The World According To Musk, Q3 2022

The world according to Musk — the Tesla-centered world, that is — continues to be robust and adaptable, even in light of global supply chain and inflationary pressures. During the Q3 2022 Tesla conference call, the Tesla CEO responded to various questions. Tesla reported adjusted earnings of $1.05 per share, topping analysts’ estimates of 99 cents per share. The company’s quarterly revenue came in at $21.45 billion, missing analysts’ expectations of $21.96 billion. The company has lost 45% of its market cap this year, but it remains more than 50% higher than a year ago.

While this Tesla earnings report may have some dark spots according to some analysts, CEO Elon Musk continued to affirm positive forecasts for Tesla’s future during the Q3 2022 earnings report.

Musk continually downplayed concerns about softening demand during the October investor call after Tesla’s revenue missed Wall Street estimates in the third quarter.

Resilience: Musk expressed full confidence in the ability of the company to continue to produce electric vehicles at a substantial rate. “To be frank, we’re very pedal to the metal come rain or shine,” according to Musk. “We are not reducing our production in any meaningful way, recession or not recession.” Tesla, like many other car manufacturers, has been hit this year by supply chain shortages and backlogs, as well as the rising cost of materials. In the past two quarters, the company said supply chain issues have been exacerbated by its Shanghai factory shutting down due to COVID and Russia’s invasion of Ukraine. Nonetheless, it achieved record quarterly production and deliveries.

On factory capacity: Tesla reported a solid jump in its quarterly profit as its EV sales in the 3 months that ended in September rose. Tesla is expanding fast despite global economic concerns, the CEO insisted. “I can’t emphasize enough we have excellent demand for Q4, and we expect to sell every car that we make for as far into the future as we can see,” Musk said. “The factories are running at full speed, and we’re delivering every car we make and keeping operating margins strong.” Demand for Tesla cars has resulted in a wait list for back-ordered vehicles as the company regularly sets new sales records. Tesla’s appeal over other automakers is driven in large part by consumer preference for its sleek, contemporary design, its high tech capacity, and digital dashboard with touch-sensitive display.

Meeting IRA requirements: Tesla’s CEO said during the company’s third quarter earnings call that the company expects to fully meet the Inflation Reduction Act (IRA) requirements that would allow consumers to receive a $7,500 EV tax credit to most Tesla vehicles starting on January 1st, 2023. The passage of the IRA, a more than $430 billion health, tax, and climate package, is “a significant boost towards accelerating our mission,” Tesla CFO Zachary Kirkhorn confirmed to analysts during the call.

Mass adoption of EVs: Musk envisions the next decade as having a major automotive shift from internal combustion engines to EVs. “The public at large realizes that the world’s moving towards electric vehicles, and it’s foolish to buy a new gasoline car at this point because the residual value of that gasoline car is going to be very low,” Musk said. “So, we’re in a very good spot.” Musk added, “I wouldn’t say it’s recession-proof but it’s recession-resilient, because basically the people of Earth have made the decision in large part to move away from gasoline cars.”

On the Federal Reserve: Musk has been critical of the Fed, which has been lifting its benchmark interest rate to try and tamp down soaring inflation. He continued with that theme on Wednesday. “The Fed’s decisions make sense if you’re looking in the rear-view mirror, not if you’re looking out the windshield,” Musk critiqued. Tesla has been unwilling to slow the transition to sustainable energy, even given such constraints, and the company is working with existing suppliers to determine how to accelerate the production of raw materials as quickly as possible.

Recession abroad is possible: Decades high inflation, rising energy bills in Europe, and signs of a weakening China market have raised doubts among some analysts about whether Tesla can stymie an economic slowdown and continue to raise prices without hurting its sales. “China is experiencing a recession of sorts,” mostly in the property markets, Musk said, “and Europe has a recession of sorts driven by energy.” The US, he noted, “is actually pretty healthy.” According to Musk, even though an energy crisis looms in Germany this winter, “We have no indication whatsoever that we will have to cut our production plans” at Giga Berlin.

On Tesla stockholder angst over Musk’s Twitter acquisition: The roller coaster ride that has been Musk’s desire to buy, then back out of, acquiring Twitter has highly unsettled investors. Musk attempted to allay these concerns. He said he is “excited about the Twitter situation” and that the company has “sort of languished for a long time but has incredible potential. … The long-term potential for Twitter is an order of magnitude greater than its current value.” Wall Street’s most heavily traded stock, Tesla has tumbled over 17% since October 2, partially as the result of the Twitter sale uncertainty. Then again, the S&P 500 has recorded daily gains or losses of more than 2 percent 39 times so far in 2022, compared to 7 times last year and 44 times in all of 2020.

On Tesla stock valuation: “I’m of the opinion that we can far exceed Apple’s current market cap,” Musk remarked. “In fact, I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. That doesn’t mean it will happen or will be easy,” he admitted. According to Musk, this calculation completely excluded Optimus — the potential for Tesla to make money on AI-boosted robots. Tesla stock fell sharply to a 52 week low this week before trimming its losses on Thursday and coming in at $207.28 to start the day on Friday. The bigger picture looking ahead is that better vehicle and factory designs have smoothed company manufacturing concerns.

The future is rosy: Tesla investors, on the whole, are more concerned about its long-term potential than short-term financial pressures. “Over a multi-year horizon, we expect to achieve 50% annual growth in vehicle deliveries,” Musk outlined. Tesla doesn’t disclose the split in sales between its Model 3 sedan and Model Y sport utility vehicle, but the Model Y continues to gain ground in popularity and sales, supporting Musk’s expectation for continued company growth. Moreover, the average US selling price of Tesla’s Model 3 has risen about 24% since January last year, helping the EV maker’s revenue in the third quarter. Tesla’s 4680 battery cells promise better range and lower production costs in future vehicles.