Minutes of Tesla's first-quarter earnings call

summary:

Production and sales

Sales: The sales target for 2022 is 1.5 million units, an increase of 50%-60% for the whole year. 21 reached 1 million deliveries

Shanghai plant: production has begun to resume, Q2 production is slightly lower than Q1 or flat, Q3, Q4 is expected to start significantly

Berlin plant: Production starts at the end of March. Austin: Production started in early April, and it takes 9-12 months for capacity ramp-up

Profitability

Price: At present, the price of the car has been considered to transmit the price increase of raw materials in the next 6-12 months

Profit: Q1 Gross margin 32%, net profit margin on sales 19%

Q1 The reasons for the increase in gross profit margin are: 1) the proportion of low cost shipments in the Shanghai factory; 2) the increase in the application and production scale of the 4680 battery; 3) the increase in price transmission of raw material prices; 4) the improvement in manufacturing efficiency of the Fremont plant

Financial situation: strong free cash flow and reduced liabilities

Raw materials: 1) risk exposure of 10-15%, the company has some long-term cooperation, raw material price increase impact is small. 2) Supply: Mining and refining lithium seems to be a limiting factor, and the sustainable development of raw materials is being studied, while battery recycling is being carried out. 3) It is hoped that raw materials such as lithium and nickel will accelerate the development and expansion of production

battery

4680 application node: The Berlin plant may switch to 4680 at the end of 2022, and mass production will begin in Q3 and Q4; the structure of the new 4680 pack will be comparable to the performance of the existing structure in the second half of the year, and the performance of the new structure will exceed the existing optimal solution next year. The company considers the 4680 new material system in the future

4680 Cost Advantage: Capex investment is significantly reduced

Charging network: Plans to offer third-party charging services in Europe and North America

Battery recycling: Currently 50 tons /week, it will be increased to 150 tons /week

Battery Inventory: Considerable battery inventory to meet production targets for 2022

New models

Cybertruck: 20-30% fewer parts than conventional pickups, mass production in 2023

Robotaxi: Targets the lowest cost per mile in history, mass production by 2024

FSD Fully Autonomous Driving: The target is to be reached by 2022, with more than 100,000 people participating in Tesla's fully autonomous driving beta program

Optimus Robot: Expect to outpace the automotive business in the long term

800V platform: Depending on the model, the cost of the bicycle can be reduced by $100, and large-scale mass production is required to recover the investment cost of the switching voltage platform

Energy storage: Shortages of parts and chips are being addressed and are expected to maintain growth this year

Insurance business: 1) currently the second largest insurance service provider in Texas, the end of this year may become the first at the beginning of next quarter; 2) at the beginning of this week in the VA, CO, OR three states to open services, the model is different, is the underwriter, does not bear the risk; 3) by the end of 2022 to cover 80% of the US market, consider entering the foreign market later. 4) Real-time feedback loop of driving habits: Making car owners safer to drive will affect insurance rates. For customers who have experienced the product, we have extremely high retention rates. Feedback loops are instantaneous, improving products, reducing costs, end-to-end feedback, and a better customer experience.

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ZAK: The first quarter was very successful, even though the Shanghai factory was shut down due to the pandemic, we still achieved the best profitability and deliveries in history, with a gross margin of 32%, a gross margin of more than 30% for the first time excluding points revenue, a price increase contributed to revenue growth, our cycling costs also increased due to inflation and labor costs, and we had $288 million in credit revenue. We achieved a net profit margin of more than 19% on sales, with production starting at the end of March at the Berlin plant and production in Austin at the beginning of April, and the commissioning costs of the plant will be included in the cost of future vehicles. Our free cash flow is very strong and we have reduced our liabilities. Looking ahead to Q2, our factory in Shanghai lost about a month of production due to the impact of the shutdown, and we will resume full production as quickly as possible, and second, the efficiency in Austin and Berlin will start at Q2. We believe further growth in the second half of the year, with a full-year growth rate of 50% achievable.

ELON: In the first quarter, we reached a 19% net profit margin on sales and the highest delivery margin under various difficulties, especially Tesla's Shanghai factory in China, they had a big challenge under the shutdown, the Shanghai factory has begun to resume production, like Zak said, we have to have 50% sales growth in 2022, and I think 60% growth is feasible. In Berlin, this great plant has been growing exponentially over the past three months, and I'm confident that our team will continue to deliver high volumes. We're getting into optimizing RobotTaxi, and there are a lot of bright spots that are exciting, we're trying to reach the lowest cost of miles, which is going to be a very competitive product, and we expect to achieve mass production in 2024 and become Tesla's future growth engine. We're working hard so that Cyberruck will come into production next year. I want to thank our suppliers for helping Tesla keep the factory running. We have reached 1 million deliveries in the last 12 months, our big goal is 20 million vehicles, we have completed 5%, we will start quickly, and we are very confident about the growth rate in the foreseeable next few years. The Optimus Robot project will be very important in the coming years, people need to understand that Optimus Robot will eventually be worth more than the car production business at Tesla, and our car insurance program, we want to solve the shortage of parts that limit our progress in batteries and solar energy, so batteries and solar energy are expected to grow this year as well.

Q&A

Q: Is there any data on FSD fully autonomous driving available to investors?

A: We're going to solve real-world AI problems, fundamentally, neurons and cameras, and I think we're going to do that this year. We now have more than 100,000 people participating in Tesla's full autopilot beta program, and joining our team will be the fastest to understand the progress of our FSD.

Q: How much will the production of shanghai Q2 be affected? What is the timeline for localized Model 3 production in Europe?

A: It's true that a lot of important production days have been lost, and there are some challenges with shortages of large suppliers. I think the Shanghai factory will continue to climb in the next few weeks this quarter, and in general, I think Q2 Shanghai will be similar to Q1 production, maybe slightly lower, but Q3Q4 will grow significantly. My best guess this year is that we can produce 1.5 million cars. Berlin and Austin are currently focused on ModelY, and I think it will take 9-12 months for the ramp-up of capacity.

Q: Raw material exposure as a percentage of cost of sales? How do you see price increases?

A: The reason for the price increase is that we have a long delivery cycle, and some models even need to wait until next year, so our pricing now is already anticipating the increase in logistics and production costs in the next 6-12 months. There are different ways to calculate the risk exposure of raw materials, I think 10-15% of our cost structure is from raw materials, we have experienced an increase in fees and raw materials, there are some increases in the second quarter, but this will not directly affect us, we have some agreements with suppliers, and the contract will be affected when the contract expires and renegotiated, so there is a time difference, and I think our pricing will already be able to play a conductive role when the price of raw materials affects us. We are taking a closer look at all the raw materials, including nickel and iron phosphate, and trying to figure out how to accelerate the total amount of raw materials needed to achieve the world's transition to sustainable development.

Q: Why does the Tesla Dealer Act have to be done state by state?

A: We would love to have legislation at the federal level, but we don't see congressional will to overturn state-level legislation, so we can only do it state by state.

Q: What do you think of the 800V platform?

A: The 800V platform should be analyzed on a case-by-case basis, with advantages and disadvantages, and is not applicable to some small models. The cost of a bicycle can be reduced by about $100, but it requires a large number of cars to be produced

Q: How does the car with the 4680 battery perform? For example, unit power consumption and battery life?

A: We are making steady progress. Our primary goal is to start the volume, after which we will consider the adoption of new material technologies in the future, the structural combination of 4680 will compete with the best alternatives later this year, and we believe that next year the performance will exceed the best alternatives. Our facilities at Capex save a lot of capital expenditure and labor costs.

Q: How does Tesla plan to guarantee an extreme supply of raw materials?

A: We need to analyze how many tons of nickel and cobalt, negative electrode, electrolyte, and then pack these together, I think now the discovery and development of lithium ore is the most important factor. We'll focus on how much raw material we need to make the world's energy sustainable, but we don't have time to do that right now. The extraction and refining of lithium seems to be a limiting factor, and the sustainable development of all raw materials is being studied. We're also recycling, we're now recycling 50 tons of batteries a week, and we're going to expand to 150 tons a week in the future, and all of that recycled material goes straight back into our spending supply chain. We put aluminum, scrap from casting machines and gates back into the furnace, and we're recycling car wheels for use in our aluminum bodies.

Q: How long is it expected for Berlin and Austin to scale up to Shanghai?

A: It should be quick because we've done a lot of work to simplify production. We've also reduced the number of robots by about 30 percent because of their structural and foundry nature, and the size of the body shop has been reduced by more than 60 percent relative to the standard way of manufacturing steam.

Q: Can you explain more about robotaxi, is this something that people can have in the future or tesla-owned?

A: We will provide more information in the future, and we aim to put it into production by 2024.

Q: What is the current situation of 4680?

A: Berlin is now using 2170, this year may be transferred to 4680, may start mass production in Q3, Q4. The 4680 is not a risk to our production of 1.5 million vehicles, but the delivery of the 4680 next year may be a challenge. With the shutdown in China and the semiconductor bottlenecks we encountered in the fourth and quarters, we currently have a sizable battery inventory, with excess batteries to support our 2022 production target.

Q: What are the factors of Q1 cost optimization?

A: The cost of cars produced in Shanghai is lower, and the comprehensive cost of our Q2 may be affected. The team in Shanghai is now very dynamic because of uncontrollable factors. At the same time, the manufacturing efficiency of the Fremont plant has increased.

Q: What was the original goal of Model3? The price is now much higher. What do you think of the problem of large-scale penetration of EVs?

A: Inflation is the highest in four or five decades and looks set to continue this year. We're seeing 20-30% of part prices grow, and we're under a lot of pressure, which is why we're raising prices. I think Robotaxi and FSD will provide us with cost competitiveness on an ongoing basis.

Q: It sounds like you have a lot of information about Tesla's supply chain, but will there be a bottleneck in the EV industry in general?

A: Of course, we have a lot of long-term associations, but the whole world, energy switching to sustainable needs a lot of new GWh every year, what we see now is a shortage of lithium, need a lot of equipment to discover and develop lithium, so I think we need the help of the industry. The gross margin of the lithium industry is now as high as the gross margin of software.

Q: I'm surprised to see that you've saved a lot of money, are you suggesting that even if our cost reduction is not enough to hedge against inflation, will we still raise prices?

A: If we cut the cost by a larger margin, we will consider the price reduction. Without the massive supply of new lithium and other raw materials, prices could reach new highs. We will price accordingly. Pricing now is already in response to possible raw material conduction over the next 6-12 months.

Q: I want to ask about free cash flow, you may have five or six hundred billion in cash in the next ten years, what are you going to do?

A: If inflation continues to be crazy, maybe the next five or six hundred billion is about the same as the current two hundred billion, and we will see what can be bought in ten years, five hundred billion, it may be a lot less, which does not seem to be a lot of money. We're going to take it step by step, and we have investments happening right now, like the start-ups at the Austin and Berlin factories, and the robotaxi and optimist robot.

Q: First of all, I would like to ask Cyberruck, how many parts does he need compared to a regular pickup truck? Will there be a production expansion at the Nevada plant?

A: Our design and structure are much simpler than traditional pickups, and I think if we don't consider the battery cell, we have 20%-30% less parts. We will consider expanding production in Nevada, but most of the volume will still be in Austin

Q: In addition to Shanghai, will China's covid policy affect factories in other regions?

A: Yes, some parts purchased in China are applicable to the world, and that will affect production elsewhere. Our suppliers are trying to solve it, and the impact will not be great.

Q: Obviously you've been very profitable over the last few quarters, and one factor is that Tesla is paying you less for Musk, are you and the board talking about a new contract?

A: No

Q: The problem of raw materials, how quickly can new nickel capacity be expanded, and how fast can it be transferred to LFP?

A: Last quarter we had half of our products LFP, which shows that we can react quickly to raw material issues. Cathode flexibility is our goal, and we can change the positive chemistry. We want to lock in the capacity of the mine, as well as production on a large scale. Some resources are just stones taken from the ground, and refining is the more interesting one. Lithium industry is a 1-2 year expansion cycle, this year and next year the industry will have a lot of new projects out.

Q: What is the progress of the charging network?

A: We plan to offer third-party charging services, not just in Europe, where the initial pilot is located, but also in North America where we are working on solutions.