cryptocurrency
• From a corporate treasury perspective, we are pleased with the liquidity of the Bitcoin market
• As we think about global liquidity and risk management, being able to get out of the market is important
• Things we are constantly discussing
• Watching this space closely
• Say - Does Tesla have any plans to address the mainstream media's labeling of FSD and Autopilot tech as dangerous?
• Elon - Extremely deceptive media practices, journalists should be ashamed of themselves
• Crash in Houston - working with NHTSA
• Over the past week, we have learned that autosteer did not and could not engage in the road condition
• Only accelerated to 30 MPH
• Adaptive cruise control stopped when the driver disconnected their seat belt
• Unable to recover the data from the crash record
• Hold safety in a high regard
• Institutional Investor Questions
• Question about vampire drain of lithium ion batteries
• Vampire drain is definitely not the issue 
• Elon chuckled
• Has nothing to do with vampires
• We have a long way to go before we are dealing with seasonal technology issues
• It's entirely possible to power all of Earth with a small percentage of the planet's surface area - Elon
• Now talking about low cost long distance powerlines using copper?
• No new materials necessary
• We just need to scale this thing up
• Super Mega insanely gigantic energy demand of the planet means that it will take time to transition to renewable energy
• It is certainly the case that we can accelerate this
• Elon proposed a carbon tax, again
• Tax energy that we think is probably bad, support energy that we think is probably good
• It is just common sense
• I am not suggesting anyone be complacent
• It matters how fast we solve this
• No question in my mind that the energy situation can be solved with lithium ion battery
• Where does Berlin Gigafactory sit when it comes to Model 3 efficiency gains in production?
• Elon - people don't understand how insanely hard production is
• Prototypes are trivial
• Production is hard, very hard
• Tesla was the first American auto company to achieve volume production in 100 years and not go bankrupt
• Had several aneurysms to get this done... (Elon joke)
• Talks about that time Tesla ran out of USB cables and ran to every Fry's in the Bay Area to buy replacement parts
• Logistics problem that makes WWII look trivial... (Elon)
• Master Plan Part 2 question about smaller/afforable car
• No update from Elon on that
• Analyst Q&A begins, stock at $722/share.
• Q - How much progress on battery process development? Which size are you ramping 4680 cell supply?
• Elon - We have a small pilot plant
• Not at the point where 4680 cells ready to ship in cars
• Ordered the equipment for battery production in Berlin and Austin
• Down to the nitty gritty elements for 4680 cell ramp
• Volume production of 4680 set for 2022
• Yield progress has been very strong on 4680
• Lines up with internal cost projections
• 12-18 months away from volume production of the 4680
• Trying to get cell suppliers to ramp up production as well
• Not about replacing suppliers
• About supplementing cell supply
• Please make as much as you can - Elon to suppliers
• We will buy about everything they can make
• We are on track to double supplier capacity over the next 18 months
• Followup on Energy business 
• Targeting similar margins for storage and energy division as we have in automotive
• Clear runway for improving Megapack margins
• Another analyst Q
• Talk about Version 9 of FSD, transition to subscription model, how impactful you expect it to be?
• Key things - a lot of potential from recurring revenues
• Hoping to get this launched pretty soon
• Operating Expenses increase question
• Model X and S line changeover contributed
• 4680 ramp also lead to increased R&D expense
• Spend should continue over development cycle of those products
• Neural net investment continues to be an area we spend on
• SG&A expenses tied to global expansion of the company
• Local store and service capacity is important
• Making investment in China ahead of growth
• CS analyst question
• On COGS reduction, what levers can be pulled outside of reducing powertrain costs?
• Slipped in a question about $25k vehicle in there too
• Fremont question vs new capacity regarding efficiency
• Elon doesn't want to announce a new car 
• 6:40 PM ET  - conference call ends - stock price at $722/share

For more news on Tesla, be sure to visit our Tesla tag on Shacknews.

Captain Business

Stonk Market Expert

Greatest Editor Ever.