Analysis + Audio – Tesla Q2 Earnings Call | 27 July 2021

Jul 27, 12:30 AM

Today’s big EV stories:. • Tesla reports $1 billion in profit • Tesla comes of age at just the right time • Tesla's $11.958 Billion Revenue • Tesla’s solar and energy storage business rakes in $810M • Highlights From Earnings Call

Show #1158.

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Good morning, good afternoon and good evening wherever you are in the world, welcome to EV News Daily for Tuesday 27thJuly. It’s  Martyn Lee here and I go through every EV story so you don't have to.

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Tesla reports $1 billion in profit

- Tesla turned in some solid numbers for its quarterly earnings Monday, reporting more than $1 billion in net income — 10 times more than in the same time last year

- Tesla has now reported its seventh consecutive quarterly profit. Most of what it earned previously came from the sale of zero-emission vehicle credit to competitors. Those sales are expected to slip as other manufacturers launch their own EVs. But Q2 suggested Tesla won't need to rely on ZEV credits much longer, with the unexpectedly strong earnings coming almost entirely from retail sales of its EVs.


TESLA COMES OF AGE AT JUST THE RIGHT TIME

- Its pre-tax margin of almost 11% also finally rivals leaders like Toyota Motor (7203.T) and General Motors (GM.N). With the industry in upheaval, Tesla’s coming of age has come at just the right time.

- While Tesla raked in $354 million of revenue in the second quarter from selling environmental credits to gas-guzzler producers like Stellantis (STLA.MI), strip that out, and its pre-tax margin was still healthy at just shy of 9%.

- Overall expenses rose almost 9% while revenue jumped around 14% from the first quarter.


Tesla (TSLA) earnings Q2 2021

- Overall automotive revenue came in at $10.21 billion, of which only $354 million, about 3.5%, came from sales of regulatory credits. That’s a lower number for credits than in any of the previous four quarters. Automotive gross margins were 28.4%, higher than in any of the last four quarters.

- The company also reported $801 million in revenue from its energy business, including solar photovoltaics and energy storage systems for homes, businesses and utilities, an increase of more than 60% from last quarter.

- Tesla also reported $951 million in services and other revenues. The company now operates 598 stores and service centers, and a mobile service fleet including 1,091 vehicles, an increase of just 34% versus a year ago.


TESLA'S $11.958 BILLION REVENUE

- The company noted that this profit level was reached while incurring SBC expense attributable to the 2018 CEO award of $176 million in Q2

- Tesla’s quarter-end cash and cash equivalents decreased to $16.2 billion in Q2. This was mostly due to net debt and finance lease repayments of $1.6 billion


TESLA’S SOLAR AND ENERGY STORAGE BUSINESS RAKES IN $810M
- the cost of revenue for its solar and energy storage business was $781 million, meaning that for the first time the total cost of producing and distributing these energy storage products was lower than the revenue it generated. That’s good news.

- Tesla installed 1,274 megawatt-hours of energy storage in the second quarter of 2021, a 205% increase from the same period last year. Similarly, the amount of solar energy deployed in the second quarter of this year was 85 MWh, up 214% from Q2 2020.

- Tesla points to several Megapack projects coming online and growing popularity in its combined solar and Powerwall product.

- one Megapack is about $1.2 million before taxes. In some states, Tesla says the earliest deliveries will be in 2023.




HIGHLIGHTS FROM EARNINGS CALL
1
The global chip shortage situation remains quite serious

2
FSD subscription, we were able to launch Full Self-Driving subscription last month, and we expect it to build slowly and then -- but then gather a lot of momentum over time. Obviously, we need to have the Full Self-Driving widely available for it really to take off at high rates 

3
So we expect to be producing the sort of new design of the Model Y in both factories in limited production later this year.

4
So let's see, the Model Y in Texas -- made in Texas and Berlin will be -- will look very much like the Model Ys we currently make, but there are substantial improvements in the difficulty of manufacturing. So for example, the Model Y made here and in Berlin will have a cast front body and a cast rear body, whereas the one in California has cast rear body but not a cast front body. We're also aiming to do a structural pack with 4680 cells, which is a mass reduction and a cost reduction, but we're not counting on that as the only way to make things work. We have some backup plan with a non-structural pack and 2170s essentially.

5
I mean we're missing -- for example, like a big struggle this quarter, was the module that controls the airbags and the seatbelts. And obviously, you cannot ship a car without those. That limited our production severely worldwide in Shanghai and in Fremont.

6
 So the Cybertruck and Semi, both are heavy users of cell capacity so we've got to make sure we have the cell capacity for those two vehicles, or it's kind of pointless.  We can make a small number of vehicles, but the effect of cost if you make a small number of vehicles is insane, like they would literally cost $1 million apiece or more. There's a reason why you do things in volume production, which is to get the economies to scale and get the cost down. So we are looking at a pretty massive increase in cell availability next year. But it's not like in January 1.

7
I do -- I think probably there is a long-term shift more in the direction of iron-based lithium-ion cells rather over nickel. As the energy density sort of iron ores or iron phosphate, might as well support iron phosphates. They're taken for granted. But iron-based cells, lithium-ion cells, and nickel-based lithium-ion cells.

I think probably we'll see a shift -- my guess is probably to two-thirds iron, one-third nickel, or something on that order. 

8 - Superchargers
We're currently thinking it's a real simple thing where you just download the Tesla app, and you go to Supercharger. And you just indicate which stall you're in. So you plug in your car, even if it's not Tesla.

And then you just access the app and say, turn on this stall that I'm in for how much electricity. And this should basically work with I think almost any manufacturer's cars. There will be time constraints. If the charge rate is super slow, then somebody will be charged more because the biggest constraint at the Supercharger is time, how occupied is the stall.

And we'll also be smarter with how we charge for electricity at the Supercharger. So rush hour charging will be more expensive than off-hours is charging because there are times when the Superchargers are empty and times when they're jam-packed. And so it makes sense to have some time-based discrimination.

9
 So an adapter is needed to work for EVs in North America. But people could buy this adapter. And we anticipate having it available at the Superchargers as well if people don't sort of steal them or something.

Andrew Baglino -- Senior Vice President, Powertrain and Energy Engineering
We have a good solution to that.

10
Andrew Baglino -- Senior Vice President, Powertrain and Energy Engineering
On the reliability side, as Elon mentioned, we have successfully validated performance and the lifetime durability of the 4680 cells produced in Kato, and we're continuing ongoing verification of that reliability. We're actually accruing over one million equivalent miles on our cells that we produce every month. In our testing activities, the focus on that is very clear. We want high-quality cells for all of our customers.

11
I see us sort of like consolidating around a 4680 nickel-based structural pack for long-range vehicles. And then not necessarily a 4680 format, but some other format for iron-based cells.

So right now, we kind of have the Baskin Robbins of batteries situation, where there's so many formats and so many chemistries, that it's like we've got like 36 flavors of battery at this point. This is just -- this results in an engineering drag coefficient where each variants of cell chemistry and format requires as to an amount of engineering to maintain it and troubleshoot, and this inhibits our forward progress. So it is going to be important to consolidate to maybe -- ideally two form factors, maybe three, but ideally two. And then just one nickel chemistry and one iron chemistry

12
We have a massive backlog in Powerwall demand that man to Powerwall versus production is an insane mismatch. Now part of that problem is also the semiconductor issue. So we used a lot of the same chips in the Powerwall as you do in a car, so it's like, which one do want to make? Cars or Powerwalls? So we need to make cars, so therefore Powerwall production has been reduced. But as the semiconductor shortage is alleviated, then we can massively ramp up Powerwall production.

13
any given price is going to be wrong, so we'll just adjust it over time as we see the value proposition makes sense to people. So we're just really -- I'm not thinking about this a lot right now. We need to make Full Self-Driving work in order for it to be a compelling value proposition. Otherwise, people are kind of betting on the future. Like right now, does it make sense for somebody to do FSD subscription? I think it's debatable. But once we have Full Self-Driving widely deployed, then the value proposition will be clear. And at that point, I think basically everyone will use it, or it could be a rare individual who doesn't.


In summary, and for balance, on the negative side...

Tesla Semi, Cybertruck & 4680 cells delayed to 2022
Why is the Model X AWOL?
Why was the Model S halted and how’s the ramp?
Elon said 1000GWh of batteries needed, or maybe 2000. Is that just a guess?
Bitcoin?
No clarity on Berlin & Austin ramp
No disclosure of FSD take-rate when asked
Strong warning that full year depends on chips
Is Tesla insurance still on the roadmap?



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With 2877 Superchargers globally and 25000 stalls, what do you think about Tesla’s plan to open up the network to everyone?

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