Tesla Revenues Miss, Margins Decline on Strong US Dollar on Production and Delivery Bottlenecks

Tesla reported Q3 earnings after the market close Wednesday of $1.05 earnings per share beating the consensus of $0.99. Revenue rose to $21.5 billion but missed analysts’ projections of $21.96 billion. $TSLA cited the higher US dollar and higher costs related to a slower-than-expected ramp up in output at the new factories in Austin and Berlin. Additionally, there was difficulties shipping vehicles. Tesla expects to begin delivering the new Semi Truck in December. Tesla shares fell after hours to $214.83 −$7.21 or 3.25% after the results were announced.

Tesla expects to begin delivering the new Semi Truck in December.

The report follows on from last quarter the company posted its first sequential decline in quarterly profit in more than a year impacted by an extended shutdown at its Shanghai assembly plant.

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

$1.05 Beat $0.99 EPS Forecast AND $21.45 billion Beat $21.96 Billion Forecast in Revenue

Tesla Q3 2022 Earnings

Q3 2022 earnings released after close 4:00 p.m.; conference call to follow at 5.30 p.m.

Highlights

  • Tesla’s Q3 net income (GAAP) $3.33 billion, during the same period last year, Tesla reported $1.62 billion in profits.
  • Earnings: $1.05 vs 99 cents per share (adjusted) expected, per Refinitiv.
  • Revenue: $21.45 billion vs $21.96 billion expected, per Refinitiv.
  • Tesla’s automotive gross margin narrowed to 27.9% (Est 28.4%).
  • Automotive revenue $18.69 billion, an increase of 55% from a year ago.
  • Cost of revenue for Tesla’s core automotive business rose to $13.48 billion up from $10.52 billion during the second quarter, in line with the increase in automotive sales.
  • Tesla’s automotive regulatory credits made up 1.5% of automotive revenues at $286 million for the quarter. These were the lowest in a year. Tesla said it expects this revenue to shrink over time as competitors launch more EVs to comply with emissions regulations and meet growing demand.
  • Tesla’s energy unit revenue $1.12 billion in revenue for the quarter.
  • Energy storage deployment was at a record high of 2.1 GWh last quarter.
  • Tesla’s solar power deployment in Q3 with 94 MW, up 13% year-over-year.
  • Operating free cash flow of $3.3 billion and increased its cash balance to a record $21 billion.
  • Expects to begin delivering the new Semi Truck in December.

“While availability of components posed less of an issue in the quarter, vehicle transportation capacity during peak delivery periods became increasingly challenging,” Tesla said.

Production

  • In April, CEO Elon Musk said Tesla would produce more than 1.5 million vehicles this year. The company has made 929,910 through the first three quarters.
  • To meet the goal must produce over 570,000.
  • Tesla produced 305,840 vehicles in the final three months of 2021.

Market Reaction

Tesla shares fell after hours to $214.83 −$7.21 or 3.25% after the results were announced. TSLA stock have declined -66.56 or -23.06% in the past year hit by the triumvirate of Elon Musk’s $44 billion bid to buy Twitter, a slowing economy, higher inflation and soaring interest rates.

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.

Energy storage deployment was at a record high of 2.1 GWh last quarter. A ramp-up in Tesla Powerwalls and Megapacks is responsible for the new record. Tesla has ramped up Powerwall production to 6,500 units per week. That’s 87 MWh per week. Megapacks contribute a lot more with fewer units since a single Megapack can deliver over 3 MWh of energy capacity.

Energy storage deployments increased by 62% YoY in Q3 to 2.1 GWh, by far the highest level we have ever achieved. This level of growth was accomplished despite semiconductor challenges continuing to have a greater impact on our Energy business than out Automotive business. Demand for our storage products remains in excess of our ability to supply. We are in the process of ramping production at our dedicated 40 GWh Megapack factory in Lathrop, California to address the growing demand.

Tesla shareholders’ letter

Tesla’s solar power deployment in Q3 with 94 MW. It’s up 13% year-over-year. However solar deployment was down from the previous quarter, which Tesla blamed on commercial solar deployment.

Inflation

Tesla management cited inflation pressures in its news release. Mr. Musk has said he expects inflation to decline toward the end of this year, citing commodity prices that are trending lower. However, he cautioned that “economic prognostication is fraught with error.”

Guidance

Tesla reiterated previous guidance in its shareholder deck on Wednesday, saying: “Over a multi-year horizon, we expect to achieve 50% annual growth in vehicle deliveries.”

The company reiterated that deliveries of its Semi electric heavy-duty truck will begin in December. The product was first announced in Dec. 2017. It offered no firm timeline for the start of production of its Cybertruck pickup, saying only that it would be produced in Texas after the ramp-up of Model Y production there.

Deliveries

  • Tesla previously reported that its deliveries for the quarter ending September 30 reached 343,000 and vehicle production reached 365,000.
  • TSLA had over 20,000 vehicles in transit at the end of the quarter which negatively affected profits.
  • Deliveries are the closest approximation of sales reported by Tesla.

Prices

Tesla has been hiking prices as suppliers request raise theirs. U.S. customers who ordered the long-range version of Tesla’s Model Y compact sport-utility vehicle in late June could expect to pay around $68,000, or some $14,000 more than they would have if they ordered the model a year earlier, according to Bernstein Research.

Mr. Musk reiterated that he hopes to reduce vehicle prices, which he said were at “embarrassing levels.”

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.


What to look for in Tesla Earnings

  1. Earnings
  2. Grid Batteries
  3. Commodity Supply Chain Contracts
  4. Raising Cash
  5. Autopilot Updates
  6. Regulatory Credits
  7. Solar and Powerwall
  8. New plant and production update
  9. Bitcoin
  10. Charging Network
  11. Global Chip Shortage
  12. Twitter and Mr Musk

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

Tesla Gigafactory Berlin

Commodity Supply Contracts

  • 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.”

Raising Cash & Bitcoin

One thing Tesla does better than most is burn through cash to try to deliver on increasingly aggressive goals. To that end Tesla sold $936 million worth of bitcoin in the second quarter to maximize its cash position as it dealt with the closure of its Shanghai factory due to local Covid-19 lockdowns, Mr. Musk said. The company has unloaded around 75% of its $1.5 billion initial position in the cryptocurrency, leaving it with around $218 million worth of digital assets as of the end of June.

“We were concerned about overall liquidity of the company given shutdowns in China,” Mr. Musk said, adding that Tesla is open to increasing its bitcoin holdings in the future.

Mr. Musk has been a vocal commentator on digital currencies. Tesla briefly accepted bitcoin as payment for its vehicles but suspended that policy in May 2021, citing concerns about the use of fossil fuels to mine bitcoin. Mr. Musk said at the time that Tesla wouldn’t sell any bitcoin. This statement has been attacked in the afterhours of news of the sale.

Autopilot Updates

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.

Tesla is moving ahead with the rollout of Full Self-Driving subscriptions and levels would likely be discussed in earnings calls. Expect questions about advances in Tesla’s driver-assistance functions and its driver-assistance software as a subscription.

Regulatory Credits

Tesla generates sales by selling regulatory credits earned by producing electric vehicles. The company generated $518 million in first-quarter credit sales, which helped Tesla beat earnings estimates. 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.

Solar and Powerwall Segment

Tesla’s Solar Roof and Powerwall products are likely to have aided growth for solar and energy storage deployments in the second quarter. Analysts will be watching Solar guidance for their annual solar installations and expected bookings of home rooftop solar panels. 

Tesla CEO Elon Musk revealed that demand for the company’s Powerwall is as high as 80,000 units but that Tesla will not be able to produce even half of that this quarter. Musk said Tesla will only be able to make 30,000 to 35,000 of its home batteries in a best-case scenario for the period ending in September 2021, blaming the expected shortfall on chip shortages.

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.

Tesla Powerwall South Australia

South Australia Powerwall

New Plant and Production Updates

The big questions include Tesla’s new Germany plant and Austin, Texas facility pace delivering cars. The Austin plant will build Tesla’s Cybertruck. Despite seasonality, unstable supply chain, and the company’s transition to the new Model S and Model X, Tesla recorded its highest ever vehicle production and deliveries last quarter.

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.

Charging Network

Tesla’s is set to make much money from its charging network. Elon Musk tweeted last quarter Tesla would open its charging network to other EVs down the road, he wrote: “We’re making our Supercharger network open to other EVs later this year.” 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 Storage

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 said.

Twitter

Mr. Musk is embroiled in a legal battle over his $44 billion deal to acquire Twitter Inc., said he plans to continue working at Tesla for as long as he can. A Delaware judge on Tuesday agreed to Twitter’s request to fast-track a lawsuit seeking to compel Mr. Musk to consummate his purchase of the social-media company.

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