Tesla (TSLA) Q2 2023 earnings results and conference call transcript
Published , by Asif Khan
Tesla is out with the company's Q2 2023 earnings results, and the stock is reacting to the news in after-hours trading. The EV company reported earnings-per-share (EPS) of $0.91/share and revenues of $24.9 billion. Earnings slightly beat the EPS whisper number of $0/89/share and analyst esimates of $0.82/share. Revenues topped analyst estimates as well.
Listen to the Tesla (TSLA) Q2 2023 earnings call
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Tesla (TSLA) Q2 2023 Earnings Release
Highlights
Profitability
9.6% operating margin
$2.4 Billion GAAP operating income
$2.7 Billion GAAP net income
$3.1 Billion non-GAAP net income
Cash
Operating cash flow of $3.1 Billion
Free cash flow of $1.0 Billion
$0.7 Billion increase in our cash and investments QoQ to $23.1 Billion
Operations
Cybertruck factory tooling on track; producing RC builds
Model Y became the best-selling vehicle globally in Q1
Summary
Q2-2023 was a record quarter on many levels with our best-ever production and deliveries and revenue approaching $25B in a single quarter. We are excited that we were able to achieve such results given the macroeconomic environment we are currently in.
Our operating margin remained healthy at approximately 10%, even with price reductions in Q1 and early Q2. This reflects our ongoing cost reduction efforts, the continued production ramp success in Berlin and Texas and the strong performance of our Energy and Services & Other businesses.
Our commitment to being at the forefront of AI development entered a new chapter with the start of production of Dojo training computers. We are hopeful that our immense neural net training needs will be satisfied using our in-house designed Dojo hardware. The better the neural net training capacity, the greater the opportunity for our Autopilot team to iterate on new solutions.
In conclusion, we are focusing on cost reduction, new productdevelopment that will enable future growth, investments in R&D, better vehicle financing options, continuous product improvement and generation of free cash flow. The challenges of these uncertain times are not over, but we believe we have the right ingredients for the long-term success of the business through a variety of high potential projects.
Revenue
Total revenue grew 47% YoY in Q2 to $24.9 Billion. 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 $0.6 Billion
Profitability
Our operating income decreased slightly YoY to $2.4B in Q2, resulting in a 9.6% operating margin. YoY, operating income was primarily impacted by the following items:
- reduced ASP due to mix and pricing
- cost of production ramp of 4680 cells and other related change
- increase in Operating expenses driven Cybertruck, AI and other large projects
- negative FX impact
+ growth in vehicle deliveries (despite margin headwind from underutilization of factories)
+ lower cost per vehicle, which includes lower raw material cost and IRA credit
+ gross profit growth in Energy business as well as Services & Other
Other income (below operating income line) was positively impacted by FX movements on certain intercompany balances.
Cash
Quarter-end cash, cash equivalents and investments increased sequentially by $0.7B to $23.1B in Q2, driven mainly by free cash flow of $1.0B, 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 vehicles for the year.
Cash
We have ample 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 by an acceleration of AI, software and fleet-based profits.
Product
Cybertruck remains on track to begin initial production later this year at Gigafactory Texas. In addition, we continue to make progress on our next generation platform.
Tesla Cybertruck seen here driving through mud. Source: Tesla
Tesla's earnings results conference call is set to kick off at 5:30 p.m. ET. Keep an eye on this article for a transcription of the earnings call right here.
Call is supposed to start now - 5:30 p.m ET
It hasn't
Call starts at 5:31 p.m. ET
Elon and Zach are on the call
Elon opening remarks
Q2 recap - record revenue, vehicle deliveries, production
Model Y is the best-selling vehicle of any kind selling globally
This is an incredible achievement by the Tesla team
This came in spite of high interest rates and market uncertainty
still on target for 1.8 million vehicles
Q3 production will see a slight decrease in production
In order to build autonomy we need more training data to build the neural net
speaking the the benefits for more training
there is no substitute for a massive amount of data
Tesla has more driving data than any other company on Earth
Success in AI endeavors is a function of talent, unique data, and computing resources
We have outstanding capabilities in all three arenas
I don't know how anyone could do what we're doing without our training data
Dojo training computer is designed to lower the cost of neural net training
it is built for video training
we see the need for neural net training tech
will use NVIDIA and Dojo for now
today, over 300 million miles have been driven using FSD beta
Between autopilot, dojo computer, inference computer, and our optimus robot, Tesla is clearly at the cutting edge of AI development
Continuing to build release candidates for Cybertruck in Texas
Cybertruck is no small car
We are trying to get it right in the Goldilocks zone
We can't wait to start delivering Cybertruck later this year
50,000 connectors at 5,000 Supercharger locations
Tesla charging standard is now called North American Charging Standard
Ford, Mercedes, GM, and many OEMs have decided to adopt the standard
We believe in helping other companies to accelerate the EV revolution
Tesla is very open to licensing our FSD software and hardware to other car companies
already discussing with another OEM about licensing our FSD tech
Lithium-ion and cathode facility is progressing will
Thanks all Tesla employees for their hard work in uncertain times
Zach also has some opening remarks
Q2 was another record quarter
we continue to work towards our goals of maximizing production, but doing so in a way that maximizes our cost management
Automotive gross margin showed a modest reduction, but still remains healthy
Energy business margins improved
Reiterates Q3 warning
working to minimize idle time at factories as much as possible
focused on fundamental efficiency still
investor questions
what is the status of the 4680 cells? How far is the company away from achieving what you claimed at Battery Day?
Focus on yield at Texas plant
Cybertruck cell is 10% higher energy density than current production
Against our battery/energy density targets, Cybertruck is on track
Important to remember that we focused mainly on cost reductions at Battery Day, which we are seeing at the Texas factory
Question about future Tesla Energy products?
Software and Hardware margin color?
Energy Q2 update
Megapack demand remains solid
Autobidder contracts continue to grow
Autobidder does have small margins and does not have a material impact on energy revenues
half a million Powerwalls installed
Tesla began paying Texas customers for participating in our virtual power plant
Unfortunately, bringing Tesla Electric to other states involves dealing with bureaucracy that slows down the growth of the service
Question: Could you quantify the battery cost benefits from IRA?
Zach - we provided previous guidance that we expect IRA to positively affect costs by $150-250 million each quarter
This includes the joint efforts with Panasonic
We are also seeing benefits in aluminum and steel prices
As we continue to work on reducing Austin and Berlin costs, these factories are still above Model Y costs elsewhere
On commodities front, we are hedged in the lithium market
Seeing reduced costs across a lot of input costs
next question on FSD, have you considered allowing FSD transferability so they can take it from one Tesla to another
For Q3, we will be allowing transfer of FSD
Elon - one time thing
When will we get more info about Cybertruck orders and builds?
Elon - Demand is so off the hook, that you can't see the hook
Cybertruck has a lot of new tech
Question: Critics of gigacasting claim it will increase repair costs to customers
Elon - that must be why everyone is copying us
Lars - that is simply not true
Elon - I think it will be how most cars are made in the future
Question: how many Tesla Optimus robots have been built?
Elon jokingly says 10 million, but there are about 5-10 actual robots
Elon - we have no off the shelf actuators that exist for compelling humanoid robots
We have had to design our own actuators for Tesla Optimus Robot
Every one of them is a custom design
We are using the same inference engine
We will be able to have Tesla robots do something useful in Tesla factories some time next year
Another cool thing about Optimus is that just in the US alone there are 2 million amputees, and by combining a Neuralink implant with a robotic appendage, we believe we can give people cyborg bodies
The $60,000 Man - Elon chuckles
It would be incredible to help millions of people around the world
giving people robot appendages
How has the ordering trended in Q2 and Q3? How is this affecting vehicle prices?
Demand has roughly tracked production
We know our real-time demand and real-time production
Buyinga new car is a big decision, so any time there is economic uncertainty people usually pause on new vehicle purchases
As interest rates rise, the cost of buying anything with borrowed money goes up
We have had to decrease vehicle prices in an effort to combat interest rate hikes
Elon asks for people to DM him on Twitter if they have an economic crystal ball
I love you long-term shareholders
We can't control these macro shocks or the manic-depressive nature of the stock market
I caution people against using margin
We are in "turbulent" times
I have a lot of confidence in the long-term value of Tesla
Where things go along the way, one cannot predict
The old addage of buy and hold is right
Identify a company that you know and love
when the market panics, buy
when the market is overly exuberant, you sell
I am not telling you to sell Tesla
question about price cuts to drive volume growth
Elon - the short-term variances in Gross Margin and profit are minor to the long-term
Autonomy will make all of these things seem silly
I recommend looking at Ark Invest
He just recommended people follow TSLA investors on Twitter... K
We will deliver over the long-term
Elon - we actually make our shit
Zach - hyper-focused on working capital management
tailwinds in the commodities space
variability in pricing of the products is about matching supply and demand
this is how we are managing the next few quarters
make sure the long-term of the business is exactly what we want it to be
Analysts now
Dan Levy from Baraclays ask "First, question about AI and Dojo acceleration of focus? How is that process refined? What should we expect on R&D expenses of Dojo?"
Elon - we will be spending over a billion dollars on Dojo
Not optimized for LLM, it is about computer vision
we're using a lot of NVIDIA hardware
Tesla stock is down nearly 3% since the conference call began
We want to get to 10-100 times better than human vision when driving
It's a march of nines and we want to achieve the best safety possible
lots of video and compute required for the video training we need
Zach - billion dollar figure Elon provided is tech and R&D expense
Elon - fundamental rate limiter for FSD is more visual training of the neural net
Zach - hard to predict how long it will take
Question: "In the year ahead, you are sticking to your 50% CAGR target, are you thinking differently about margins to get more share?
Elon - you can think of every car we sell with full autonomy as something that could be worth more than it is in the future
DB analyst - question on autonomy
Would Tesla benefit from lowering the price of FSD?
Elon - people have quite fairly made fun of my estimates for achieving FSD in the past
"I'm the boy who cried FSD"
I think we will be better than humans by the end of the year
I have been wrong in the past, I may be wrong this time
The price of FSD is very low - Elon Musk
William Stein next question
Like to ask about this AI topic
Asks about xAI
How might xAI overlap or compete with Tesla?
Does xAI enhance the value of Tesla?
Elon - I think it will enhance the value of Tesla
the best AI engineers in the world were willing to join a startup
not Tesla
Do you think you can hit the 1.8 million vehicle target with current prices?
If interest rates continues to rise, that affects the affordability of cars - Elon
Rising credit card debt is looking kinda scary
Collin Rush from Oppenheimer asks "can you speak to the maturity of the Dojo OS?"
Elon says "this is a custom software stack"
Drink! (every time he says stack)
He said it again.
How are you managing geopolitical risk?
This is a period of geopolitcal risk, so we have a number of locations for production - Elon
Mark Delaney from Goldman Sachs asks question on when COGS could hit lower than the historical level
Zach says this is very difficult to forecast because of some things are uncontrollable
Saw strong inflationary pressure last year - Elon
Now we are seeing what seem to be deflationary action in commodity prices - Elon
Economies of scale come into play on a lot of supplier relationships
Zach - we have a mentality of continuous improvement at Tesla
Every quarter, we have seen an improvement towards being more efficient
Lithium prices went insane - Elon
Still early on bringing costs down in Berlin and Austin, despite the trend in Q2
Logisitics is underappreciated
Game of Pennies - Elon
Mark asks for a finer point on the downtime expected in Q3 2023
Zach - we don't know the exact number of cars that will be impacted
It's not profound reduction
Elon - we are getting into the weeds
Call comes to its merciful conclusion.
Musk talked down Tesla shares with his ham-fisted 'investment advice' and FSD ramblings.
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.
Full Disclosure:
At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions: