Tesla, Inc. (TSLA) Q2 2023 Earnings Call July 19, 2023

Here is a summary of the opening remarks by Elon Musk (CEO) and Zachary Kirkhorn (CFO):

• Tesla reported record vehicle production, deliveries, and revenue of about $25 billion in a single quarter.

• Model Y became the bestselling vehicle globally in Q1, surpassing other popular models.

• Despite macroeconomic uncertainty and high interest rates, an operating margin of about 10% was achieved.

• A target of 1.8 million vehicle deliveries for the year is maintained, although Q3 production might decrease due to summer factory shutdowns for upgrades.

• The company believes that autonomy will significantly boost sales volumes in the long-term, with potential infinite demand for their future robotaxi products.

• The process of manufacturing the robotaxi is touted as revolutionary, promising the highest units per hour of any vehicle production ever.

• The company is leveraging millions of vehicles' worth of data to train their neural net for autonomy.
  The more data they have, the better the results.

• Tesla has more vehicles on the road collecting data than all other companies combined, making them a frontrunner in AI and neural net training.

• The company's Dojo training computer is designed to reduce the cost of neural net training, with a plan to reach an in-house neural net training capability of 100 exaflops by the end of next year.

• Tesla's FSD (Full Self Driving) technology has already accumulated over 300 million miles of driven data, a number which is expected to soon reach into the billions.

• Cybertruck production is underway, with release candidates being built on the final production line in Austin.

• The Global Supercharging network now stands at over 50,000 connectors and over 5,000 locations.

• Several OEMs, including Ford, GM, and Mercedes, have signed up to use Tesla's open source charging standard.

• Tesla is open to licensing their full self-driving software and hardware to other car companies and is in early discussions with major OEMs about using Tesla FSD.

• The new lithium refinery and cathode facility are progressing well.

• Tesla's financial approach includes heavy investment in core technologies for long-term value, as well as increasing spending on AI technologies and new products.

• Gross margin for the automotive business remained healthy despite a modest reduction, and per unit cost improvements were realized in nearly every category.

And some highlights from the Q&A session:

• Texas cell production saw an 80% increase in Q2 over Q1, with over 10 million production cells produced.

• Through yield focus, scrap was reduced by 40% quarter-over-quarter, resulting in a 25% reduction in cell cost of goods sold (COGS).

• The Cybertruck hasa 10% higher energy density than current production due to process and mechanical design optimization.
  Integration of silicon or in-house cathode production will provide further improvements.

• Battery Day focus on Tesla-engineered 4680 production system and improvements on equipment, factory density, capital cost, and utility cost reduction is being realized in Texas scale up.

• Global demand for Megapack continues to be strong, with Lathrop successfully ramping up to meet 2023 contracted projects.

• Second final assembly line at Lathrop is progressing, aiming to double capacity before the full factory ramp in 2024.

• Several large projects under construction or near completion, including KES project in Hawaii, Riverina project in Australia, several in California, and one at Gigafactory, Texas.

• Growth of Autobidder contracts in wholesale markets (Australia, Texas, UK, California) with 6 gigawatt hours under Tesla’s dispatch next year.

• Powerwalls recently surpassed 0.5 million installations, launched Charge on Solar, and started paying customers in Texas for participating in the virtual power plant to provide grid support to ERCOT.

• Tesla electric enrollment expanding to new Model 3 owners in Texas, to be followed by all Texas vehicle customers throughout the quarter.

• Regulatory challenges limit the offering of Tesla electric and BPP capabilities to customers on a jurisdiction-by-jurisdiction basis.

• In markets where Powerwall can provide full stack of energy services, such as in Australia, the value of ownership can be more than doubled.

• Expected IRA manufacturing incentives in the range of $150 million to $250 million per quarter; Q2 remained within this boundary.

• Commodity side shows improvements, especially in lithium, aluminium, and steel contributing to COGS reduction.

• Austin and Berlin production costs reducing, but still slightly above Model Y production costs elsewhere.

• Announcement of allowing FSD transfer for Q3, termed as a "onetime amnesty".

• Replacement of parts made easier and faster due to design specific parts in collaboration with the collision repair team, reducing repair costs.

• Challenges in sourcing actuators for humanoid robot, leading to production of in-house actuators.

• Price adjustments made to combat the effect of rising interest rates on the cost of cars.

• Projected expenditure of over $1 billion in the next year on Dojo, required to process the massive amount of video data for autonomous vehicle training.

• Custom silicon chips in Dojo optimized for video training.

• The goal for FSD to be 10 to 100 times better than humans by the end of the year, with the potential to reduce automobile fatalities and injuries significantly.

• Finally, Elon couldn’t convince the world’s best AI engineers and scientists to join Tesla as they wanted to be part of a startup - so xAI was formed to focus on AGI

Anne Chapman

Dynamic Trader Twitter
Dynamic Trader LinkedIn

Let's go trade!