At 5:30 p.m. Eastern Time on July 20, Tesla released its second quarter 2022 financial report as scheduled.
Unsurprisingly, Tesla’s financial performance this quarter was affected by the impact of the Shanghai epidemic in the second quarter, but it was generally better than market expectations. The day after the earnings report was released, Tesla’s stock price rose 9.78%, hitting a new high since May 10.
According to the financial report, in the second quarter, Tesla’s total revenue was $16.9 billion, down 9.7% from the previous quarter. Along with the decline, there is also net profit, which was US$2.3 billion in the second quarter, compared with US$3.3 billion in the first quarter, a decrease of 30.3% from the previous quarter.
In fact, Tesla CEO Elon Musk disclosed the performance of this quarter two months ago. At the 2022 “Future of Automotive” summit held by the Financial Times, he said: “Tesla is like a duck swimming in water, calm on the water, paddling desperately underwater “, “It has a series of happenings. Problems to be solved, and the amount of problems we solve behind the scenes will surprise investors.”
Image source: Financial Times
And in the second quarter of this year, Tesla needed to address even more of the problems: shortages of raw materials, coronavirus lockdowns and supply chain disruptions. These factors directly affect Tesla’s production capacity and gross profit.
For the capital-intensive auto manufacturing industry, this is a direct test of a company’s cash flow resilience. Tesla is no exception, with free cash flow of just $621 million in the quarter, down from $2.228 billion in the first quarter. Even if it seems “unsatisfactory”, the cash flow of 621 million is the result of Tesla’s “open source and cost reduction” efforts.
By the end of the quarter, Tesla had cut its bitcoin holdings by about 75%, a conversion that added $936 million in cash to its balance sheet. In this regard, Musk explained in the earnings call: “The reason for selling a large amount of Bitcoin assets is that it is uncertain when the epidemic blockade in China will ease, so it is important to maximize our cash holdings.”
And just last month, Musk said in an email to executives that he had a “super bad feeling” about the economy and that Tesla would cut 10% of its regular workforce within three months to cut expenses , while suspending hiring worldwide.
This series of signals can’t help but make people panic, can’t even Tesla be able to withstand the economic headwinds?
01 Gross profit margin of car manufacturing decreased
In Q2 2022, Tesla’s total revenue was US$16.93 billion, a year-on-year increase of 42%, which was US$1.822 billion less than the previous quarter, thus ending the five consecutive quarters of record revenue growth since Q1 2021. situation.
Among them, the automotive business had revenue of $14.6 billion, $1.47 billion from services and other income, and $866 million from the company’s energy segment.
Notably, gross margins in the key automotive business declined somewhat during the quarter. In Q2 2022, the gross profit margin of Tesla’s automotive business was 27.9%, compared with 28.4% in the same period last year and 32.9% in the previous quarter. YoY and MoM decreased by 0.5 and 4.5 percentage points, respectively.
The decline in gross margin was mainly due to three factors: higher raw material costs, lower vehicle deliveries, and the impact of lower carbon credits.
First, the decline in Shanghai plant production in April and May had a significant impact on gross margins, including spare capacity (factory closures increased fixed costs per vehicle) and plant restart costs, and had an impact on regional delivery mix;
Second, new factories are already in production and are addressing inefficiencies, but until capacity ramps up significantly, their costs will be reflected in automotive COGS (cost of main business) impacting profit margins;
Third, in terms of cost structure, although the prices of Tesla’s various product lines increased, in the second quarter, Tesla continued to experience increased costs caused by inflation, commodities, foreign exchange and logistics.
In addition, the decline in carbon credits also affected gross margin. For years, the sale of carbon credits has been a “laid-back” source of revenue for Tesla’s auto business, which can help other companies that don’t make enough “clean” vehicles to meet regulatory standards. This quarter, this revenue was only $344 million, compared with $679 million in the previous quarter.
02 1.5 million target, Musk is still confident
In the past, Musk has repeatedly revealed the most enviable troubles for businessmen in public with an innocent face: Tesla has no shortage of demand, as much as it produces, it can sell as much as it produces, the extent to which supply cannot keep up with demand is absurd, and there are queues to buy. The list of cars is very, very long, and even a price increase has to be considered…
This quarter’s earnings call was no exception, and he reemphasized this point: Tesla is constrained by capacity.
In the second quarter, Tesla produced a total of 258,600 vehicles and delivered 254,700 vehicles, down 15% and 18% sequentially, mainly because “for most of the quarter, the Shanghai factory faced limited production and stop work”.
From the results, the decline in shipments caused Tesla to lose the throne of the world’s largest shipments. In the first half of the year, Tesla delivered a total of 565,000 new energy vehicles worldwide, while BYD’s new energy vehicles, which just topped the list, shipped 641,000 units.
However, just last quarter, when Tesla just passed the 1 million annual shipment mark, Musk set small goals for 2022 and 2030 — 1.5 million and 20 million, respectively. Among them, 20 million come from “one percent of the 2 billion cars and trucks in the world that want to be replaced every year.” This shows Musk’s ambition and courage in capacity expansion.
The same is true, although April and May were affected by the shutdown of the Shanghai factory, after that, Tesla set a new production record in June 2022. Among them, the Shanghai Gigafactory and the Fremont factory, which have fully resumed work, both set new monthly production records.
At the same time, the production capacity of the Berlin Gigafactory and the Austin Gigafactory in Texas continued to climb. In the second quarter, the Berlin Gigafactory achieved an important milestone of producing more than 1,000 vehicles per week (Model Y with 2170 batteries), while the gross profit margin for the quarter was positive. The first batch of vehicles with 4680 batteries and structural battery packs produced at the Texas factory has also been delivered to US consumers.
As far as the two “old factories” are concerned, at present, the annual production capacity of the Shanghai factory ranks first among all factories: 750,000 vehicles. The Fremont plant came in second: 650,000.
The two automakers, which both achieved record-breaking monthly production in June, still have room to continue increasing their production capacity. The recent equipment upgrades at the Shanghai plant will further improve production efficiency, and the Fremont plant is also seen as an opportunity to further improve production efficiency.
When analyzing the reasons for the record-breaking production capacity, Musk thanked the excellent and hard-working Chinese, especially the sacrifice of the Shanghai team. Previous news showed that Tesla was the first batch of factories in Shanghai to resume work. In mid-to-late April, 8,000 employees lived in the factory. At the end of May, the factory added another group of workers, from the original single-shift system to double-shift. system.
In addition, when it comes to solving the problem of production capacity, Musk said that Tesla’s biggest advantage is manufacturing. At the TED annual conference a few months ago, Musk said, “I think I know more about manufacturing than anyone else alive on Earth.”
He once expressed the view that 99% of the problems with cars come from production. The difficulty of producing and scaling up is significantly underestimated. Even Volkswagen CEO Herbert Diess asked Musk: “How do you scale up production in China, Germany and Texas at the same time?”
Tesla can continuously improve the efficiency of manufacturing. As Musk said, “If you’re waiting for the best Tesla, you’ll wait forever. If you’re waiting for the best factory, you’ll wait forever, because every new factory is bigger than The last one was better because we used all the lessons we learned.”
One example: Last quarter, Lars Moravy, vice president in charge of the vehicle factory, disclosed: “We achieved structural die casting, reduced robots by 30%, and expected to almost double the production capacity of the body”; this quarter, the new factory refreshed this figure , Musk said: Large castings have allowed two new factories in Austin and Berlin to reduce the number of body welding robots by 70%.
Texas Gigafactory – Body Shop
Another example is battery production. The next-generation 4680 battery production equipment has been installed in the Texas Gigafactory and is being debugged simultaneously. Musk said, “We have passed on our Fremont battery and packaging production line experience to Texas and Berlin, the battery design has been improved, the production line has been further integrated, and we have taken additional measures internally to achieve higher performance. and simpler manufacturing.”
Based on the continuous improvement of the manufacturing process, Tesla is confident in continuing to expand production capacity. In his concluding remarks, the CFO said that despite the impact of many force majeure on vehicle deliveries in the first half of the year, vehicle deliveries are still likely to achieve an average annual growth of 50%. Of course, the actual rate of growth depends on factors such as equipment capacity, plant uptime, operational efficiency, and the capacity and stability of the supply chain.
Musk added, “We’ve delivered 30,000 vehicles a week many times, so by the end of this year, the goal of 40,000 vehicles per week is achievable.”
03 Accelerating the transition to sustainable energy
This quarter, Tesla’s new energy products performed well despite the volatility of the auto business due to the impact of the Shanghai epidemic.
Among them, Tesla’s solar installations increased by 25% year-on-year to 106GW (megawatts), the highest quarterly record in four years. Despite delays in the supply chain of some solar modules, supply has been boosted by expanding the supplier network.
In the energy storage business, it is difficult to avoid the impact of the supply chain. In the second quarter, energy storage deployment fell by 11% year-on-year to 1.1 GWh (megawatt-hour). This is mainly due to challenges in the supply of semiconductors, which impacted the energy business more than the automotive business.
It’s worth noting that demand for Tesla’s energy storage product, the Powerwall, is still outstripping Tesla’s supply capacity, and factories that produce Megapacks are ramping up capacity.
In addition, in terms of the construction of charging networks that car owners around the world are concerned about, super charging piles are serving more and more Tesla and non-Tesla customers. 3,971 Superchargers were reported in the quarter (36,165 Superchargers in total), a 34% increase year-over-year. Growth in Tesla’s charging infrastructure was outpaced by its stores and service centers, which grew to 709 stores and service locations in the quarter, up 19% year over year.
In addition to new energy products, the Tesla team also disclosed the progress of other products. The CFO said the electric pickup Cybertruck (released in November 2019) has made progress in industrial production and is currently planning to start production at the Austin, Texas plant after the Model Y is mass-produced, with deliveries expected to begin in the middle of next year. The updated Roadster concept car (released in November 2017) and other projects such as humanoid robots are still “in development”.
On the conference call, Musk also revealed that the next AI day will have some exciting news, saying, “I think these news may come sooner than most people think.”
In response, an analyst asked: Does Andrej’s departure have any major impact on this timeline or potential progress? Tesla AI chief Andrej Karpathy has been leading the Autopilot initiative for the past five years. Recently, after a four-month sabbatical, he officially announced that he would be leaving the company.
“It’s ironic that things came to a standstill because Andrej wrote all the code himself,” Musk said. “Andrej is obviously very good, and we have a lot of respect for Andrej. I think he wants to do it on an academic level for core AI. Contribute more and go back to programming it myself. But we have about 120 people in our software AI group, they’re all very talented, and I’m pretty confident that we’re going to solve the full self-driving problem and still look like we can realized this year.
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