Tesla phone call will be recorded: "There is no opponent for autopiloting with a telescope, and the second Tesla may be in China"

Here is $Tesla. US fourth quarter earnings call content, financial report interpretation details please click "Tesla story reshaping, the time to test faith has come!" 》

1. Quarterly report core data vs quick overview of market expectations

1. Revenue: Quarterly revenue of $24.32 billion, YoY+37.2%, below market expectations (-4.5% miss).

2. Gross margin: Quarterly gross margin of 23.8%, YoY-3.6pct, lower than market expectations (-1.2pct beat).

3. Production and delivery:

(1) 4Q22 total production of 439,701 units, YoY+44%; 405,278 units delivered, YoY+31%.

- Model S/X produced 20,613 units and delivered 17,147 units.

- Model 3/Y produced 419,088 units and delivered 388,131 units.

(2) Production in 2022 1,369,611 units, YoY+47%; Deliveries 1,313,851 units, YoY+40%.

- Model S/X produced 71,177 units and delivered 66,705 units.

- Model 3/Y produced 1,298,434 units and delivered 1,247,146 units.

4.23 year guidance: Bike price 47,000, car sales 1.8 million.

Second, the performance meeting points

1) As of January 23, orders on hand are about 2 times the current capacity.

2) Different models may receive different amounts of IRA tax credits, and these tax credit policies are still changing, with points revenue of about $1.5-250 million per quarter this year, growing quarter by quarter as sales grow.

3) The insurance business has annual revenue of about $300 million, growing about 20% per quarter, faster than car deliveries, and about 17% of car owners adopt Tesla insurance.

4) Continue to maintain the Cybertruck production target in mid-2023, but the production capacity will be low at the beginning, and it will need to experience capacity climbing and mass production in 24 years.

5) The current annual production capacity is 2 million units, and the sales target is 1.8 million to 2 million units in 23 years.

3.1. Management Statement

[1] Business level

a Overview of indicators

Despite challenges such as forced shutdowns and high interest rates in 2022, the full year was outstanding: more than 1.3 million vehicles delivered; 17% operating margin, leading the industry; net income of $12.5 billion; Free cash flow of $7.5 billion.

b. Demand

As of January 2023, orders reached a record high, approximately twice the capacity, and Model Y prices have been raised in response to strong demand. As a result, Tesla demand remains strong despite a slight contraction in the U.S. auto market.

c. Price

Electric car sales prices are really important, a large number of consumers still can't afford Tesla car prices, the company's goal is to make as many people as possible can afford cars, and these price changes really have an impact on the average consumer.

d. Cost

Cost containment has made good progress, benefiting from economies of scale in Berlin and Austin, with production costs falling as production increases.

e. FSD

The FSD Beta is available to approximately 400,000 paying subscribers in North America and is undergoing urban real-world testing, creating an autonomous milestone for consumers to actually test the latest AI-driven autonomous driving. Currently, FSD Beta drives 100 million miles (excluding highways), and the data shows excellent safety performance.

f. Battery

At the end of 22, enough batteries per week to support the manufacture of 1,000 vehicles in 4680 can be produced, and 100GWh of new capacity is being added. The company's long-term goal is to produce well over 1,000 GWh of cells in-house and continue to use batteries from external suppliers to scale up production. Breakthrough plans are underway to reduce the cost and increase energy density of the 4680 battery.

g. Energy storage

Energy storage is growing amazingly and will continue to accelerate. The three pillars of sustainable energy in the future are electric vehicles, solar and wind, and energy storage (storing solar and wind energy) is crucial. Energy storage is the path to a fully sustainable future, and Tesla aims to accelerate development as quickly as possible on that path. The production of the giant energy storage battery Megapack is currently accelerating, and the Megapack capacity increase even exceeds the increase in automobile production capacity.

Taken together, Tesla will continue to manufacture and sell as many vehicles as possible, expand production, maintain the industry's best operating margins, and become the best automaker, and automotive manufacturing technology is Tesla's most important long-term strength.

[2] Financial aspects

2.1 Business

In 2022, revenue grew by more than 50% and revenue doubled; Increased free cash flow by more than 50%; Profit margins lead the industry. Good progress was made in improving management efficiency, and non-GAAP operating expenses as a percentage of revenue further improved.

Specific to 4Q22, ASP decreased due to the epidemic in China, uncertainty about US tax benefits, and rising interest rates, which in turn affected consecutive and annual profit margins. In 2022, rising interest rates alone increased Tesla's U.S. market price by nearly 10%.

In addition, the year-over-year increase in COGS per vehicle was primarily driven by three factors:

Lithium prices led by raw material prices;

are working to address initial inefficiencies at the Austin and Berlin Gigafactories and battery plants (i.e. 4680 battery production ramp-up);

The proportion of Model Y in the portfolio rises, and its cost is slightly higher than that of Model 3.

Continue to implement cost containment measures to partially offset these effects, and continue efforts to gradually achieve regional balance in vehicles.

Driven by steady progress in retail and commercial energy storage, the energy business performed the most well in 2022. Although the cost and other aspects still need to be improved, the overall development track is good.

2.2 23-year outlook

Looking ahead to 2023, we will actively leverage strength and cost to move forward, with three key points:

a. Tesla demand remains strong.

b. Steadily advancing cost reduction measures to rapidly improve production and management efficiency to maintain operating margin advantages.

In particular, it is accelerating the improvement of production efficiency in Austin, the Berlin Gigafactory, and the battery factory. Improve every cost area and eliminate pandemic-induced cost increases such as logistics, expedited, accumulation of material buffers, parts premiums, production efficiency, and overhead.

As the world transitions from inflation to deflation, expect strong partnerships with suppliers along the way. At this point, product pricing has taken into account the long-term cost structure, so there will be an impact on operating margins in the short term, but margins will remain healthy and industry-leading in 2023.

c. Third, continue to ensure that funds are prioritized for long-term goals, including expanding autonomous battery production, bringing Cybertruck to market, developing next-generation automotive platforms, expanding production footprints, and driving energy business growth.

Q&A session

[1] Investor Q&A

Q: Order trends so far in 2023 and comparison with current production speeds

A: Demand far exceeds capacity, so a small price increase has been made.

Q: How much does Tesla benefit from the Advanced Manufacturing Production Subsidy (AMPTC).

A: The subsidy acquisition mainly depends on local production, which is not worth much in 23 years, but the future is very impressive. The number of subsidies received varies by product, and the bill is still being updated.

Points revenue is expected to be $150-250 million per quarter in 23 years, growing in tandem with volume.

The purpose of the bill is to incentivize more manufacturing to move back to the United States, which is also Tesla's long-standing plan, and it is well positioned to take advantage of this advantage in the coming years.

In addition, the company expects to use the bill to improve affordability of Tesla products to consumers. It is currently a $7500/vehicle tax credit, subject to MSRP and income caps. The hope of using tax credits to reduce prices to accelerate sustainable energy development is a goal shared by Tesla and the bill.

Q: After significant price increases for automotive products worldwide, analysts expect ASP for all Tesla models to be about $47,000, gross margin for electric vehicles (excluding car rental business and carbon credits) to fall below 20%, and management's ASP and gross margin expectations after price reduction

A: First, there is still a lot of uncertainty in 23 years, but based on current data, ASP and gross margin will be higher than analysts expect.

Second, the ASP reduction from 4Q22 to 1Q23 is smaller than the configuration price. Similar to 4Q22, 1Q23 has a backlog of customers who deliver cars at a lower price given that the time is too long; At the same time, the various schemes used by 4Q22 also reduce ASP.

Third, the management team is most concerned about operating margins. With other businesses, particularly energy, growing faster than automotive, and with a strong focus on operating leverage and management efficiency, the metric to watch now is operating margin (rather than automotive gross margin).

Fourth, Tesla has the ability to generate software revenue (FSD) for every car sold. FSD has huge upside potential because only a small percentage of cars don't have the hardware to support it. In the future, FSD can be sold at 100% gross margin, and it will grow with the growth of autonomy. This is perhaps the largest growth in value assets in history.

Q: Will Mask's comments on Twitter have a negative impact on the Tesla brand?

A: Mask has about 1.27 trillion followers on Twitter and continues to grow. Despite not being popular with some, Mask is quite popular with most people. Twitter has been very strong in driving demand for Tesla, encouraging global automotive brands to use Twitter to drive sales. Twitter's net worth is huge.

Q: 4680 Status and obstacles, when will it reach the scale of 10,000 vehicles per week

A: 4680 battery 4Q22 weekly production 1 thousand. In Texas, 1 of the 4 lines is already in production, while the remaining 3 are in the commissioning and installation phase.

The goal for 2023 is to achieve cost-effectiveness, improve quality and yield ahead of Cybertruck; 2024 will be an important year for 4680.

Q: WHETHER FSD HW 4 will appear first on Cybertruck, and will HW3 have a path to upgrade to HW 4

A: The Cybertruck will have FSD HW4. In 23 it is unlikely that it will make a significant contribution, but in 24 it will.

There may not be a need to upgrade from HW 3 to HW4 because HW 3 will exceed the average level of safety and FSD will continue to improve. The most important thing is to increase the average level of road safety, and the cost and difficulty of upgrading HW3 to HW4 is not feasible.

Q: When will Tesla's insurance business become a large enough revenue stream?

A: It may still take some time for a volume large enough to have specific financial disclosures.

But as of the end of 2022, the annual premium is about $300 million. Quarter-to-quarter growth of 20% outpaced the growth of the automotive business. In states where insurance is operated, 17% of customers use Tesla insurance, and usage is rising. Most of the adoption occurs when a new car is delivered, because this is the first time the owner buys insurance, rather than converting after the purchase, so there is inherent stickiness.

There are 2 benefits:

First, Tesla offers insurance at competitive prices, which makes other auto insurers offer better prices.

Second, a good feedback loop, tuning the design of the car and software, each Tesla is equipped with state-of-the-art safety systems to minimize repair costs (the best repair is not repair). Of course, work on aftermarket repair services is still moving forward, and the problem of how to quickly and efficiently repair the car and return it to the customer is currently being solved.

Q: Is production of the Cybertruck still on schedule in mid-23?

A: Production is expected to start this summer, but the initial production is slow and there will be no inventory input, and mass production will start in 2024. The company began installing all production equipment to send Texas castings to the final assembly shop, and will produce more test vehicles next month, with capacity rampups in 2024.

Q: The global demand for energy storage is almost limitless, where Tesla will build the next MegaPack plant, and how much will it need on each continent

A: The company will update the information in the future, and is very careful about the location.

Q: THE FASTEST PATH TO 1,000GWH PRODUCTIVITY

A: Announcements will be made this year and next to answer this question.

Q: Will the 1.8 million sales in 23 years be subject to supply constraints?

A: The company currently has an annual production capacity of 2 million units, but in consideration of force majeure that may occur during production, such as natural disasters, it is expected to sell 1.8 million units. Without issues such as supply chain disruptions, 2 million vehicles are expected to be sold in 2023.

Q: Battery cost trends

A: The company will reach 100 GWh in Nevada, up from 35GWh at present. The company's goal is to produce more batteries in smaller square feet. Tesla's biggest competitive advantage is its manufacturing expertise, and it now applies this advantage to battery packs. There are other products in development that have not yet been announced, but they are very exciting. A tough recession is likely to occur in 23 years, so long-term stock values cannot be predicted. In the long run, we firmly believe that Tesla will be the most valuable company on the planet.

Q: 4Q22 Cost headwind

A: The pressure of the weighted average cost is about 2,000 to 25 million yuan (PS: bicycle).

Q: Bicycle COGS approached 36,000 in mid-2021 and peaked at 42,000 in 2022, when will it return to 36,000 (that is, the Berlin and Texas Gigafactories return to normal), can bicycle COGS decline by 10%

A: Berlin and Austin are more efficient in producing 4680 cells, and Tesla will make significant improvements to this in 2023. Cost inefficiency leads to a lot of effort in cost control in the future, in addition, raw materials and inflation will lead to cost changes, and it is necessary to pay attention to the development direction of lithium prices. The average cost of vehicle lithium in 2023 will be higher than in 2022, and COGS is not expected to decline this year.

Tesla will find ways to overcome headwinds and continuously improve its supply chain to increase efficiency and streamline logistics to reduce costs. Thanks to the supply chain, companies have gradually reaped the benefits of exponential increases, but it takes time to react financially. Alumina prices fell 20% year-on-year, steel prices fell 30% year-on-year, and the global non-sales raw materials market continued to be affected by the geopolitical situation in Europe. Due to natural disasters such as a typhoon that occurred in South Korea four months ago, the surge in energy has led to increased labor cutting costs, resulting in high production costs. So a meaningful price correction will come, even if it's uncertain when. Models such as the Model 3/Y are maturing through artificial intelligence, and companies are generating profits after gathering feedback to reduce costs in drivetrain materials. In 2023, when it comes to powertrains, the company's pursuit of performance-worthy materials will significantly reduce costs. Overall, companies improve costs through design and supply improvements.

If the recession is severe, companies will see a significant reduction in input costs. Deflation is expected in input costs, which will lead to higher profit margins.

Q: Is car owners' acceptance of FSD systems improving?

A: The trend towards FSD adoption is clear, with a significant increase in enthusiasts with each progressive upgrade. The company is as good at software as it is in hardware, and Tesla is one of the most advanced AI companies. HW3 will also be the most efficient and influential inference computer in 5 years, and HW4 and HW5 will also lead the way. Companies are able to use artificial intelligence, electric motors, electronic batteries, and advanced manufacturing to create truly useful humanoid robots that can be mass-produced through central functions. DOJO will be operational later in 2023. Many of the world's greatest AI talents have joined Tesla, and as the company gets closer to solving real-world AI, no company other than Tesla has achieved this goal, which is where Tesla has orders of magnitude potential for potential market capitalization.

Q: FSD unlocks deferred revenue, which means higher revenue in the future. So what percentage of the $15,000 price is used as upfront revenue instead of deferred revenue

A: FSD consists of 2 parts: the FSD system currently under testing; Enhanced Autopilot, an advanced driver assistance system. As software updates progress, the remaining master packages are released over time.

In the shareholder letter, in addition to disclosing the amount released by deferred revenue, the Company included unreleased deferred revenue balances that will be released with future software updates.

Q: Nevada's 4680 battery incremental capacity; Tesla is planning to produce a large number of batteries, whether it will not put all the batteries in semi-hanging electric heavy trucks; Assuming all these 4680 batteries will be replaced and used throughout the product range, 100GWh is allocated across end markets

A: Not all 100GWh will be put into semi-trailer trucks. But in the future, a large number of products will use 4680 batteries.

Q: The adjusted price puts many competitors at a disadvantage. Capital markets are getting tighter, perceptions of the competitive landscape, and who will be Tesla's strongest rival in 5 years

A: Five years is a long time, and the landscape may change in 5 years.

In the field of autonomous driving, Tesla is far ahead, and it is difficult to see where the second place is with a telescope.

Although the market is shrinking, Tesla EV demand is growing, almost doubling year-over-year, so companies that keep up with the EV trend are competitors. Car companies in China are very competitive, and perhaps Chinese companies may become the second Tesla. Tesla China has achieved success in China because it attracts the best talent in China and hopes to continue.

Q: The Inflation Reduction Act creates a huge incentive for commercial vehicles, is there a plan to accelerate commercial vehicles outside of Tesla Semi to drive EV adoption?

A: Yes, details will not be provided yet.

Q: Restrictive factors for new cars

A: Limited by lithium, unless the battery problem is solved, it will counterproductive and increase complexity, so the product launch will be optimized according to the available batteries. More batteries will produce more products.

Q: Are Dojo and Optimus expected the company to break up GPU clusters in favor of Dojo?

A: Any early prediction has a large error bar. The company believes that Dojo will compete with NVIDIA H1 at the end of the year and surpass it in 2024, and the key is the energy use of video training. The energy required to train a frame of video has already been announced at AI DAY 2, with orders of magnitude improvements related to GPU capabilities. Dojo specializes in AI training and is like a giant ASIC that boots one of the largest GPU clusters in the world. Dojo has a fundamental architectural advantage because it is not designed for the GPU to try to do many things.

Dojo excels at efficient training, requires extremely high communication between modules, and finds ways to improve energy efficiency or orders of magnitude per given training unit via Ethernet cable. The training structure of the product may have nothing to do with the car, the efficiency of reasoning is very important, the company has the most efficient inference computer to date, and it is equipped with an FSD computer in the car, which has the potential to make the product a real car.

Q: This year's 1.8 million vehicles are limited by supply, if demand is limited, how to choose between using price to increase share and relatively high industry profit margins?

A: 1.8 million vehicles are not limited by battery supply. Battery supply roughly matches current demand. The rest will go into fixed storage — Powerwall and Megapack.

Q: Will it expand exclusive financing?

A: Tesla's way of using exclusive financing is to fill the gap in the existing third-party product market, such as leasing, loans, etc., exclusive financing is only used as a tool to support vehicle sales and help more customers buy cars. Cash is very important in the event of a recession in '23, so be cautious about things like using cash to take out loans. Tesla is debt-free, so it's well positioned to weather the recession. There is currently more than $20 billion in cash, and this $20 billion in interest income is considerable.

Q: How far can Tesla sell less than $30,000 electric cars and make a profit?

A: There may be opportunities in the future.