2021 was a breakthrough year for Tesla. The market viability and profitability of electric vehicles should no longer be doubted. According to the latest data, Tesla deliveries increased by 87% in 2021, and Tesla achieved the highest quarterly operating margin among all mass production OEMs, which has shown that electric vehicles have more market prospects than fuel vehicles.
In addition, Tesla generated a net profit of $5.5 billion in GAAP and $5 billion in free cash flow in 2021 — excluding $6.5 billion spent on new plant construction and other capital expenditures.
After the great success in 2021, Tesla will focus on the future. Tesla plans to increase capacity as quickly as possible, not only from new factories like Austin and Berlin, but also from existing factories like Fremont and Shanghai. Tesla believes that the market competitiveness of electric vehicles will be determined by its overall supply chain and production ramping ability.
Fully autonomous driving capability (FSD) remains one of Tesla's key areas. Over time, software revenue will contribute to overall profitability to a greater extent. What's more, fully autonomous driving capabilities are an important part of improving car safety, and through the increase in Tesla vehicle usage, it will further accelerate the world's transition to sustainable energy.
In the fourth quarter, Tesla continued to face challenges from global supply chains, logistics and transportation, labor and other manufacturing aspects, which limited the full production operation of Tesla's factories.
At the end of 2021, the Texas Gigafactory began production of the Model Y. After the Model Y, made at the Austin facility, completed the full certification process, Tesla plans to begin delivering to customers.
The Fremont plant will produce record production in 2021. Tesla believes that annual production is expected to exceed 600,000 units. Tesla's goal is to maximize the capacity of the Fremont plant while expanding the new plant.
In 2021, the production of the Model 3 and Model Y in the Shanghai Gigafactory continued to climb. Local production is essential to reduce the cost of bicycles and improve the stability of global supply chains. The Shanghai Gigafactory remains Tesla's main export center.
The Berlin Gigafactory has started testing of equipment in the vehicle production process at the end of 2021. After obtaining manufacturing permits from local authorities, Tesla will begin delivering German-made vehicles in Europe. The first cars will use 2170 batteries.
In terms of autonomous driving assistance & fully autonomous driving capability (FSD), Tesla's team continued to update and iterate on the beta version of the full autonomous driving capability (FSD), releasing a total of seven updates. Tesla successfully increased the number of U.S. software test vehicles from a few thousand in the third quarter to nearly 60,000 now. Model 3 and Model Y, which use a purely visual auto-assisted driving program, received the highest safety rating in the Institute for Highway Safety Insurance (IIHS) crash test and received a single score of "Excellent" for collision avoidance.
In terms of vehicle software, in the fourth quarter, Tesla released a new user interface with a customized application launcher, simplified control menus, and support for night mode. It also includes real-time image of the car's blind spots when the car's turn signal is lit, editable navigation passpoints, and a range of new gaming, entertainment, and audio features. Early in the quarter, Tesla also developed real-time images of the car's cameras when Sentinel mode was activated in the app.
In terms of batteries, powertrains and manufacturing, manufacturing is Tesla's core competitiveness. Due to battery cost considerations, electric vehicles used to be considered to have poor overall profitability. Tesla believes that cost issues can be further addressed by manufacturing innovative, well-planned products and factories. In the third quarter of 2021 (the most recently widely reported quarter), Tesla surpassed all mass-produced automakers, generating the highest operating margins. In the third and fourth quarters of 2021, the cost of cycling has fallen to around $36,000. Currently including large castings, structural battery packs, 4680 batteries and many more projects, it will help Tesla continue to reduce product costs.
In addition, Tesla plans to increase production capacity as soon as possible. Vehicle delivery is expected to grow at an average annual rate of 50% in the coming years. The specific growth rate mainly depends on Tesla's equipment capacity, operational efficiency, and the capacity and stability of the supply chain. With supply chains becoming a major limiting factory, Tesla's factories have been running below capacity for several consecutive quarters, and this is likely to continue in 2022.
The ramp-up pace of production at the Austin and Berlin plants will be affected by the successful introduction of many new products and manufacturing technologies in new locations, ongoing supply chain challenges, and local licensing. Tesla has also made progress on industrial production of Cyberteruck, which currently plans to start production at its Austin plant after the Model Y model.