Tesla, Inc. (TSLA) Q3 2023 Earnings Call Oct 18, 2023

Here is a summary of the Tesla Q3 2023 earnings call.
At the time of writing this, the beginning of the earnings call was not currently available.

Elon Musk CEO

• AutoPliot & AI

  • All vehicles have now driven over 0.5 billion miles with FSD beta, full self-driving beta, and that number is growing rapidly.

  • Recently completed a 10,000 GPU cluster of H100s.

  • Aim is to bring it into operation faster than anyone’s ever brought that much compute per unit time into production
    Training is the fundamental limiting factor on progress with full self-driving and vehicle autonomy.

  • There ia significant promise with FSD version 12.
    This is the end-to-end AI where it’s photon count in, controls out.
    This is similar to how humans work.
    The vast majority of human data input is optics from our eyes.

  • Continue to invest significantly in AI development, as this is really the mass game changer.
    Long-term this has the potential to make Tesla the most valuable company in the world by far.
    If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it’s not clear what the limit is.

• Energy Storage

  • The energy division is becoming Telsa’s highest-margin business.

  • Energy and service now contribute over $0.5 billion to quarterly profit.

  • Energy storage deployed 4 gigawatt hours of energy of storage products in Q3.

• The Cybertruck

  • There will be enormous challenges in reaching volume production with the Cybertruck.

  • This is simply normal for when you’ve got a product with a lot of new technology or any brand new vehicle program.
    This is especially true in a product that is as different and advanced as the Cybertruck.
    There will be problems proportionate to how many new things you’re trying to solve at scale.

  • It will require immense work to reach volume production and be cash flow positive at a price that people can afford.

  • Often people do not understand what is truly hard.

• In conclusion

  • Continue to focus on ramping production while maintaining positive cash flow.

  • Continue to target around 1.8 million vehicle deliveries, as stated earlier this year.

Vaibhav Taneja CFO

• Vehicle Deliveries
  In Q3, Tesla's vehicle deliveries exceeded production, and the energy business achieved another record-breaking quarter in profitability.
  Despite economic uncertainties, higher interest rates, and shifting consumer sentiment, the company's commitment to operational excellence was commendable.

• Factory Upgrades
  During the quarter, planned factory upgrades caused some disruptions to operational and financial performance.
  These upgrades were essential for further improvements and production rate increases.
  Despite factory shutdowns, the cost per vehicle decreased to approximately $37,500, with sequential reductions in material costs and freight expenses, highlighting cost reduction as a top priority.

• Expenses and R&D
  On the expense front, research and development (R&D) expenses continued to rise due to activities such as

  • Cybertruck prototype builds.

  • Pilot production testing.

  • Investments in AI technologies like full self-driving.

  • Optimus.

  • Dojo.

    Tesla remains committed to these investments, resulting in an expected growth in capital expenditure and R&D expenses in the near term.
    However, the company aims to fund these investments through positive cash flow from operations, having generated approximately $8.9 billion in operating cash flows and approximately $2.3 billion in free cash flows this year.

• Other Businesses

  • Tesla's other businesses are gaining prominence independently, with the energy business leading the way, driven by growth in Megapack deployments.
    Additionally, services and other businesses continue to show positive momentum year-on-year, benefiting from the expanding Tesla fleet.

• Pricing Strategy

  • Regarding pricing strategy, Tesla considers the monthly cost for customers, recognizing that most car purchases involve financing.
    With rising interest rates in the U.S., the company adjusted vehicle prices to maintain monthly cost parity, while simultaneously focusing on cost reduction efforts.
    However, cost reductions have an inherent lag, affecting profit margins.
    To address this, Tesla recently introduced a partner vehicle leasing program in the U.S., offering a standard Model Y for as low as $399 per month.

• In conclusion
  Tesla's strategy in a challenging economic environment centres on cost reduction, maximizing delivery volumes, and ongoing investments in AI and other next-generation platforms.
  The company believes that this strategy positions it well for long-term success.

Q&A followed, covering:

• Cybertruck

• 4680 cells (Battery Day)

• Update on Berlin, Austin, and Mexico factories

• Advertising

• Model 3 Highland

• Robotaxi and Optimus

• FSD and Tesla AI system

• Neural Net Path outside the US

• Radar

My favourite Elon quotes of the call:
Regarding advertising: “informing people of a car that is great, but they cannot afford, doesn’t really help”.
On stating the obvious: “it is not possible to have a compound growth rate of 50% forever, or you will exceed the mass of the known universe”.
Comparing Tesla autonomy to the competition: “Boston Dynamics is impressive, but their robot lacks a brain … like the Wizard of Oz, whatever”.
On increasing efficiency: “if you want to like lose weight and you’d say, well, I need to lose over 15 pounds right away, well, you could chop your arm off, but then you’re sitting with one arm. You’re still fat”.

Anne Chapman

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