Tesla (TSLA) Q3 2023 earnings results and conference call transcript
Published , by Asif Khan
Tesla is out with the company's Q3 2023 earnings results, and the stock is reacting to the news in after-hours trading. The EV company reported adjusted earnings-per-share (EPS) of $0.66/share and revenues of $23.4 billion. Earnings missed the EPS whisper number of $0.76/share and analyst estimates of $0.73/share. Revenues also missed Wall Street analyst estimates of $24.1 billion.
$3.0B increase in our cash and investments QoQ to $26.1B
Operations
4.0 GWh of Energy Storage deployed in Q3
More than doubled AI training compute
Summary
Our main objectives remained unchanged in Q3-2023: reducing cost per vehicle, free cash flow generation while maximizing delivery volumes and continued investment in AI and other growth projects.
Our cost of goods sold per vehicle4 decreased to ~$37,500 in Q3. While production cost at our new factories remained higher than our established factories, we have implemented necessary upgrades in Q3 to enable further unit cost reductions. We continue to believe that an industry leader needs to be a cost leader.
During a high interest rate environment, we believe focusing on investments in R&D and capital expenditures for future growth, while maintaining positive free cash flow, is the right approach. Year-to-date, our free cash flow reached $2.3B while our cash and investments position continues to improve.
We have more than doubled the size of our AI training compute to accommodate for our growing dataset as well as our Optimus robot project. Our humanoid robot is currently being trained for simple tasks through AI rather than hard-coded software, and its hardware is being further upgraded.
Lastly, with a combined gross profit generation of over $0.5B in Q3, our Energy Generation and Storage business and Services and Other business have become meaningful contributors to our profitability.
Revenue
Total revenue grew 9% YoY in Q3 to $23.4B. YoY, revenue was impacted by the following items:
+ growth in vehicle deliveries
+ growth in other parts of the business
- reduced average selling price (ASP) YoY (excluding FX impact)
- negative FX impact of $0.4 billion
Profitability
Our operating income decreased YoY to $1.8B in Q3, resulting in a 7.6% operating margin. YoY, operating income was primarily impacted by the following items:
- reduced ASP due to pricing and mix
- increase in operating expenses driven by Cybertruck, AI and other R&D projects
- cost of production ramp and idle cost related to factory upgrades
- negative FX impact
+ growth in vehicle deliveries (despite the margin headwind from underutilization from new factories)
+ lower cost per vehicle and IRA credit benefit
+ gross profit growth in Energy Generation and Storage as well as Services and Other
+ growth in regulatory credit sales
Cash
Quarter-end cash, cash equivalents and investments increased sequentially by $3.0B to $26.1B in Q3, driven by financing activities of $2.3B and free cash flow of $0.8B.
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 deliveries remain on track for later this year. In addition, we continue to make progress on our next generation platform.
Tesla (TSLA) Q3 2023 conference call transcript
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 starts with everything muted, so Elon's opening statement is cut off
Musk says they have deployed some NVIDIA AI chips for their neural net work
Musk sounds subdued
Retreads same claim that FSD can make Tesla the most valuable company on Earth
Energy Division is now the highest margin division
Tesla Cybertruck faces enormous challenges in reaching volume production and making it cash flow positive
Says it is "our best product ever"
Requires immense work to hit cash flow positive and volume production
prototypes are easy, production is hard
I want to temper expectations for Cybertruck
Thanks employees for the hard work
Zach is not on the call anymore
New CFO is here
Investor question: how many 2024 Cybertruck deliveries do you expect?
Elon retreads his prepared remarks on the challenge of Cybertruck production
Second question: 4680 update?
Zach is there!
Focus on quality at Texas Giga
We have a lot more work to do to reach our steady state goals
Question about future Mexico factory
"we want to get a sense on what the global economy is"
Musk pivots to saying he is worried about the interest rate environment
"we're just hitting law of large number issues here"
Musk says advertising might help some, but the rate environment is causing problems
Next question on when the company will return to 50% CAGR on revenue
CFO punts to next earnings call
Elon - It's not possible to have a 50% CAGR forever
Question about Robotaxi
Elon - I am very excited with our progress on autonomy
Extremely exciting in the long-term...
Elon rambles about FSD
Question on why FSD pricing dropped
Elon - we wanted to make it more afforable so people can try it
Over time the price of FSD will increase
Current price is a temporary low
Another question on FSD legal liability
Elon - judging by the lawsuits, it seems a lot of people feel Tesla is liable
Next question on Optimus robot working at Giga Texas next year
Elon says they are not ready to provide an update on the Optimus program
Optimus a year ago could barely walk, and now it can do yoga
a few years from now it could do ballet
"I have been overly optimistic about" FSD - Elon
Says regulations are keeping it out of some countries
Analyst questions begin
Truist asks "it sounds like you don't think the truck will ramp until its third year of production, will the next-gen platform have a similar ramp?"
Elon - to be clear, it is the 18th month of production (is my guess)
Starts this year, spans next year, and gets to 2025
That would be shocking if it took us 3 years
18 months is going to require a lot of blood, sweat, and tears
There is unique complexity to Cybertruck
Nobody digs their grave better than themselves.. - Elon
Cybertruck is one of those special products that only come once in a long while
Hard to reach volume production
call cuts out again
The cybertruck has lots of bells and whistles
Question about the future of robotaxi
Musk tap dances about the value added by FSD software updates in the current fleet of vehicles
"We're a hardware company with software margins" - Musk on the prospects of FSD + EVs
French analyst asks about the gross margin headwinds
CFO - cost of ramping some factories did affect margins, but not every one
Energy margins were driven by Megapack deliveries
Caution that Megapack deployments are a bit lumpy
Question on timing of the next gen product and its effect on margins
CFO - we will get some benefits from ongoing cost reductions
some things are still ramping in Q4, which will impact margins
ramping Cybertruck is another headwind that we are dealing with
CFO also says macroeconomic environment makes margins hard to predict where they will land
2024 cost reduction pipeline looks good - Zach
analyst asks about price elasticity
If our car cost the same as the Rav4, no one would buy the Rav4 - Elon
Tax incentives are not easy for the average person to access
A large number of people are living paycheck to paycheck with credit card debt
that's the reality for most people
CFO - when you look at car buying in general, we are looking at the next generation of EV adopted
Elon interrupts to crap on work from home
Now grandstanding about the working class
We have to make our cars more affordable
The price of the Model Y is almost unchanged if you factor in the change in interest rates
Going from near zero interest rates to current high interest rates, the monthly payment is largely the same
more of the payment goes towards interest
there are some people who can't get credit, period.
Refers to SIVB collapse
Next question from Cannacord Genity
Regarding cost per vehicle decline comments, what are the factors to give us confidence in your guidance?
Is Radar being included in Model Y in China?
Musk - we have not included radar in Model Y, but have experimented with that in Model S and X.
Not planning to do that in 3 or Y
Radar generated more noise than signal intially
Musk says jury is out on Tesla using radar
CFO - there is a laundry list of cost improvements
Something as simple as removing unnecessary stickers can lower cost - Elon
Elon Musk says you could chop your arm off to lose weight, but you are still fat
Question from analyst on Mexico and 50% sales growth
We are gonna build a factory there and it is going to be great - Elon
Elon is a broken record on interest rates
Reminisces about Tesla almost going under in 2008
I don't want to be going at top speed with so much uncertainty
I'm not saying things will be bad
Tesla is an incredibly capable ship
even a great ship in a storm has challenges
I have PTSD from 2009 big time - Elon
and the Model 3 ramp
The auto industry is also cyclic
buying a new car tends not to be front of mind in tough economies
that call comes to a merciful end
Tesla (TSLA) started the call at $245/share
Tesla (TSLA) ended the call at $233/share
GGs
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: