Tesla Earnings Call Highlights — What I Learned

Tesla 4Q 2022 Earnings Call Highlights

Plenty of Demand for Current Vehicles, No New Tesla Vehicles Needed This Year

In listening to the Tesla 4th quarter earnings call, the much anticipated “Roadmap Update” was disappointing. It was basically that since they have plenty of demand for their current vehicles (the Model S, 3, X and Y), there is no need to release the Cybertruck, Semi, or Roadster this year. But as we have come to expect, there are always some good nuggets of information shared, especially when Elon Musk is on the call!

Tesla’s argument: if there were not chip shortages, it might be a different situation, but since they are limited by those shortages, it would just be extra effort with less total vehicles delivered to expand their product lineup. They expect that chip shortages should be alleviated by the end of the year … and then they expect that production will be limited by battery cell supply. At that time, they are hopeful their 4680 battery production capacity will be large enough and economical enough to make a difference and allow Tesla to grow somewhat faster than they would be able to if they had to depend on suppliers for all their battery cells.

Financial Highlights

We already knew that it was going to be a great quarter after Tesla reported on January 2nd that the company had delivered over 300,000 cars in the 4th quarter, but what we didn’t know was the financials. The revenue and earnings that they announced after the close on January 26th beat the analyst estimates, but the earnings were a little below the “whisper number,” due to selling and administrative costs being about $500 million higher than I expected. This caused the stock to drop about $50 a share until people figured out that two “one time” items caused this increase in expenses. The first unexpected item was a $340 million payroll tax charge related to Elon exercising all the stock options from the 2012 compensation plan that were close to expiring. We covered here that he asked Twitter if he should sell 10% of his stock, but since Elon had all his net worth in various stocks, he had to either sell some stock or let enormously valuable stock options expire. I suspect he wanted to exercise last year before the expected tax increase that was in the Build Back Better bill that most people (including me) expected to be passed by Congress. The second item was $240 million in non-cash stock-based compensation since it seems likely Tesla will meet all the goals set forth in that plan.

Tesla’s CFO, Zach Kirkhorn, stated that he expects significant expansion of margins over the next few years and is especially optimistic about the prospect for software to increase margins. But he warned the next few quarters will have headwinds as they ramp two new factories and will need to spread the depreciation over just a few cars as they start deliveries. Elon confirmed that he expects 2022 will be a year where they can significantly exceed their long-term goal of increasing production and deliveries by 50% a year. More surprising was the comment that they feel they can do it even without the two new factories, since they have significant capacity that was underutilized due to parts shortages.

From Tesla’s Q4 2021 Earnings Release

Highlights from the Tesla Q4 2022 Call Question & Answers

• They claimed they aren’t working on the $25,000 car — a claim nobody believes, but it is clear they don’t want people delaying current purchases, waiting for the car. See: Osborne Effect.
• Elon (always the optimist on Tesla’s Full Self Driving (FSD)) would be surprised if FSD isn’t better than a human driver by the end of the year and predicts it will be a world-changing event.
• The Tesla team mentioned that they are now experts at Heating and Air Conditioning (HVAC) systems and could make a great system for homes that would save a lot of money and energy, but that they have a lot on their plate, so they don’t know when they will get to it. They encouraged other companies to design a better HVAC.
• In response to a question on Dojo, we found out that Dojo isn’t yet better per dollar than using a graphics card for training their neural nets, but they expect it will be next year. They don’t need Dojo to be successful to solve FSD, but if it is, it will reduce costs and they will also provide it to other companies that need to train their vision-based neural nets.
• Elon sounded optimistic that their human robot would be an important product. I suspect this is because he has tweeted so much about low birth rates that he is getting more worried about a labor shortage.
• During 2022, Tesla expects to scout out new locations for future factories and hopes to announce the next location by the end of the year.
• The 4 sources for margin expansion:
  • Model Y production is expanding and it is higher margin than Model 3.
  • Localization of supply chain in China.
  • Restart of production of Model S and X.
  • New factories being closer to end customers reduces transportation and taxes.
• Elon expects all of their stationary storage to transition to iron-based batteries instead of nickel.
• They would have shipped more energy storage products except for the chip shortage; they choose to prioritize vehicle production.
• If the chip shortage abates, they will grow energy storage faster in 2022. It’s hard for them to say if that will happen.
• 4680 battery cells haven’t been used for LFB batteries, just for nickel-based batteries.
• One type of chip that was a bottleneck was simple control chips, which limited Tesla’s seat production.
• Going forward, they are focused on simplification of their products to reduce costs and the number of unique parts, which should help with shortages.

Tesla Q4 2021 Earnings Call Conclusion

Tesla gave another solid update showing the company is making great progress on profitably expanding production of its vehicles, and executives continue to be optimistic that their software and AI-based products will make great leaps forward in the near future. Most investors are becoming believers in the manufacturing strength of Tesla, while they are split whether the progress on Full Self Driving will be fast or slow.

Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], and Xpeng [XPEV]. But I offer no investment advice of any sort here.