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Tesla (TSLA) Q3 2021 earnings results and conference call transcript

Tesla just released their earnings results for the third quarter of 2021 and shares are reacting in afterhours trading. Check out all of the important details from the report here.

Captain Business

October 20, 2021 1:10 PM

Tesla has just released their latest earnings report, and shares of the electric vehicle company are moving in afterhours trading. The company reported earnings of $1.86/share and revenue of $13.8 billion during Q3 2021, both metrics beating expectations. Check out all of the important details from the earnings press release and the conference call in this article.

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

We will be streaming the TSLA Q3 2021 conference call on our Shacknews Twitch channel. Stop by if you are into that sort of thing.

Here's a breakdown of Tesla's Q3 2021 earnings report:

Tesla's Q2 2021 Earnings Release

Highlights

Cash

Operating cash flow less capex (free cash flow) of $1.3B in Q3
Net debt and finance lease repayments of $1.5B in Q3
In total, $164M decrease in our cash and cash equivalents in Q3 to $16.1B

Profitability

$2.0B GAAP operating income; 14.6% operating margin in Q3
$1.6B GAAP net income; $2.1B non-GAAP net income (ex-stock-based-compensation) in Q3
30.5% GAAP Automotive gross margin (28.8% ex-credits) in Q3

Operations

Record vehicle production and deliveries in Q3
Started roll out of FSD City Streets Beta to a wider population in October

Summary

The third quarter of 2021 was a record quarter in many respects. We achieved our best-ever net income, operating profit and gross profit. Additionally, we reached an operating margin of 14.6%, exceeding our medium-term guidance of “operating margin in low-teens”.

Perhaps more impressively, this level of profitability was achieved while our ASP2 decreased by 6% YoY in Q3 due to continued mix shift towards lower-priced vehicles. Our operating margin reached an all-time high as we continue to reduce cost at a higher rate than declines in ASP.

EV demand continues to go through a structural shift. We believe the more vehicles we have on the road, the more Tesla owners are able to spread the word about the benefits of EVs. While Fremont factory produced more cars in the last 12 months than in any other year, we believe there is room for continued improvement. Additionally, we continue to ramp Gigafactory Shanghai and build new capacity in Texas and Berlin.

A variety of challenges, including semiconductor shortages, congestion at ports and rolling blackouts, have been impacting our ability to keep factories running at full speed. We believe our supply chain, engineering and production teams have been dealing with these global challenges with ingenuity, agility and flexibility that is unparalleled in the automotive industry. We would like to thank everyone who helps advance our mission

Revenue

Total revenue grew 57% YoY in Q3. This was primarily achieved through growth in vehicle deliveries, as well as growth in other parts of the business. At the same time, vehicle ASP declined by 6% YoY as the Model S and Model X mix reduced YoY in Q3 due to product updates and as lower ASP vehicles became a larger percentage of our mix.

Profitability

Our operating income improved to $2.0B in Q3 compared to the same period last year, resulting in a 14.6% operating margin. This profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $190M in Q3, primarily driven by a new operational milestone becoming probable.

Operating income increased substantially YoY mainly due to vehicle volume growth and cost reduction. Positive impacts were partially offset by ASP decline, growth in operating expenses, lower regulatory credit revenue, additional supply chain costs, Bitcoin-related impairment of $51M and other items.

Cash

Quarter-end cash and cash equivalents decreased to $16.1B in Q3, driven mainly by net debt and finance lease repayments of $1.5B, partially offset by free cash flow of $1.3B. Our total debt excluding vehicle and energy product financing has fallen to just $2.1B at the end of Q3.

OUTLOOK

Volume

We plan to grow our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. The rate of growth will depend on our equipment capacity, operational efficiency and the capacity and stability of the supply chain.

Cash

We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses.

Profit

We expect our operating margin will continue to grow over time, continuing to reach industry-leading levels with capacity expansion and localization plans underway

Product

We continue to target our first Model Y production builds in Berlin and Austin before the end of the year. The pace of the respective production ramps will be influenced by the successful introduction of many new product and manufacturing technologies in new locations, ongoing supply-chain related challenges and regional permitting. We are making progress on the industrialization of Cybertruck, which is currently planned for Austin production subsequent to Model Y.

Head on over to the Tesla Investor Relations website to check out even more information from today's press release.

Tesla (TSLA) Q3 2021 conference call transcript

Check back for some highlights from the Tesla Q3 2021 conference call transcript, which is set to kick off at 5:30 PM ET.

5:30 PM ET - Conference call is supposed to start.
5:32 PM ET - Conference call actually starts.
Elon Musk is not here.
CFO and VP will take point
Zach - We're continuing to make great progress as a company
Reiterates strong results in the quarter
Company achieved 1 million vehicle/year run rate as of this quarter
Shanghai Gigafactory is the main export hub
Parts shortages and other issues have factories running below capacity
Never reduced production forecast as they are working with suppliers to prevent issues
Backlogs continue to grow
Doing everything they can to build more cars
Powerwall and Megapack production also hampered by constraints
Auto Gross Margins 29% ex-credits
Higher volumes from China help margins
Model S has returned to positive gross margin following retooling of factory line
Not yet recognizing additional revenue from FSD program
Tesla has adjusted prices to compensate for inflationary pressures on input costs
Operating margin just around 15%
Record operating cash flows of $3.1 billion
Continue to retire high interest rate debt
Looking forward, ahead of annual growth rate of 50%
Hedges Q4 may be limited by parts issues
Germany and Texas factories ramps will compress margins at first
Q&A from investors begins
When will 4680 cells begin to ship in cars?
"Unknowns unknowns may exist"
Confident on the battery tech lining up with pack production
$25,000 vehicle question
We are working on a strategy to increase our production rates as much as possible while not increasing complexity
Focused on Model Y expansion, S and X in Fremont, Model 3 and Y in China
Cybertruck is the next focus
FSD beta data set question about takeaways on iteration of version refreshes?
It isn't about how much data we can collect, but how fast we can process it
Faster training computer neural network powered by Dojo processor will help with iterations
Daily updates are not realistic for now
How much diversity in your fleet will be required to hit an annual run rate of 20 million vehicles per year?
Tesla continues to break molds in vehicle segments
Hope to do so with new products
Believe they will have to be in all vehicle spaces to achieve those growth goals
What is the total capacity for all Tesla factories by 2024?
Our goal as a company here is to grow at an average percent of 50% per year
Some years they will be ahead of that
Other years they won't
That remains the long-term goal
We continue to push the boundaries at Fremont
Internal target to increase Fremont production by 50% (currently 430,000 annual run rate)
Shanghai continues to ramp
Austin and Berlin are interesting factories
Intentionally set these factories in places with the real estate available to expand
Looking at 10,000 cars a week at both factories
Our goal is to get to millions of cars per year over the next few years
What is your view on the tightening regulatory environment for FSD?
We always engage with worldwide regulatory bodies with a focus on safety.
During these investigations, the Tesla team expects and welcomes the scrutiny
We take safety as a top priority
Primary motivation is to create software and hardware that saves lives
Remain transparent with customers on the safety of FSD
Regulatory testing shows the results of the work of very talented Tesla engineers
Our goal of FSD is to go beyond the safety that the hardware can provide
On a macro level, we are seeing the auto industry going through a transition into a computer on wheels
Regulatory bodies are interested in understanding how to regulate in this new world
We think this is a great thing
Service remains an issue with massive wait times as is the case with Superchargers
We have seen an increase in service wait times
First, the return to normalcy has happened faster than people expected
Number of miles driven has increased
Customers may have put off service in 2020 and are now getting that done in 2021
Logistics, moving and sourcing parts, as well as labor market challenges are all constraints for service
Demand for service up, supply of service down
Regional average wait times are improving as the company works on the issues
Grown footprint of mobile service by 40%
The best service is no service
Company remains focused on initial quality and reliability of the cars
Supercharger team monitors congestion and plans expansion accordingly
Network has doubled in last 18 months
Supercharger network to triple over the next two years
If you haven't experienced our fast charge rate batteries on 240 watt charging stations, this will help with wait times
Maintaining software updates to help drivers find less congested supercharger stations
Is Tesla considering any other IP than FSD data?
At AI day we talked about using our Dojo tech for other neural nets
How has FSD take rate changed since the monthly fee option launched?
We won't be providing forward-looking info on pricing of FSD
The things that we learn on FSD subscription today are not necessarily all that relevant
If you look at the monthly cost of FSD, the most economical way to get it is to purchase it up front
Unable to detect a change in uptake rate
Have seen quite a bit of activity with respects to interest in FSD
Analyst questions begin
New Street Research didn't unmute
RBC also didn't unmute
LOL
This is clown shoes
Back to investor questions
Can Tesla allow FSD to be transferred to another vehicle?
If you trade in your Tesla to Tesla, the company pays a different amount for vehicles with FSD
That difference can go towards purchasing FSD in a new car
Cybertruck when?
Busy working on a new iteration of the vehicle
Testing a number of alpha models
Analyst questions begin
What are you doing on the insurance front? (Texas based on safety score) What info have you gotten from this launch?
What are your next geographies? Opinion on growth trajectory of Tesla Insurance?
Pretty excited so far, Pierre
We entered the insurance market unintentionally
Mainly did it to lower the cost of ownership
We spend extreme amounts of effort to shave $5-10 of cost
Tools by which insurance is calculated is based on existing data
Marital status, other stuff are used as traditional factors
Because Teslas are computers on wheels, the company has more data to assess the safety of a driver
Model is a function of the data we have available
More data can be added
Frequency of collision integrated into the insurance price curve for instance
Included the safety score as part of the FSD Beta program
Probability of collision is 30% lower when they are using a safety score
Off to a good start in Texas
Excited about helping drivers be safer and save money
RBC figures out how to use a phone
Question about operating margins
Longer-term gross margin and operating margin targets?
Zach - we have achieved and exceeded our long-term targets for operating margin
Going forward, launch of Austin and Berlin will have ramp inefficiencies that will put downward pressures on margin
Goal is to ramp them as quickly as possibly
We are also in this uncertain environment with respect to cost structures (commodities side, labor, and logistics)
Uncertain how that will unfold
We hope things will stabilize
When that happens remains to be seen
Difficult to say where Gross Margin will go for those reasons
Very focused on managing operating expenses
Hope to make progress on operating margins over the next 4-5 quarters
As FSD matures, take rates increase, potential price increases, more visibility will occur for Gross Margin
Difficult over the next 4-5 quarters
There's just a lot of uncertainty in the world right now
Our goal is to localize all key parts of the vehicle close to each gigafactory
Not just at the end assembly level
Next question from Wells Fargo (if dude unmutes)
Dude didn't unmute
Ok, now he did
Another question on raw materials cost inflation
Have you seen any impact from commodities price spike?
Any color on when that would start to impact results?
Nickel and Aluminum are two costs creating pressure on results
Contracts with some amount of cost sharing in place
Not a substantial effect, not small either
May see more cost headwinds in 2022
Volatility and increases in costs are substantial
As contracts expire, we will have to return to negotiations
We have to overcome cost increases that are outside of our control
Have no choice but to be even more aggressive in diversifying our supply chain and contracts with suppliers
Oppenheimer question
Talk about your anode strategy
Not getting into specifics
Not in a shortage issue here
Generally stable commodity inputs
Primary focus is on reducing cost while not losing long-term cyclability of the anode
Not directly one-to-one relationship
Awakening in consumer sentiment around EVs has caught us off guard
But we are constrained by a number of dynamics
Putting in an extreme effort to build as many cars as we possibly can
Net of all of this is that we aren't able to increase production capacity fast enough
While we are seeing cost pressures, we need to think into the future when pricing cars
Companies change pricing all the time
The difference is when Tesla does it, we are very transparent
Barclay's analyst tries to unmute his mic
Fails
Succeeds
Makes snarky comment about Elon Musk not being there
Question about level 5 autonomy and FSD progress
Looks very level 2
What is the timetable to get to Level 4 FSD?
What is the criteria for deferred FSD revenue to be recognized?
Status update on working with NHTSA on FSD probe?
Difficult to be specific on timeline for FSD updates
Being transparent with customers on the iterations
The way that Tesla recognizes revenue on FSD is based on the commitments made to the customer when we sold them the service and the software is widely available.
Still waiting on reaching milestones to trigger revenue recognition
We are quick to respond to NHTSA inquiries
Trip question
Berlin and Austin gigafactory question about difference in design
How is Cybertruck supply looking?
Is the steel supply sufficient
Some differences in Austin and Berlin design
In general, the geography or buildings are the many differences
Last question
Canaccord Genuity successfully unmuted their mic!
Germany Gigafactory update
I expect we will see some headwind from ramping up production at the new gigafactories
Sweet merciful Xenu, it's over

There you have it, Shacknews. That certainly was a conference call. It was the first Tesla (TSLA) earnings release conference call to be conducted without CEO Elon Musk, and it went pretty okay. Was today's earnings release not enough? We have a whole slate of companies set to report their Q3 results in the coming month, so check out our handy dandy guide for more important dates to keep an eye on.

Captain Business

Stonk Market Expert

Greatest Editor Ever.

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