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In the future, we will strive to add an article about earnings conference calls after interpreting financial data analysis articles. The goal is to provide a simple analysis with context based on real-time Q&A with Tesla executives during earnings conference calls.
Production
Overall Production Capacity
“Overall, in the foreseeable future, the annual production capacity growth rate will remain at a compound rate of 50%. The growth target expected in 2022 is 60%.”
In 2021, production was at 930,000 vehicles, and Elon Musk’s target for 2022 is 1.49 million vehicles. Currently, the production capacity number I have calculated based on the four super factories is around 1.64 million, which is quite different. I will continue to observe whether there are any events and trends that were not foreseen due to limited visibility.
Factory Production Ramp
“We will focus on two new factories, requiring 9-12 months to achieve production ramp, and expect to reach a higher production level by the end of the year.”
“The new factories will have a better production ramp rate. We have a skilled team to introduce production, and we have simplified the Model Y production line a lot. We have reduced 30% of the robots and doubled capacity in many other areas. We also reduced the area of the welding workshop by about 60% using die casting and structural battery packs. We also reduced 10%-15% of the stations in the final assembly workshop.”
The new super factories bring experience and improvements from Fremont and Shanghai in terms of hardware and design. The depreciation cost per vehicle is currently $2,800 (before the start of production at the Shanghai Super Factory, the cost was $5,000), so we can continue to monitor trends in this indicator to comprehensively judge the efficiency of the two new factories.
Hardware Gross Margin
Raw Materials
“Due to different ways of calculating cost structures, the proportion of costs affected by raw materials accounts for approximately 10-15% of total costs. In fact, the price of raw materials has been rising for several quarters, but it only started to really affect the company’s costs in Q1, and it will continue to have an impact in Q2.”
“The ups and downs of raw material indices in the market will not directly affect the company’s pricing because of contracts with suppliers. However, in some cases, there may be an impact depending on the contract’s content.”
“The company will try to predict future trends in raw materials as much as possible to ensure that product pricing is sufficient to cover the variable cost of raw materials.”
“Lithium materials are relatively scarce, and lithium is the main factor driving up battery costs. In the long term, it may also be a bottleneck, so the company has begun to take action to resolve this issue. We strongly encourage entrepreneurs to contribute to lithium resource development.”From here, we can see that Tesla’s pricing adjustment model matches customer orders to parts/raw material contracts. In other words, the orders that are placed have already been supported by a signed supply contract with a set price. Therefore, Tesla’s price increases and decreases are immediate and there is no advanced notice given. The reason is simple: when the first batch of supply contracts are fulfilled, the cost of goods sold is just the total cost of the goods plus profit.
Tesla anticipated long-term bottlenecks in key raw material supplies like “lithium,” so it began to vertically integrate and mine for materials. Some people may view Tesla as being “off-task” or “bloated,” but I believe that this is a key characteristic of Tesla, which is to take bold action in the face of foreseeable bottlenecks and seek long-term solutions. Previous examples such as GigaFactory (mass production of hell), GigaPress (an awful welding process), and HW3.0 (outsourcing solution/chip limitations) all follow this pattern. Once the bottleneck is overcome, it becomes a high (profit margin) threshold.
However, many things are not always what they seem. It is important to note that Tesla is not doing complete vertical integration. For example, the design of the GigaFactory is based on the experience that the internal team gained from the design of the previous factory, which was then passed on to the next factory to be outsourced and constructed. GigaPress was jointly designed by Tesla and IDRA, with IDRA responsible for manufacturing and delivery. HW3.0 was designed internally by the team and outsourced to TSMC for manufacturing.
Tesla is using its ingenuity to break through the biggest bottleneck in order to achieve a flexible and balanced vertical integration.
New Technology
“The 4680 battery and structural battery packs are expected to surpass the current best solution (2170 cells) later this year, and will likely fully exceed the 2170 battery in the next year.”
“The cost structure of the 4680 battery is undoubtedly competitive, the remaining issues are only production efficiency and yield. We expect the large-scale import of 4680 batteries in Q3 and Q4 of this year at the Texas factory (meaning more inventory of 4680 batteries than 2170 batteries).”
“Berlin may start importing the 4680 battery this year, but as we did at the Texas super factory, we will continue to produce 2170 batteries as a production risk hedge.”
“Whether the 4680 battery can be imported on a large scale does not affect the production of 1.5 million cars this year, but it will affect the production capacity in 2023. However, we are confident that we can solve this problem.”
The successful import of the 4680 battery is the most critical factor for Tesla’s profit margin improvement over the next two years. There is no doubt about it. Currently, the progress of the 4680 battery is progressing smoothly.During Battery Day, the Tesla team stated: “It is important to note that the 4680 battery plan is mainly an engineering problem, and the implementation process is basically controllable, without any revolutionary innovative technology.” This caused many battery professionals to criticize Tesla, meaning that the 4680 battery did not have any innovation. Perhaps the mindset of running a business and doing cutting-edge scientific research is truly different. The business mindset is to simplify, reduce links, lower failure rates, and be better. Scientific research may focus on proposing a question and answer that no one has ever thought of. After all, research is paper-driven, and the root driving forces are different, which makes it difficult for them to think from each other’s perspective.
Autonomous Driving
“Tesla should be able to achieve real-world AI this year. The best way to understand the progress of FSD is to join the testing program and try the product yourself.”
Researching any company and product is the same principle – hands-on experience is crucial. Just as reading translated text is never as good as reading the original, information will always become distorted once it’s passed through a mediator’s perspective, knowledge, and emotions.
Based on my use of the product (China only has EAP functionality), I don’t think FSD will be able to be implemented that quickly. But the fact that certain functions have yet to be implemented does not detract from the value of the functions that have been implemented. The simple logic is that I don’t even want to drive a car without EAP now. I even want to rent a Tesla in other cities because it has become a habit, and I can’t go back.
The sign of FSD maturity may be the accident rate comparison between FSD driving and human driving that Elon Musk often talks about. It is worth trying to combine FSD, accident rates, and insurance to view these three things together.
New Products
“The CyberTruck’s production plan remains unchanged for next year.”
“We are developing a specialized RoboTaxi that is designed to optimize low-cost travel without a steering wheel. This will be a pretty cool product. The plan is to put it into mass production by 2024, and it will be a huge growth point.”
“The commercial value of TeslaBot (Optimus Prime) will exceed that of the automotive and FSD departments.”
With unlimited imagination, analysis can come once there is more data and information available.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.