Tesla reported Q2 2022 earnings after market close on 20th July 2022. Results were mixed with Tesla beating on EPS estimates but missing on revenue estimates. Tesla stock (TSLA) was up 1.45% in after hours.
Looking closer at the results (link here), I think that Tesla is showing incredible resilience considering that its Shanghai factory was shutdown for most of April. Tesla is also hunkering down for a possible recession by laying off salaried staff and converting the bulk of its Bitcoin back into fiat currency.
Financials
Most Q2 metrics are down sequentially from Q1, mainly due to lower production and deliveries caused by Shanghai factory shutdown. Although operating margin fell sequentially to 14.6%, that number is actually similar to Q3 and Q4 2021. It appears that Q1 2022 might just have been an exceptional quarter to compare against.
Revenue still grew at a decent pace, helped by higher average selling prices despite auto gross margins declining pretty significantly. CEO Elon Musk mentioned that Tesla still sees robust demand, so hopefully consumers are willing to stomach the higher prices of Tesla cars.
Operating cash flow has reduced pretty significantly, but expected due to inflation, supply chain constraints, chip shortages, Bitcoin impairment, etc. If inflation doesn’t ease and supply chains don’t recover soon, Tesla cash flows might continue to be impacted. So far, FCF is still positive despite Shanghai factory shutdown, Berlin and Texas production ramp, so that’s a good sign. Less Bitcoin would also help reduce operating income uncertainty.
Tesla ended Q2 with $18.2B in cash and cash equivalents, which they mentioned is sufficient to fund their product roadmap, long-term capacity expansion plans and other expenses. Debt and finance leases is also very low at $2.9B.
Looking Ahead
Barring any further lockdowns in Shanghai, Tesla production numbers should show a huge increase next quarter with Berlin and Texas coming online. At the end of the quarter, Tesla mentioned that its Austin, Texas and Fremont, California factories were producing at record levels as a results of production improvements and equipment upgrades. Tesla is not taking its foot off the pedal in terms of capex spend.
Tesla maintains expectation of achieving 50% average annual growth in vehicle deliveries over a multi-year horizon. Shanghai lockdown doesn’t seem to be materially affect that projection. On profitability, Tesla expects to continue to innovate to reduce manufacturing and operations costs over time, and expects software-related profits to accelerate. Cybertruck is only expected to enter production after Model Y ramp.
Tesla AI day was postponed to 30th Sep 2022 (read here), so close to end of Q3. I was totally mind-blown from the first AI day, and I anticipate they will be lots to be excited about this time around as well. Unfortunately, Tesla announced a few days back the their AI director Andrej Karpathy will be leaving the company (read here), so hopefully that won’t hamper Tesla’s AI efforts.
See my investment thesis for Tesla here.
Tipranks analyst have an average price target of $865 (16% upside).
Final thoughts
Tesla once again shows that their resilience in the face of the multitude of headwinds faced by the EV industry and the auto industry as a whole. In my opinion though, as long as Tesla continues to innovate and move quickly to address the various issues, I think they stand a good chance of weathering the storm and emerge stronger.
Especially as cheap funding evaporates, earlier-stage EV companies might really struggle to get off the ground (e.g. Nikola, Lucid, EV SPACs). Legacy automakers are waking up to the EV opportunity and EV adoption is starting to take off, especially in light of higher fuel prices too.
Tesla’s future is brighter than ever. As they hunker down for a potential storm/winter ahead which is a prudent move, Tesla has shown that they can survive and even thrive even in the current already challenging environment.
Investors will need to look past a host of issues currently hanging over Tesla including the Twitter saga, COVID lockdowns in China, any teething issues at Texas and Berlin factories, NTSB inquiries, and keep their eyes focused on the long-term opportunity in EV and autonomy that Tesla is in prime position to win.
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