Ok, let's start by talking about the actual earnings report. It's really not a very important
report though, it only mattered if you were trading. As the numbers were really arbitrary
without too much meaning. However, we will still see if we can interpret what any of
it means for the company.
I did say, there may be some surprises this
quarter. The biggest surprise was the lower margin on the vehicles. According to the call
though, this was actually due to the lock downs in China more so. The temporary decline
in Shanghai production volume, meaningfully impacted margin, due to idle capacity and
factory restart costs. When I was doing my China estimate, I said it could be difficult
to judge the margin, and I thought I had a relatively low margin there, plus winding
down for the US dollar. But it would seem those lock downs did add a lot to cost. That
was my only surprise.
I did say we may see other surprises like Tesla releasing some of their deferred revenue
from FSD, or perhaps Tesla selling some Bitcoin. Some Bitcoin, not about 3/4 of it. Wow, that
was a big sale, and is the sole reason why we broke $2 for earnings.
Also the ASPs, they were up higher than I expected. They were up 4% from last year,
they were even 1.2% higher than my estimate, possibly due to the fact they may have hedged
the dollar perhaps. And perhaps the price rise effects are being felt more than we assumed.
The volatile prices, do make things quite difficult.
We also got regulatory credits of $344 million, a lot of people thought that would be lower
this quarter due to such a large one previously, I guessed 300 there, so not to bad.
But including regulatory credits we had a
margin of 27.9%, compared to 32.9%. Ouch, that's quite the drop. Like I said a lot of
this was due to China, but it's also possible we may have underestimated some of the cost
of the money furnaces too.
Alright, it was margins where it hurt.
R & D was about exactly where I expected,
everyone else seemed to still have high R & D expenses, and might not have recalled
that this was due to testing the new production lines. Those costs are now in COGS. S, G and
A about where I said, slightly lower, which is a good sign. Then the restructuring was
$140 million, I budgeted 100 there for lay offs and head quarters moving to Texas.
And I had the tax exactly right. Everyone else I saw had tax rates in excess of 13%,
but they are usually under 10%, with depreciation and previous losses. So I was really close
with all of that. But missed margins this quarter.
Alright, nothing much else to say about the report, it is what is, and we can move on
to some ramping to the extreme.
Alright on to the call, I wont go through
each bit, I will only talk about anything new or exciting and try see how that might
affect the company.
Elon says that they are happy they achieved
1,000 a week at Berlin, and expect Texas to be at 1,000 a week milestone hopefully in
the next few months. Ok, I think we stop there and talk about that. Ok, Giga Texas, won't
but at 1,000 units a week, for a few more months. And this is with 2170. That doesn't
sound like a very impressive ramp at all.
And Elon is saying this wont even be for a few more months, i.e. not until Q4 will Texas
reach 1,000 a week. That is obviously incredibly disappointing. But we can't give Tesla a hard
time, because they are working so hard, and do such amazing things, it just takes a bit
longer for them to acheive it. But the thing is, they will achieve it. They will reach
their goal. Whereas I don't think anyone else can come close to this. For Tesla it's a when,
for all the competition, it's still an if, or more likely, an "if not". What I am saying,
is whenever we see these battles for Tesla, it just means their barrier to entry is that
more solid.
Ok, well that's my positive spin, on that disappointing run rate schedule. But it will
get there, and will print money faster than Jerome Powell. But it sounds like more patience
is required.
Elon does say however, that they do have sufficient supply of 2170 cells to ramp up these factories
for the remainder of the year. He has said this before, and last time he said the issues
will be going into next year, if 4680 is still not ramped up.
From what I infer, Tesla have a stock pile of 2170s, as they have been cutting back slightly,
using LFP in standard ranges and energy, saving more 2170 cells. But there is no way they
are producing close to enough for Berlin and Texas to go into volume production sustainably.
4680 Elon says that they now have their 2nd generation
of manufacturing equipment for the 4680 cells in Texas. So presumably the manufacturing
is progressing there.
Elon talks a lot about how Tesla really is
in manufacturing and pro-manufacturing. You can call Tesla a tech company as much as you
feel like you need to. But tech is fast, coding is fast, alright aside from FSD, which is
the hardest thing in the world to code, but it will still be ready long before Tesla hit
their manufacturing target. Manufacturing is slow, it is the bottleneck. Tesla are changing
manufacturing and making it fast. I have talked about this so much at length. And the economies
of scale and margins that improve the faster you can ramp up the production line. Tesla
are doing everything they can think of to make those cars as fast as possible, and then
at as low a cost as possible.
And Tesla have made a lot of advancements in manufacturing processes, the largest castings
have reduced body welding robot count by 70%. A body shop that is 3 times smaller. With
a lighter body, that costs less to build and super noise vibration harshness. Now Elon
compares the new factories to Fremont, but not Shanghai, but I think this is still a
massive jump from Shanghai especially when we factor in the structural packs.
This is out standing everyone, we have done the calculations as to how much this could
improve margins, and we are looking at potentially in excess of 40%. But remember, none of this
has kicked in yet, in fact it's doing the opposite, it is hurting margins dramatically,
as it is such a difficult task, it's just taking a bit of extra time. But remember it's
coming, and not only that, it's also going to bring quicker production speeds too.
Anyway, my favorite part was Elon saying, this journey is not over. We will bring another
level of simplicity and manufacturing improvements for Cybertruck and future products. Translated,
we have learned so much about manufacturing, that our next products are going to able to
be produced faster and even lower cost. In other words higher margins, more demand.
Ok, I wanted to quickly mention Tesla's new
safety feature. With so much vision, a Tesla is able to anticipate a crash before it senses
anything, and thus prepare the car that much earlier for impact, pre-tense the seat-belt
and deploying airbags. And of course this is for free, with an over the air update.
As if Tesla's weren't the safest car in the world already. No other car company can replicate
this either, it is unique to Tesla, anyway I just thought that was cool.
Cybertruck is still on target for mid next
year. Elon thinks it might be there best product ever, and I am sure there are plenty of people
out there who would agree.
Now I know a lot of you are happy about the
Bitcoin sale, but this was not sold because they thought Bitcoin was some toxic asset.
This was done to make sure the were sufficient cash in order to get through such tough times.
Tesla will re-buy their Bitcoin holding by the sounds of it. Remember Bitcoin is not
being bought as an investment. It is being used to hedge potential inflation as in case
you couldn't tell, the entire economic system that we know, is in disarray.
I am very happy with Tesla purchasing Bitcoin. It is not an investment, it is an insurance
policy.
Then we are told Tesla still expect to reach
50% grow this year.
50% growth equates to 840,000 deliveries for the second half of the year. Or about 420,000
each quarter. Although of course it might be more like 380,000 the 3rd quarter and 460,00
for the 4th. I am going to go into depth on forecasts for those.
Elon was asked about pricing, and he explains
again that Tesla are just trying to hedge for potential inflation down the road. We
have discussed this before, due to the long waiting lists for the vehicles being so far
out, we don't know what has happened in the economy by that stage, or what inflation has
done, so Tesla are making sure they covering their costs.
But Elon says, if inflation is declining, then they will not need to increase the car
prices, or may even slightly decrease them. But it's out of Tesla's control, although
Elon seems to think inflation is showing signs of declining. But these things are incredibly
difficult to predict.
However, lithium refining is creating bottlenecks and the processed lithium is becoming expensive.
And Elon encourages any entrepreuneur to invest in lithium refining.
Elon talks about Tesla's structural pack now
being an A architecture. Now because it is new, they will start of getting a C within
an A architecture.
Funnily enough, I had actually also previous described the new 4680 structure as an A architect
with C too. Bottom line, there is a lot of improvement left in the battery. As we would
hope, because they need to power Semi Trucks.
But then Elon says the A architecture with C, is already beating the non-structural battery
packs. And over time with further refinement will be substantially superior. Alright, I
can handle substantially superior, it sounds good.
There is so much to digest in all of this,
I don't want to skip over it, so I am going to have to make another video for it.