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Tesla (TSLA) Q2 2021 earnings results and conference call transcript

Tesla is out with their Q2 2021 earnings report and the stock is moving in afterhours. Find out all of the details from the release here.

Captain Business

July 26, 2021 1:10 PM

Tesla is out with their latest earnings report, and things look pretty darn tootin' for the electric vehicle maker. The company reported earnings of $1.45/share and revenue of $11.96 billion during Q2 2021, both beating expectations. Check out this article for more details.

Listen to the Tesla (TSLA) Q2 2021 earnings results conference call on Shacknews Twitch channel

Here's a breakdown of the Q2 2021 earnings report.

Tesla's Q2 2021 Earnings Release

Highlights

Cash

Operating cash flow less capex (free cash flow) of $619M in Q2
Net debt and finance lease repayments of $1.6B in Q2
In total, $912M decrease in our cash and cash equivalents in Q2 to $16.2B

Profitability

$1.3B GAAP operating income; 11.0% operating margin in Q2
$1.1B GAAP net income; $1.6B non-GAAP net income (ex-SBC1) in Q2
28.4% GAAP Automotive gross margin (25.8% ex-credits) in Q2

Operations

Record vehicle production and deliveries in Q2
Successful launch of FSD subscription in July
Started delivering the new Model S to customers

Summary

In the second quarter of 2021, we broke new and notable records. We produced and delivered over 200,000 vehicles, achieved an operating margin of 11.0% and exceeded $1B of GAAP net income for the first time in our history.

Supply chain challenges, in particular global semiconductor shortages and port congestion, continued to be present in Q2. The Tesla team, including supply chain, software development and our factories, worked extremely hard to keep production running as close to full capacity as possible. With global vehicle demand at record levels, component supply will have a strong influence on the rate of our delivery growth for the rest of this year.

We successfully launched Tesla Vision in Q2, which was mainly possible due to our ability to use data from over a million Tesla vehicles to source a large, diverse and accurate dataset. Solving full autonomy is a difficult engineering challenge in which we continue to believe can only be solved through the collection of large, real-world datasets and cuttingedge AI. Public sentiment and support for electric vehicles seems to be at a never-before-seen inflection point. We continue to work hard to drive down costs and increase our rate of production to make electric vehicles accessible to as many people as possible.

Revenue

Total revenue grew 98% YoY in Q2. 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 ASP1 declined by 2% YoY as Model S and Model X deliveries were reduced in Q2 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 Q2 compared to the same period last year to $1.3B, resulting in an 11.0% operating margin. This profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $176M in Q2, driven by a new operational milestone becoming probable.

Operating income increased YoY mainly due to volume growth and cost reduction. Positive impacts were partially offset by growth in operating expenses including increased SBC, Model S/X ramp (negative margin in Q2), additional supply chain costs, lower regulatory credit revenue, Bitcoin-related impairment of $23M and other items.

Cash

Quarter-end cash and cash equivalents decreased to $16.2B in Q2, driven mainly by net debt and finance lease repayments of $1.6B, partially offset by free cash flow of $619M

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

Check back for some highlights from the Tesla Q2 2021 earnings results conference call, which starts at 5:30 PM ET:

5:30 PM ET - Call supposed to start now
5:38 PM ET - Call actually starts
Elon and Zack are back
Elon opening remarks
Q2 2021 record quarter on many levels
passed $1 billion in GAAP net income for first time in company history
public sentiment towards EVs is at an inflection point
global chip shortage is very real
wide range of chips are the slowest part of the supply chain
chip supply is the governing factor on Tesla output
out of our control
substituting chipsets and rewriting firmware
intense effort to find new chips
thanks suppliers
FSD subscription launched last month
expect it to build slowly and grow momentum over time
FSB subscription will be a significant factor next year
doing conference call live from Giga Texas
Great work going on in Germany and Texas
Expect to be producing latest design of Model Y at both new factories later this year
hard to explain to people how manufacturing ramps work
10,000 unique processes that have to work
It's insanely difficult
Prototypes are easy and production is hard
Remarkable thing that Tesla has done is that we didn't go bankrupt once they hit volume production
Model Y will have substantial manufacturing improvements
Cast front and rear body in the Giga Texas and Giga Berlin Model Y
At scale production, they want to use 4680 cells for battery pack buildouts
Hard to predict when they will hit scale for those improvements
Progress being made in 4680 battery cells
Huge efforts being made to get factories up to speed
We're making great progess on full-self-driving... (RIGHT)
Two steps forward one step back situation
Highly confident that the cars will be capable of full-self-driving
Thanks to all of Tesla employees
CFO Zack on the mic
Q2 was a great quarter
auto gross profit and margin excluding credits improved
some benefit from price increases
Average cost per vehicle dropping faster than ASP reduction
opex as a percent of revenue has declined
GAAP operating margins have risen from negative to double digits due to cost improvements
we are recognizing the benefits of scale and fixed costs
2021 volumes will skew towards the back half of the year
Volume growth will be determined by part availability
Zack thanks team
Retail investor questions begin
Cybertruck production status update?
Cybertruck is currently in alpha stages
Model Y Giga Texas and Berlin ramp takes priority over Cybertruck right now
We have gotta solve the chip shortage to ramp Semi and Cybertruck production
We may be scaling large manufactured objects faster than anyone in history?
Looking at a massive increase in battery cell availability next year
Target to grow cell supply ahead of the target of 50% year over year growth in vehicle deliveries
contracts with cell suppliers calls for near doubling of supply next year
plan to overshoot on cell supply for vehicles and then rerouting excess supply to Megapacks and Powerwall production
Apple uses 100% cobalt, Tesla uses no cobalt in our iron phosphate packs and barely any in the nickel
Targetting zero cobalt use in the future
long-term shift toward iron-based li-ion cells over time
iron phosphate likely the future of battery cells
2/3 iron 1/3 nickel
There's plenty of iron in the world
much less nickel
way less cobalt
good for long-term scaling to move towards iron-based cells
all stationary storage will move to iron in the long-term most likely
next question
Tesla opening supercharger network to other EVs this year? How will this work?
Elon looking at simple solution that uses the Tesla app
Indicate which stall you are in, access the app, turn on the stall, set charge limit
should work with any manufacturers' cars
smarter with how we charge for electricity
rush hour charging will be more expensive vs off hours
sign-based discrimination can help with utilization of charger locations
Tesla will offer adapters at the Supercharger locations and sell them to rival EVs
Our goal is to support the advent of sustainable energy
Focus on minimal wait time for all customers
Need to grow charger locations faster than vehicle output
only useful to the public if they can achieve that growth goal
retail question
Elon said 4680 cells aren't reliable enough for vehicles, what needs to be done to get them there?
We'll definitely make them reliable enough, but the challenges will be in high volume production
engineering problems making 4680 scaling difficult
massive amount of equipment arriving to help with the scaling of 4680 cell production
most likely hit an annualized rate of 100 gigawatt hours per year some time next year
we'll have all the equipment installed by the end of the year 2021 - Zack
last retail question
Can Elon do an interview with fan YouTube channels once a year?
Elon - uh, I guess
If I am doing interviews, I can't do actual other work
I won't do it annually
I won't be default doing these earnings calls
stock dropped $5/share on this
Going forward will not be on earnings calls
Unless he has something he really wants to say
Elon laments the difficulty of scaling production again
Analyst Q&A begins
can you speak to attach rates for FSD and targets for subscription levels?
Elon - not worth commenting on now
In the US, we don't see regulation as a fundamental limiter
we need to make it work
and make FSD more reliable than human drivers
we have a massive fleet
autonomy needs to become so safe that it will be comparatively unsafe to operate vehicles manually
next question
COGS question for vehicles: if you are successful with these improvements, what would a successful outcome look like?
Elon - really difficult to make specific predictions
Clarity on the battery production improvements?
Zack - limited by the full scale cathode calendar
mixing - no specific challenges
next question
how you are looking at the 4680 sourcing?
What about asking other battery manufacturers for some help?
Will the first 4680 cell we see on the road be a Tesla produced cell?
Elon - we have the baskin robbins of battery situation here
Engineering drag coefficient with so many options
inhibits our forward progress
hopefully two to three form factors once they consolidate their processes
working with suppliers on simplifying the processes of 4680 scaling
Powerwall production has been reduced due to chip shortage too
follow up about stats on pricing changes and reception of FSB subscription?
Elon - not sure what they asked
Zack - we are still early in understanding
we'll just adjust pricing over time - Elon... oof
we need to make FSD more for it to be a better value proposition
does it make sense to do it now? it is debatable
Once FSD is widely deployed, it will be rare to see users who don't use it
Conference call ends
TSLA stock at $665/share