Tesla's Q4 earnings: delivers Q4 beat on 37% surge in revenue
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Tesla Q4 2022 Investment Note
The EV giant reports Q4 revenue and profit beat, focus on cost control and innovation
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Attitude: "It was a fantastic year for Tesla, and it was our best year ever on every level." said Elon Musk. In 2022, Tesla delivered over 1.3 million cars and achieved a 17% operating margin, the highest among any volume carmaker. The company generated $12.5 billion in net income and $7.5 billion in free cash flow in 2022. The total 2022 revenue grew 51% YoY to $81.5B and net income (GAAP) more than doubled YoY to $12.6B. Q4 2022 was a record-breaking quarter for Tesla and the company achieved the highest-ever quarterly revenue, operating income and net income in history.
Guidance: For 2023, Telsa expects to remain the long-term 50% CAGR with around 1.8M cars approximately. Furthermore, the company plans to manage the business with a strong balance sheet during an uncertain 2023. While Tesla will continue to execute innovations to reduce the cost of manufacturing and operations. In the future, Tesla expects the hardware-related profits to be accompanied by an acceleration of software-related profits. Tesla continues to believe its operating margin will remain the highest among volume OEMs.
Product: Cybertruck will have Hardware 4, but it will not significantly contribute to the bottom line until 2024. Tesla has now released FSD Beta to nearly all customers in the US and Canada who bought FSD (approximately 400,000). Every customer in the areas can now access FSD Beta functionality upon purchase and start experiencing the evolution of Alpowered autonomy. Moreover, Tesla's customers can now videoconference directly on their touchscreen via Zoom, streaming video from the car's interior camera. Tesla integrated Apple Music into the media player and added a live view of the internal camera to the mobile app when Sentry Mode or Dog Mode is active.
ASPs & Cost: Tesla's average selling prices(ASPs) have generally been on a downward trend in recent years. Improving affordability is necessary to become a multi-million vehicle producer. While ASPs halved between 2017 and 2022, and the operating margin consistently improved from about negative 14% to positive 17%. The margin expansion was achieved through the buildout of localized, lower-cost models, more-efficient factories, vehicle cost reduction and operating leverage. Besides, Tesla is accelerating the cost reduction roadmap and driving towards higher production rates, while staying focused on executing against the next phase's roadmap.
Q: How do you see the current competitive landscape changing over the next few years? Who do you see as your chief competitors five years from now?
Lars Moravy: Even though the vehicle market is shrinking, we're growing and EVs have doubled almost year over year. So whoever keeps up with the trend of EVs is going to be our competitor. The Chinese are scary that we always say that. But like many people always look at the EV market share, we always look at how much of the total vehicle space we have, and we're just going to keep growing in that space. There's a 95% market for us to get.
Elon Musk: We have a lot of respect for the car companies in China. They are the most competitive in the world and the Chinese market is the most competitive. They work the hardest and they work the smartest. That's a lot of respect for the China car companies that we're competing against. If I would have guessed, there are probably some company out of China as the most likely to be second to Tesla. Our Tesla China team is winning in China. We actually are able to attract the best talent in China.
Q: The Inflation Reduction Act has created huge tax incentives for commercial vehicles. Are there plans to accelerate commercial vehicle form factors outside the Tesla Semi to help accelerate EV adoption?
Elon Musk: I was basically saying that, yes. We always check what the limiting factor is for new vehicles. Because we've been constrained on total cell lithium-ion production output. People asked why not bring this or that other car to market. It doesn't help if you're shuffling around the batteries from one car to another.
In fact, it hurts because you add complexity but you don't add incremental volume. So it's sort of pointless, like counterproductive to add model complexity without solving the availability of lithium-ion batteries. So we want a new product introduction to match where the cells are available or that new product to use those cells without cannibalizing the cells of the other cars. That's the limiting factor if we need new models, not anything else.
Q: Is Cybertruck production still on track for midyear?
Elon Musk: We do expect production to start, maybe sometime this summer. But I always like try to downplay the start of production because the start of production is always very slow. It increases exponentially, but it's always very slow at first. So I would put less thought into the start of production. It's kind of when does volume production actually happen, and that's next year.
Lars Moravy: To emphasize that, we've started installation of all the production equipment here in Giga Texas, castings, general assembly, and body shops. We built all our beta vehicles, some more coming still in the next month, but the ramp will really come in 2024.
Q: With near-infinite global demand for energy storage, where should Tesla build the following Megapack factories? How many are needed on each continent?
Elon Musk: It's an excellent question. I think we'll provide an update about that in the future, but it is something we're thinking about very carefully. But really kind of like what is the fastest path to 1,000 gigawatt-hours a year of production. And you'll see announcements coming out later this year.
Q: How much is impacting the use rate of FSD today? Do you already see people getting excited by FSD because they see it around them in 400K cars and see the service's value?
Elon Musk: The trend is very strong toward the use of FSD. As you alluded to each incremental improvement, the enthusiasm obviously increases. I think something that still a lot of people out there don't quite appreciate is that Tesla is as much as a software company as a hardware company, but Tesla is really one of the world's leading AI companies. This is a big deal with AI on the software side and on the hardware side.
The Hardware 3 inference computer is still the most efficient in the world despite being, at this point, five years old from the design point. With Hardware 4 coming and then Hardware 5 beyond that where there are significant leaps. Besides, the Dojo computer, we expect to be using that operationally at Tesla later this year. And we're seeing a lot of world-class AI talent join the company.
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