Tesla (TSLA 0.38%)
Q4 2022 Earnings Call
Jan 25, 2023, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Martin Viecha
Good afternoon, everyone, and welcome to Tesla’s fourth quarter 2022 Q&A webcast. My name is Martin Viecha, VP of investor relations, and I’m joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q4 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as this webcast.
During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. [Operator instructions] But before we jump into Q&A, Elon has some opening remarks.
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Elon?
Elon Musk — Chief Executive Officer and Product Architect
Thank you, Martin. So ’22 — just going through the ’22 recap. It was a fantastic year for Tesla. It was our best year ever on every level.
Team did an amazing job. It’s an honor, of course, to work with such an incredibly talented group of people. So in 2022, we delivered over 1.3 million cars and achieved a 17% operating margin, the highest among any volume carmaker, I think maybe among any carmaker. While doing so, we generated $12.5 billion in net income and $7.5 billion in free cash flow.
Importantly, the Tesla team achieved these records while — despite the fact that 2022 was an incredibly challenging year due to forced shutdowns, very high interest rates and many delivery challenges. So it’s worth noting that all these records were in the face of massive difficulties. Credit to the team for achieving that. The most common question we’ve been getting from investors is about demand.
Thus far — so I want to put that concern to rest. Thus far in January, we’ve seen the strongest orders year-to-date than ever in our history. We currently are seeing orders at almost twice the rate of production. So I mean, that — it’s hard to say whether that will continue twice the rate of production, but the orders are high.
And we’ve actually raised the Model Y price a little bit in response to that. So we think demand will be good despite probably a contraction in the automotive market as a whole. So basically, price really matters. I think there’s just a vast number of people that want to buy a Tesla car but can’t afford it.
And so, these price changes really make a difference for the average consumer. And sometimes for those — for people who are well — who have a lot of money, they sort of forget about how important affordability is. And it’s always been our goal at Tesla to make cars that are affordable to as many people as possible so I’m glad that we’re able to do so. And yes, so I think it’s a good thing, all things considered.
We’re also making very good progress on cost control. And we’re seeing the cost production in Berlin and Austin drop commensurate with the growth in production, as you’d expect, so yes. With respect to Autopilot, as of now, we deployed Full Self-Driving Beta to — for city streets to roughly 400,000 customers in North America. This is a huge milestone for autonomy as FSD Beta is the only way any consumer can actually test the latest AI-powered autonomy.
And we’re currently at about 100 million miles of FSD outside of highways. And our published data shows that improvement in safety — stuttering here, safety statistics, it’s very clear. So we would not have released the FSD Beta if the safety statistics were not excellent. Regarding batteries, production rate of 4680 cells reached 1,000 cars a week at the end of last year, and we’re increasing capacity for 4680 cells by another 100 gigawatt-hours as announced at Giga Nevada yesterday.
Our long-term goal is to get to well in excess of 1,000 gigawatt-hours of cells produced internally and continue to use the self cell providers. So to be clear, we will continue to use other cell providers. Just that the demand for lithium ion batteries is quasi-infinite and will be for quite some time. So we feel we can scale a lot faster using both suppliers and internally produced cells.
And we’ve got an amazing plan for making the 4680 cell low cost and high energy density. So energy storage also saw record growth, and that is continuing to accelerate. That’s always worth remembering that the three pillars of a sustainable energy future are obviously electric vehicles, solar and wind, and the third key item is stationary storage to store the energy from solar and wind, because obviously, the sun doesn’t shine all the time and the wind doesn’t blow all the time. So you have those three things.
You can convert all of earth to a fully sustainable situation many times over, actually. So I would like to just make it clear that there is a path to a fully sustainable future for humanity, and we — our goal at Tesla is to accelerate progress on that path as much as humanly possible. So yes, so we were ramping up Megapack production. And we expect it to grow at a rate quite a bit faster than our legal output.
So in conclusion, we are taking a view that we want to keep making and selling as many cars as we can. We believe we can keep pushing for strong volume growth while retaining the industry’s best operating margins. As we mentioned many times before, we want to be the best manufacturer. But really, manufacturing technology will be our most important long-term strength.
And we’ll talk more about our upcoming plans at the March 1 investor day. And lastly, I want to once again thank all of our employees for delivering another record-breaking year. Congratulations, guys.
Martin Viecha
Thanks, Elon. And I think Zach has some opening remarks as well.
Zach Kirkhorn — Chief Financial Officer
Yes. Thanks, Martin. So as Elon mentioned, 2022 was a terrific year for Tesla. I also want to congratulate the Tesla team and also say thank you to our suppliers for your support during quite a volatile year.
On a full year basis, revenue increased over 50%, operating income doubled, free cash flows increased over 50%, and our margins remained industry-leading. Additionally, we continued to make progress on overhead efficiencies as non-GAAP opex as a percentage of revenue improved further. For Q4 specifically, sequential and annual margin was impacted by ASP reductions as we are managing through COVID impacts in China, uncertainty around the consumer tax credit in the U.S. and a rising interest rate environment.
Note that in 2022, rising interest rates alone had effectively increased the price of our cars in the U.S. by nearly 10%. Additionally, COGS per unit has increased on a year-over-year basis, driven primarily by three factors: first is raw materials and inflation led by lithium prices and discussed at length in previous calls; second, we are working through the early ramp of inefficiencies of our Austin and Berlin and in-house cell production factories; third, our vehicle mix over the last year has moved more heavily toward Model Y, which carries a slight cost premium to Model 3. Partially offsetting these impacts, we’ve continued to execute on Tesla controllable cost reductions, in line with the progress we’ve made in prior years.
These improvements include our continued work to gradually move toward a regionally balanced build of vehicles. The energy business had its strongest year yet across all metrics, led by steady improvement in both retail and commercial storage. While much work remains to grow this business and improve costs, we believe we are on a good trajectory. As we look toward 2023, we are moving forward aggressively leveraging our strength and cost.
There are three key points I wanted to make here. First, on demand, as Elon mentioned, customer interest in our products remains high. Second, on cost reduction, we’re holding steady on our plans to rapidly increase volume while improving overhead efficiency, which is the most effective method to retain strength in our operating margins. In particular, we’re accelerating improvements in our new factories in Austin, Berlin and in-house cells, where inefficiencies are the highest.
But we are attacking every other area of cost and unwinding cost increases created for multiple years of COVID-related instability. This includes logistics, expedites, accumulation of material buffers, part premiums, productivity and overheads as an example. As the world transitions from an inflationary to deflationary environment, we expect a strong partnership with our suppliers on this journey as well. In that, we’ve priced our products with a view toward a longer-term cost structure.
Thus, there will be an impact on operating margin in the near term. However, we believe our margins will remain healthy and industry-leading over the course of the year. Third, we are continuing to ensure funding is prioritized for our long-term road map. This includes expanding in-house cell production, bringing Cybertruck to market, development of our next-generation vehicle platform, expansion of our manufacturing footprint and growth of the energy business.
We’re looking forward to discussing these plans in more detail on our investor day in a month. Thank you.
Martin Viecha
Thank you very much, Zach. Let’s now go to investor questions. The first question…
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