Tesla reported Q2 earnings after the market close Wednesday beat EPS and revenue expectations with record vehicle deliveries and moderating raw materials prices. However declining margins, aggressive investment plans, and price cuts saw some profit taking after the big run up in the TSLA stock by over 140% this year. TSLA closed $262.90 -28.36 (-9.74%) today. Guidance that more margin eroding price cuts maybe on the horizon as the EV price war rages on, we saw Ford cut its F-150 Lightening prices recently. Tesla’s crossover, the Model Y, became the best-selling vehicle worldwide in the first quarter of 2023.
Average Tesla car selling price have already fallen by nearly 20%. In late 2022 Tesla cut prices on its cars around the world, triggering an instant decline in used Tesla prices in the U.S. as well but have sparked demand, however.
Tesla is much more than an electric car company these days. Tesla earnings releases and Elon Musk’s conference calls leave much up to conjecture and we have seen violent stock price swings off them.
Tesla Inc NASDAQ: TSLA· Reported Earnings After Close Wednesday
What to look for in Tesla Earnings
- Earnings Highlights
- Stock Market Reaction
- Automotive: Production, Delivery, Prices, Used cars
- Tesla Energy: Grid Batteries, Solar and Powerwall
- Commodity Supply Chain Contracts
- Raising Cash
- Autopilot Updates
- Regulatory Credits
- New plant and production update
- Bitcoin
- Charging Network
- Global Chip Shortage
- Twitter and Mr Musk
- Branding, demographics
Tesla Q2 2023 Earnings
Q2 2023 earnings released after close 4:00 p.m.; conference call followed at 5.30 p.m.
Highlights
- Net profit for the quarter (GAAP) was $2.70 billion, an increase of 20% from last year. Operating income, however, was down 3% from the year-ago quarter at $2.40 billion. In the second quarter last year, Tesla reported net income of $2.27 billion.
- Revenue: $24.93 billion, versus $24.47 billion expected according to Refinitiv. In the second quarter last year, Tesla reported $16.93 billion in revenue.
- Earnings: 91 cents per share adjusted, versus 82 cents per share expected as per Refinitiv.
- Automotive business revenue rose 46% year-over-year to $21.27 billion, about a 6.5% increase sequentially.
- Tesla’s research and development costs rose to $943 million (from $771 million in Q1) “being at the forefront of AI development,” and has started production of its Dojo “training computers.”
- Tesla’s research and development costs rose to $943 million (from $771 million in the first quarter) with the company writing in a shareholder deck that it is focused on “being at the forefront of AI development,” and has started production of its Dojo “training computers.”
- Q223 group operating margins were of 9.6% vs Q123 of 11% vs Q422 of 16%.
- Q223 automotive gross margin of 19.2% vs Q123 of 21.10% vs Q422 of 25.90%.
TSLA: Stock Market Reaction
- $262.90 -28.36 (9.74%)
- $157.39 ▲ +49.29(45.60%)YTD
- $262.90 -8.807(3.24%) Over year
- $262.90 +242.227 (1,171.69%) Over 5 years
- 52wk High $314.67
- 52wk Low $101.81
Guidance
Looking at the conference call we get an insight to Tesla and Elon Musk’s outlook going forward:
Elon Musk: “We continue to target 1.8 million vehicle deliveries this year but expect Q3 production will be a little bit down because we’ve got summer shutdowns for a lot of factory upgrades.”
Question: “How has the order intake trended relatively to production levels during Q2? And how has it trended in the quarter-to-date period? Conceptually, how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand?”
Elon Musk “[…] Buying a new car is a big decision for vast majority of people. So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens. And then obviously, another challenge is the interest rate environment. As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car. So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car. And this is — at least up until recently, it was, I believe, the sharpest interest rate rise in history. So, we had to do something about that […]
Question: “With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts? And if so, when?”
Elon Musk: “Where’s that crystal ball, again? If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly.
Zachary Kirkhorn: “I fully agree with you. I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is are we generating enough money to continue to invest. And the portfolio of products and technologies that the technical teams are investing in right now, this is intense. It’s intense in terms of investment; it’s intense in terms of potential.”
Automotive
Tesla will continue to focus on volumes through lower prices and at the expense of margins.
“Second, we continue to work towards our goals of maximizing volumes on both, our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments. This requires a strong focus on per unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work in process inventory and customer AR, all of which progressed appropriately in Q2.
If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter. We recognized – we realized per unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs and logistics”
Zachary Kirkhorn, CFO said
Production and Deliveries
- Tesla’s crossover, the Model Y, became the best-selling vehicle worldwide in the first quarter of 2023.
- Tesla reported 466,140 total vehicle deliveries for the second quarter and said it had produced 479,700 electric vehicles. Deliveries are the closest approximation of sales that Tesla reports.
- Those deliveries were higher than Wall Street expected, and partly driven by incentives and discounts.
- Correspondingly, operating margins came in at 9.6%, the lowest for at least the last five quarters.
- Total gross margin came in at 18.2%, also a low for the same period.
- Last year on production capacity Tesla said in Shanghai allows Tesla to manufacture 750,000 Model 3 and Model Y electric cars annually, whereas its first factory in Fremont, California, can make 100,000 of its higher-priced Model S and X vehicles, and 550,000 of its Model 3 and Y vehicles. Factories in Austin, Texas and near Berlin, Germany, each have capacity to make 250,000 Model Y vehicles annually, the company says.
Cybertruck
- Cybertruck “factory tooling” is on track but the company is only producing “release candidate” builds so far.
- On the earnings call, Musk that the Cybertruck would include lots of “new technology,” with 10,000 “unique parts and processes.”
- He added “always difficult to predict the ramp initially,” Tesla will be making the Cybertruck, “in high volume next year, and we will be delivering the car this year.”
Prices
- Q223 automotive gross margin of 19.2% vs Q123 of 21.10% vs Q422 of 25.90%.
- Q223 group operating margins were 9.6% vs Q123 of 11% vs Q422 of 16%.
Tesla’s automotive gross margins and operating margins peaked in Q222 at 32.9% and 19.3% respectively. Since then, both have been steadily declining downward with price cuts.
In late 2022 Tesla cut prices on its cars around the world, triggering an instant decline in used Tesla prices in the U.S. as well but have sparked demand, however. Tesla had been hiking prices as suppliers raised theirs. Mr. Musk had reiterated that he hopes to reduce vehicle prices, which he said were at “embarrassing levels.”
Tesla faces a stronger challenge from established car companies like Hyundai, Ford Motor, General Motors and Volkswagen, which are selling more battery-powered vehicles and at lower prices than Tesla.
Although the price cuts helped to promote sales, they took a toll on Tesla’s profit margin. The gross profit margin on car sales slipped to 26 percent in the fourth quarter from 28 percent in the third quarter of 2022 and 31 percent in the fourth quarter of 2021.
Tesla Energy
Tesla Energy is the company’s energy division that sells backup batteries for residential, commercial and utility use, and installs solar rooftops. Stationary energy storage products include Powerwall and Megapacks.
Services and Other business
Charging Network
Tesla’s is making much money from its charging network. Tesla opened its charging network to other EVs. Electric vehicle charging companies that compete with Tesla in the US include ChargePoint, Electrify America, Volta, eVgo, Sema and others.
Tesla added roughly 250 fast-charging stations to its global network during the second quarter. The company has been planning to open that system in the U.S. to electric vehicles made by other manufacturers.
Tesla labelled the 2nd quarter of 2023 has been the quarter of Supercharging. A significant number
of companies, including Ford, GM, Mercedes, Nissan, Polestar, Rivian, Volvo and Electrify America, have announced adoption of NACS – a charging standard developed by Tesla over a decade ago – for their North American products. Further opening the Tesla charging network in 2024 will enable both faster market conversion from combustion vehicles to EVs as well as faster growth of our charging network through a larger addressable fleet
Solar and Powerwall Segment
Energy storage deployments increased by 222% YoY in Q2 to 3.7 GWh, another strong quarter due to the ongoing ramp of our first dedicated Megapack factory (Megafactory) in Lathrop, CA. The ramp of this 40 GWh Megafactory – the first of many – has been successful with still more room to reach full capacity. While energy storage deployment rate can be volatile due to project timing, production rate improved further sequentially in Q2.
Solar deployments remained roughly flat sequentially at 66 MW, declining YoY, predominantly due to a high interest rate environment that is causing postponement of solar purchasing industry-wide.
Analysts will be watching Solar guidance for their annual solar installations and expected bookings of home rooftop solar panels. Tesla does not disclose the breakdown between its solar and energy storage products, or its solar and energy products for homes and larger scale projects like its Megapack in Australia.
South Australia Powerwall
A ramp-up in Tesla Powerwalls and Megapacks is responsible for the new record. Tesla has ramped up Powerwall production. Megapacks contribute a lot more with fewer units since a single Megapack can deliver over 3 MWh of energy capacity.
Grid Batteries
Gigafactories are facilities that produce batteries for electric vehicles on a large scale. Tesla is currently involved in multiple projects that are pertinent to its growth in the coming years including Gigafactory Texas and Gigafactory Berlin, both of which are expected to start Model Y production soon. The company is also ramping its operations in China, where it recently launched the Model Y Standard Range from Gigafactory Shanghai.
Tesla was early in its plans to manufacture its own batteries, joining with Panasonic to build what it called a Gigafactory in Nevada back in 2015. “The Gigafactory will be the largest footprint building in the world when it is done,” CEO Elon Musk said on the company’s fourth-quarter 2015 earnings conference call.
Tesla Gigafactory Berlin
Inflation
Tesla management cited inflation pressures in its news release. Elon Musk “[…] Buying a new car is a big decision for vast majority of people. So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens. And then obviously, another challenge is the interest rate environment. As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car. So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car. And this is — at least up until recently, it was, I believe, the sharpest interest rate rise in history. So, we had to do something about that […]
Texas Relocation
Tesla has relocated its headquarters to Austin, Texas. The company said in its statement that construction of its new factory is progressing as planned and it’s preparing equipment and “fabricating our first pre-production vehicles”.
Tesla announced it would provide insurance to its customers in Texas. This service will monitor their driving in real time and lower their insurance premiums based on safe driving history.
Commodity Supply Contracts
Existing contracts we are aware of:
- Tesla signed a deal with U.S. based lithium miner Piedmont Lithium (PLL) to help secure Tesla’s supply of lithium.
- BHP Group ( BHP) disclosed an agreement with Tesla July 22, 2021, for nickel. “Demand for nickel in batteries is estimated to grow by over 500 per cent over the next decade, in large part to support the world’s rising demand for electric vehicles,” said BHP Chief Commercial Officer Vandita Pant in the company’s news release. “We are delighted to sign this agreement …and to collaborate with them on ways to make the battery supply chain more sustainable through our shared focus on technology and innovation.”
Autopilot Updates
Tesla does not make autonomous vehicles, or a driver assistance system that is safe to use without a driver behind the wheel, ready to steer and brake at all times. FSD Beta contains new software features that the company has not yet fully debugged. This driver assistance system is only available to customers who purchase or subscribe to Tesla’s premium driver assistance package, marketed as FSD, or Full Self-Driving capability.
With Google among other now in this space and Tesla’s past issues with the world’s first known fatality in an autonomous car in May 2017 when a Tesla Model S Autopilot software engaged. There have been a number of deaths since. Analysts will watch Musk on developments on this segment.
Dojo
Dojo is a supercomputer that Tesla is developing for AI machine learning and computer vision training purposes. Musk said Tesla will be spending more than $1 billion on Dojo over the next year.
Tesla collects video clips and data from its customers’ and company vehicles to improve existing software, and to develop new features that become part of its driver assistance systems. Dojo will be used to power TSLA’s full self-driving (FSD) technology and is viewed by Musk as the key to substantially increasing the value of current and future vehicles.
“You see a lot of AI companies doing you know LLMs and what not and I’m thinking, if they’re so great why can’t they make a self-driving car? Because it’s harder!”
Tesla said that last year approximately 400,000 customers in North America now have the ability to test out its experimental, “FSD Beta” driver assistance system. The company recognized deferred revenue of $324 million for the quarter related to FSD, it said in a shareholder presentation.
Regulatory Credits
Tesla generates sales by selling regulatory credits earned by producing electric vehicles. Each earnings report there is a debate about credit sales longevity and quality. Eventually it is expected other auto makers sell their own EVs, cutting off that source of revenue for Tesla.
New Plant and Production Updates
Tesla said that it had installed the capacity, across all of its factories to make 100,000 Model S and X vehicles annually, and 1.8 million Model Y and Model 3 vehicles.
Consider all the risks and misses with carmakers with the supply chain constraints from Covid and the chip shortage with Tesla production goals.
Bitcoin
There is the issue of Bitcoin (see cash raising above). Musk has said TSLA will hold off accepting bitcoin until it becomes less carbon heavy in mining it. The crypto market didn’t expect Tesla to sell out of its Bitcoin position, but they did. Musk continues to indicate his company will transact in the cryptocurrency when Bitcoin mining uses more sustainable power.
Chip Shortage
Tesla appears to be one step ahead compared to OEMs regarding chips, given that the EV producer designed its own chip to accommodate the needs of its autonomous software. However much of that advantage has been caught up by the supply crisis as TSLA CEO Elon Musk warned of continued challenges in securing microcontrollers and raw materials. The chip shortage is having a greater impact on Tesla’s energy business than its car business, the company has said.
We look back at the end of the year on Twitter and where we are now, recently Twitter hired a new CEO – we will see if that has Mr. Musk more Tesla friendly.
Shareholders asked a question about how Musk plans to safeguard Tesla’s brand and reputation from any backlash resulting from his political statements, and new job as the CEO of Twitter, the social media company he acquired in October 2022. Musk replied by promoting Twitter as a great way to connect with customers:
“I’ve got 127 million followers. And it continues to grow rapidly. That’s that suggests that I’m reasonably popular. I might not be popular with some people. But for the vast majority of people, like the follower count speaks for itself. [I have one of] the most interactive accounts, social media accounts, maybe in the world, certainly on Twitter, and that actually predated the acquisition. So Twitter is actually an incredibly powerful tool for driving demand for Tesla. And I really encourage companies out there of all kinds automotive or otherwise to make more use of Twitter and to to use their Twitter accounts in ways that are interesting and informative, entertaining, and it will help drive sales just as it has with Tesla.”
Partisan divide in Tesla emerging – Morning Consult
With manic crowd behavior it is never that simple. There are two ways of looking at this movement, many of these same people now in the Hate Elon camp were Tesla and the EV market’s biggest cultists and feel betrayed by Musk uncovering many attacks on those with middle to right viewpoints by the previous Twitter owners. Self-identifying Democrats in particular have turned against Tesla since Mr. Musk bought Twitter in late October, according to data from research firm Morning Consult.
On Nov. 7, for the first time since YouGov began tracking Tesla in 2016, more respondents in the U.S. reported a negative perception of Tesla than a positive view. The brand perception has eroded further since, according to YouGov data.
Morning Consult also found that more people hold a negative view of Tesla than at the start of the year. In surveys of about 200 people in the U.S. each day this month through Nov. 27, roughly 22% had a negative impression of the company, compared with 15% in January.
Morning Consult said 38% of those surveyed this month through Nov. 27 had a positive impression of Tesla, down from 43% in January.
- Tesla’s net favorability among self-described Democrats in the U.S. fell to an average of 10.4% through Nov. 27, down from an average of 24.8% in October.
- It rose to 26.5% from 20% among self-described Republicans during the same period.
- Via Morning Consult
“It seems like Tesla is on its way to becoming a partisan brand,” said Jordan Marlatt, tech analyst at Morning Consult.
About Tesla
Tesla, Inc. designs, develops, manufactures, sells and lease electric vehicles and energy generation and storage systems, and offer services related to its sustainable energy products. The Company’s segments include automotive, and energy generation and storage. The automotive segment includes the design, development, manufacturing, sales and leasing of electric vehicles as well as sales of automotive regulatory credits.
The energy generation and storage segment include the design, manufacture, installation, sales and leasing of solar energy systems and energy storage products, services related to its products, and sales of solar energy system incentives. Its automotive products include Model 3, Model Y, Model S and Model X. Model 3 is a four-door sedan. Model Y is a sport utility vehicle (SUV) built on the Model 3 platform. Model S is a four-door sedan. Model X is an SUV. Its energy storage products include Powerwall, Powerpack and Megapack
Source: Tesla
From The Pit
From The TradersCommunity Research Desk