Tesla (TSLA) Q1 2023 earnings results and conference call transcript
Published , by Asif Khan
Tesla is out with the company's Q1 2023 earnings results, and the stock is moving in after-hours trading. The EV company reported earnings of $0.85/share and revenues of $23.3 billion, with results coming in line with analyst expectations of $0.85/ share and revenue estimates of $23.3 billion.
Listen to the Tesla (TSLA) Q1 2023 earnings call
We will be streaming the TSLA Q1 2023 conference call on our Shacknews Twitch channel. Stop by if you want to react to the news in chat.
$0.2B increase in our cash and investments in Q1 to $22.4B
Profitability
11.4% operating margin in Q1
$2.7B GAAP operating income in Q1
$2.5B GAAP net income in Q1
$2.9B non-GAAP net income1 in Q1
Operations
Cybertruck factory tooling on track; producing Alpha versions
Model Y was the best-selling vehicle in Europe in Q1
Model Y was the best-selling vehicle in the US in Q1 (ex-pickups)
SUMMARY
In the current macroeconomic environment, we see this year as a unique opportunity for Tesla. As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader. We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.
Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity, and service. We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors.
Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale.
We are rapidly growing energy storage production capacity at our Megafactory in Lathrop and we recently announced a new Megafactory in Shanghai. We are also continuing to execute on our product roadmap, including Cybertruck, our next generation vehicle platform, autonomy and other AI enabled products.
Our balance sheet and net income enable us to continue to make these capital expenditures in line with our future growth. In this environment, we believe it makes sense to push forward to ensure we lay a proper foundation for the best possible future.
FINANCIAL SUMMARY
Revenue
Total revenue grew 24% YoY in Q1 to $23.3B. YoY, revenue was impacted by the following items:
+ growth in vehicle deliveries
+ growth in other parts of the business
- reduced ASP YoY (excluding FX impact)
- negative FX impact of $0.8B
Profitability
Our operating income decreased YoY to $2.7B in Q1, resulting in a 11.4% operating margin. YoY, operating income was primarily impacted by the following items:
+ growth in vehicle deliveries (despite margin headwind from underutilization of new factories)
+ gross profit growth in Energy business as well as Services & Other
- reduced ASP YoY
- higher raw material, commodity, logistics and warranty costs
- cost of production ramp of 4680 cells
- lower credit revenue
Cash
Quarter-end cash, cash equivalents and investments increased sequentially by $217M to $22.4B in Q1, driven mainly by free cash flow of $441M, partially offset by other financing activities, including debt repayments.
OUTLOOK
Volume
We are planning to grow production as quickly as possible in alignment with the 50% CAGR target we began guiding to in early 2021. In some years we may grow faster and some we may grow slower, depending on a number of factors. For 2023, we expect to remain ahead of the long-term 50% CAGR with around 1.8 million cars for the year.
Cash
We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses. Furthermore, we will manage the business such that we maintain a strong balance sheet during this uncertain period.
Profit
While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied with an acceleration of software-related profits. We continue to believe that our operating margin will remain among the highest in the industry.
Product
Cybertruck remains on track to begin production later this year at Gigafactory Texas. In addition, we continue to make progress on our next generation platform.
Some interesting stories of note from Tesla's Q1 2023 earnings release:
The earnings selloff in Tesla shares intensified as Musk and Co. continued the conference call. Source: TC 2000
Tesla's earnings results conference call is set to kick off at 5:30 p.m. EDT. Keep an eye on this article for a transcription of the earnings call right here.
Call starts on time
Elon opening remarks
Q1 recap, Model Y is selling well
Model Y success in spite of production and delivery issues
Worth pointing out that the current macro environment remains uncertain
Pushing for higher volume, larger fleet is the right move
We expect our vehicles, over time, will drive profitability via autonomy
Harvest margins in the future as we perfect autonomy
Cybertruck alpha versions being built
Completing installation of volume production line at Giga Texas
Planning delivery event in Q3 2023
Expect S curve for production ramp of Cybertruck
"Hall of Famer" Radical Product
Not made like other products
Megapack had its strongest quarter ever
As we've expected, stationary storage growth will exceed vehicle growth
FSD, 150 million miles driven in the beta
Data advantage that no one else has
Importance of training data for achieving incredible AI outcome
Focused on improving neural network training
Remains a constraint to achieving FSD
Significant purchases of NVIDIA GPUs
Still working on DOJO
DOJO could become a service for other companies too
Really think that DOJO potential is very significant
Wanna make and sell as many cars as we can
Continue to invest in growth as fast as possible
Elon thanks Tesla employees for doing an incredible job
Zach CFO remarks
Record vehicle productions and deliveries
Automotive gross margin decreased sequentially
Per unit costs at Austin and Berlin improved
Those factories are a margin headwind
Storage growth and profitability remain on track
Grow volumes in vehicles and energy at the same time
Focus on cost efficiency and working capital
Investor questions
How do you determine price cutting criteria?
Elon "we do our best to evaluate production output and macroeconomic conditions"
Zach "can't get into the details"
Second question, will Tesla Energy be bigger than auto?
Elon clarifies that it will be bigger in auto in gigawatt hours, not necessarily revenues
We are seeing faster growth with stationary storage than vehicle sales
Zach, we will get to a point where we provide battery storage guidance
Relative to the whole company, energy storage is still a relatively small segment
As the business grows and smoothes out, including our numbers more formally will happen in a few quarter
Next question, about margins
Zach says "in terms of margins, generally in the same area we have seen in vehicle margins"
We are aiming at mid-20 percent margins on everything we do
Next question about 4680 battery progress
Zach says the company is making progress
4680 factory in Texas will be 70% less capex than existing battery factories
A number of cathode material side efforts under way
Cathode precursor lower process cost described at Battery Day is being integrated into Texas plant
Structural pack concept 50% lower capex for the same output of gigawatt hours/year
Iterating the design of structural pack
Q1 was all about cost and quality for pack team
Altogether the pack team decreased costs in Q1
Next question, what do you anticipate 2023 auto gross margin will be?
Zach says "this is a difficult environment to make projections"
Regarding costs, there are a set of costs we do control, and others we don't
Most of the efforts are cost optimization in Austin
Similar story in Berlin, without the 4680 pack considerations
Aggressively going across every cost bucket we can
Logistics costs are now improving
Zach praises supply chain team
Commodities have been a pain point
Still at the maximum of pain of commodities in cost structure
Elon "it's worth mentioning that lithium prices have dropped"
Zach we expect commodity prices will drop by the end of the year
Next question, how has global ordering tracked since recent price cuts?
Elon: "orders are in excess of production"
Next question, specs pricing for Cybertruck?
Musk: "It's an incredible product"
A product like this only comes along once in a long while
Analyst questions begin
Alex from Piper Sandler asks "first question, Lathrop growth, when will that facility be close to full utilization?"
Zach classic ramp at Lathrop, but supplier ramps also a factor
We will that unlock latter half of the year
"Second question, on ability to serve other markets out of Shanghai, what other regions are you not yet serving effectively?"
Elon: Good question, there are many markets we do not serve well yet
The markets do add up to something significant
It's high time that Tesla offers its cars to the rest of the world
Next analyst George from Cannacord
"First, if you could discuss your FSD take rates?"
"Next, do you think you need to reduce your prices of FSD?"
Elon: tricky price in question, value of autonomous vehicle is enormous
That value is ultimately will be very significant
There will be a little two steps forward and two steps back
I think we will do "it" this year, says Musk
Elon wishes he has a crystal ball that could predict battery commodity costs
"We're in uncertain times"
Just my guess, stormy economic weather for 12 months, and things could get sunny next spring
Zach, not all EV components/commodities are super liquid
Small mismatches in supply and demand can cause temporarily large price swings
Seeing quite a bit of softening in the lithium carbonate market
Because of price spikes, more companies are investigating upstream sources
Lithium refining is a choke point, not supply, according to Musk
Lithium is a very common element on Earth - Musk
We will have the most lithium refining capability when compared to everybody else combined
Can other people please do this work?
Instead of making a picture sharing app, please make a lithium refinery
We have a lot of fish to fry, and we wish other people would do that
Deutsche Bank question... Emmanuel
First, pricing strategy
Second, for Zach automotive gross margin
Autopilot related deferrals are non-repeating issues
Elon - two macro factors that are tricky
Fed rates and economic uncertainty
Baird
How do you rate all other Tesla businesses versus the vehicle business?
Elon - DOJO is a longshot bet that could pay off in a very very big way
Solving autonomy will unlock a lot of value if it happens
"I think it will happen" - Musk
Pricing question again
"Every day we get a daily real-time update of how many cars were ordered and delivered" - Musk
I am not sure there is a company on Earth that has more real-time data than Tesla, outside of SpaceX Starlink...
We know how many cars were ordered yesterday
Our finger on the pulse is real-time and does not have latency
We look at pricing 7 day/week
On balance, our decisions are pretty good/better than the rest of the industry
Zach, regarding EV market share, we don't look at it that way
We don't look at it that way
It is about the car market
Not just EV market share
Gotta stop looking at it as EV vs EV
"All cars will be EVs" - Musk
We will look back on ICE cars as we look at steam engines today
Colin Rush from Oppenheimer asks "how much of the cost structure is variable, and plus/minus lithium cost variances?"
Elon - depends on what time scale you are looking at, most of the car costs are variable
If I had to guess, I think we will see improved costs from suppliers
Drew "we are already starting to see that"
Some of lithium prices are already trending the right way
Takes several months to flow into cost structure
Air expedites are down from the peaks
Attacking all vectors and becoming cost efficient
Second question on stationary battery storage
We are focused on ramping Megapack
We are being selective on projects that best fit our mission and objectives
Musk - we are making improvements
Improving the speed at which you can plug Megapack into the grid
Goldman Sachs, 2 million units in 2023 a possibility?
Elon - makes crystal ball reference for the 10,000th time on this call
If things go well, 2 million, which is the upside case
We feel comfortable with 1.8 million shipments
2nd question on opening up the Supercharger network?
Drew - as you may have seen we opened our V4 and Magic Dock chargers last quarter
Continuing to roll out those improved offerings as we build new stations
Balancing our ability to serve customers vs all EVs
Roll out to continue over the coming quarters
Wolf Research
Follow up on leveraging cost position mentioned in release
Can you give us a sense as to how far you are willing to take this?
Is there a margin range?
Elon - I think we may have answered this question a few times
It depends on the macroeconomic environment
Federal Reserve rate decisions affect consumer demand - Elon
Zach adds investing with 2024 and 2025 in mind
What happens to margins over the next couple of quarters only matters in how it affects investment plans for 2024 and 2025
We are planning to keep the business healthy, but don't focus too much on the near-term
The focus is to position the company best for exiting this macroeconomic time
Do you have a view on elasticity of demand?
Elon - affordability is a main factor
In some cases, some people can't get a loan at all
I think banks are not leaning forward in providing loans these days
There is quite a powerful story here, that Tesla is in a uniquely strong strategic position
We could technically sell cars at zero profit now, and unlock future profits with FSD revenues
Adam Jonas, Morgan Stanley
First, good luck with the Starship launch
Now that you have gotten to know Twitter, what can you tell TSLA shareholders about how X app could affect the company?
It could potentially make it easier to buy cars - Elon
There is probably some benefit - Musk
Followup on manufacturing, 1913 Ford Model T prices fell another 70%
and a bunch of rival companies went bust
Is the recent cost cutting leading history to repeat itself
could this catalyze a darwinian moment in the EV market
"We really don't think of competitors that much" - Musk
Focused on improving service and making cars more affordable
We are making a car that is an asset that could be worth more in the future
Drew - "we want all EVs to succeed"
Elon "We are not out to destroy competitors"
Dan Levy from Barclays
First question, ramping supply at Austin and Berlin
How important is it to ramp to get better cost efficiency
Should we generally expect that you will produce at max capacity regardless of macroeconomic conditions
Elon - there could be a macro shock so severe that people stop buying, but outside of that we will keep making as fast as we can
Remind us what the margin profile of Austin and Berlin will look like compared to Shanghai
Elon - won't be as great as Shanghai, but we do expect to make significant improvements in Austin, Berlin, and Fremont
Final question, Jeffries
Longer term, I agree we should look at Tesla market share of total vehicles, is there a limit to developing global market share?
Elon - seems to be working well so far
We hear different feedback from customers, seeing growing pains?
Elon - we are always going to have growing pains
Sometimes service is behind sales, sometimes it is ahead
Tesla is growing faster than any company in history - Musk
(company did not grow EPS this quarter) - Asif
Best service is no service - Elon
The reason incumbents succeed and new companies fail is their ability to operate at lower margins
Newcomers succeed when customers are willing to pay a premium
In the absence of electrification or autonomy, a newcomer is unlikely to succeed
Call mercifully ends
This article is only meant for educational purposes, and should not be taken as investment advice. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.
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At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions: