ウィスパリング同時通訳研究会コミュのTesla Q1 Earnings Call 2022 (TSLA)

Martin Viecha: (00:00)
… 2022 Q1 webcast. My name is Martin Viecha, VP of Investor Relations. And I’m joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q1 results were announced at about 3:00 PM Central Time in the update that we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today’s call, please limit yourself to one question and one followup. Please use the raise hand button to join the question queue. Before we jump into Q&A, Zach will have some opening remarks. Zach.

Zach Kirkhorn: (00:50)
Yeah. Thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the company. Despite numerous supply interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to COVID, we’ve continued making progress and achieved our best ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin, and bottom line profitability. Gap automotive gross margin reached 32.9%. And for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials as we make progress delivering cars in our growing backlog. Note that for most vehicles, our delivery wait times are quite long. Thus cars delivered in Q1 generally carried pricing set in prior quarters, and at levels lower than cars being ordered today.(01:48)
Our per unit vehicle cost increased as well. Inflation, raw material prices, expedites and logistics costs continues to impact our cost structure. Factory shutdowns also occurred with little to no notice, hence we were unable to take action to plan those interruptions in a cost efficient manner. Additionally, we saw a slight mix shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of 288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without of which credit revenue would’ve declined compared to the same period last year. (02:24)
The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply. And new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. Op-Ex as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expense and other items. As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D, as Berlin started production in late March, and Austin in early April. (03:05)
These costs will be an automotive cogs going forward, given these factories are now producing customer sellable cars. Our free cash flows have remained quite strong, yet we’re impacted by working capital related to lower than planned production. Additionally we have reduced our debt excluding product financing to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we’ve lost about a month of build volume out of our factory in Shanghai due to COVID related shutdowns. Production is resuming at limited levels, and we’re working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2.
(03:43)
Second, as I’ve mentioned before, Austin and Berlin are just starting their ramps, and thus those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year, and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter.
Martin Viecha: (04:14) Thank you very much. And Elon has some opening remarks as well.

Elon Musk: (04:19)
Sure. Some of my remarks will be redundant with Zach’s, but it’s maybe worth repeating. Q1 was once again a record quarter on many levels by reaching the highest deliveries, profit and an operating margin of 19%. This was despite a lot of chip shortages, many logistics challenges, and an overall difficult quarter. So I’d really like to congratulate the Tesla team on achieving record profitability and output despite many, many difficult headwinds. And especially the Tesla China team and our Shanghai high factory. They really had significant challenges due to the COVID shutdowns. And nonetheless have been able to output a tremendous number of high quality vehicles. And we are already back up and running with the Shanghai factory. So as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus ’21. I think we actually have a reasonable shot at a 60% increase over last year. (05:43)
So let’s see. Obviously we … Yeah, production as people know with Giga Berlin and Giga Texas in the past few months. So we’ve two fantastic factories with great teams. And they are ramping rapidly. With new factories, the initial ramp always looks small, but it grows exponentially. But I have very high confidence in the teams in both factories. And we expect to ramp those initially slowly, but like I said, growing exponentially with them achieving high volume by the end of this year.(06:35)
So let’s see. We’re also working on a new vehicle that I alluded to at the Giga Texas opening, which is a dedicated robo-taxi that’s highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting. But it’s fundamentally optimized for … It’s trying to achieve the lowest fully considered cost per mile or cost per kilometer, accounting everything. And so it’s, I think going to be a very powerful product. Where we aspire to reach volume production of that in 2024. So I think that really will be a massive driver of Tesla’s growth. And we remain on track to reach volume production of the Cyber Truck next year. (07:48)
Let’s see. So basically, once again, I’d like to thank the Tesla employees for their hard work. But also I’d like to thank our suppliers who’ve really gone the extra mile. We have an amazing supplier group. And I say a heartfelt thanks to the suppliers that have really worked day and night to ensure that tales is able to keep the factories running. And we’re really at the early stage of our journey. We only crossed one million units in the past 12 months recently. And we aspire to head to 20 million units a year. So we’re basically 5% along the way towards our goal.
(08:45)
But we’re growing very rapidly year over year. And remain confident of exceeding 50% annual growth for the foreseeable future for basically several of the next years. I mean … So, yeah. And then there’s of course Optimus, which I was surprised that people did not realize the magnitude of the Optimus robot program. The importance of Optimus will become apparent in the coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business. Worth more than FSD. That’s my firm belief. And then of course, insurance is growing well. We expect to address the part shortages that limited our progress with batteries and solar. So we expect batteries and solar to also grow well this year. And basically the future is very exciting. I’ve never been more optimistic or excited about the Tesla’s future than I am right now. Thank you.

Martin Viecha: (10:20)
Thank you very much. Let’s go to first investor question. And the first investor question is, “Elon has historically provided FSD timelines with not optimal accuracy. We love Elon’s optimism for 2022 release, but is there any data tests I can share with investors to help them make their own conclusions on progress being made? Interventions per mile driven or any other data?”

Elon Musk: (10:43)
Sure. Well, with respect to full self-driving of any technology development I’ve ever been involved, I’ve never really seen more kind of false dawns, or where it seems like we’re going to break through but we don’t as I’ve seen in full self-driving. And ultimately what it comes down to is that to solve full self-driving, you actually have to solve real world artificial intelligence. Which nobody has solved. The whole road system is made for biological neural nets and eyes. And so actually, when you think about it, in order to solve full self-driving, we have to solve neural nets and cameras to a degree of a capability that is on par with, and will really exceeds humans. (11:41)
And I think we will achieve that this year. The best way to reach your own assessment is to join the Tesla full self-driving beta program. Where we have over a 100,000 people right now enrolled in that program. And we expect to broaden that significantly this year. So that’s my recommendation is join the full self-driving beta program, and experience it for yourself. And take note of the rate of improvement with every release. And we put out a new release roughly every two weeks. And you’ll see a little bit of two steps forward, one step back. But overall, the rate of improvement is incredibly quick. So that’s my recommendation for reaching your own assessment is, literally try it.

Martin Viecha: (12:40)
Thank you. The second question is, “How much of an impact will the production shutdown in Shanghai have in Q2? What is the timeline for localizing the Model 3 in Europe, or will never … Or will different models be prioritized in Berlin?”

Elon Musk: (12:57)
Well, we did lose a lot of important days of production. And there are sort of upstream supplier challenges where a lot of suppliers also lost many days of production. But Tesla Shanghai, Giga Shanghai, is coming back with a vengeance. So I think notwithstanding, with new issues that arise, I think we will see a record output per week from Giga Shanghai this quarter, albeit we are missing a couple weeks. So that means that most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower. But it’s also possible we may pull a rabbit out of the hat and be slightly higher. But it’s [inaudible 00:13:52] roughly on par. But then Q3 and Q4 will be substantially higher. So it seems likely that we’ll be able to produce over one and a half million cars this year. That’s my best guess.(14:15)
And then Model 3, it’s important for new factories to be focused, and have the least amount of complexity and variation. Which is why Giga Berlin and Giga Texas are focused on the Model Y. From the point in which you have a factory complete and you’re making a small number of units to the point where it’s producing high quality vehicles in volume is sort of nine to 12 months from start of production. So now hopefully we’re getting better at that ramp. So maybe it’s a little less. But to get to sort of the 5,000 a week level has typically taken us around 12 months from start of production. Yeah.

Martin Viecha: (15:24)
Thank you. The next question is, “How much raw material exposure do you have measured roughly in percentage of cost of goods sold for example in a given quarter, versus one to two years out, both direct and indirect? Separately, how do you think about price increases versus prioritizing higher mixed vehicles going forward?”

Elon Musk: (15:44)
Actually on the price increase front, I should mention that it may seem like maybe we’re being unreasonable about increasing the prices of our vehicles, given that we had record profitability this quarter. But the wait list for our vehicles is quite long. And some of the vehicles that people will order, the wait list extends into next year. So our prices of vehicles ordered now are really anticipating a supplier and logistics cost growth that we’re aware of and believe will happen over the next six to 12 months. So that’s why we have the price increases today, because a car order today will arrive in some cases a year from now. So we have a very long wait list. And we’re obviously not demand limited. We are production limited by … Very much production limited
Martin Viecha: (16:49) Raw material exposure?

Zach Kirkhorn: (16:52)
Yeah. Just to add to what Elon is saying. There’s different ways to calculate raw material exposure. I think a simple way, we estimate more around 10 to 15% of our cost structure exposed to raw materials. And just to clarify a couple of things on that. So we’ve been experiencing increases in costs in general, but also raw materials for a number of quarters now. That pace picked up in Q1, so last quarter. And what we’re seeing for Q2 is slightly higher than that as well. And as indices move, it doesn’t impact us immediately or directly. In some cases we have contracts with suppliers. But then as those contracts expire, we have to renegotiate them so that there can be a lag. (17:44)
In some cases, our contracts do directly reflect movement in commodity prices, raw material prices. But the timing in which that Tesla pays for that has a lag associated with it as well, based on the contract. And so to Elon’s point what we’re trying to do here, because it’s quite an unprecedented situation of raw material movement, and all of these various lags and uncertainty around renegotiating contracts is, we’re trying to anticipate where things will go. And make sure the pricing that we have put in place at the time that those raw material cost increases hit us, that they align. And that the company can remain financially healthy in various scenarios as we look out over the next four quarters.