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Tesla, Inc. (Nasdaq: TSLA Equity) Q1CY22 Earnings Review

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21-May-22 Current Price: $642
Wisdom Global: TSLA : 1QCY22 result review
USD Mn 1QCY22 YoY QoQ Remarks
Revenue 18,756 80.5% 5.9% driven by growth in vehicle deliveries and increased average selling price (ASP) from better product mix as well as higher prices to pass higher costs to customers
Gross profit 5,460 146.5% 12.6% better product mix, long term contracts with suppliers
EBIT 3,603 506.6% 37.9% costs in the shanghai plant are lower than the Fremont plant; increased efficiency at the Fremont plant; positive operating leverage
Net profit 3,280 606.9% 40.0% lower interest expense (from lower debt) and taxes
Gross Margin Auto Sales 29.7% 860 bps 80 bps long term supplier contracts helped maintain margins in a higher commodity price environment. Higher margin product mix as well as higher prices helped gross margins
EBIT margin 19.2% 1350 bps 450 bps lower cost shanghai plant production mix
NPM 17.5% 1300 bps 430 bps lower taxes and interest expense
Major Segments Rev. (USD Mn) 1QCY22 YoY % of Total Remarks
Automotive Revenues 16,861 87.3% 89.9% shanghai plant ramp up with higher efficiency production at Fremont
Energy Generation & Storage 616 24.7% 3.3% growth in powerwall battery storage
Services & Other 1,279 43.2% 6.8% growth in used car sales, merchandise, and insurance services
– Revenue Growth: As both Texas & Berlin factories ramp up to full production by the end of 2022, TSLA is on the path to producing 1.4 mm vehicles in 2022 and 2.1 mm vehicles in 2023 which is about 50% CAGR growth in production from CY21-23. At 2.1 mm vehicles in 2023, all four (Fremont, Shanghai, Austin & Berlin) of its plants will be fully utilized. Although the three new plants (Shanghai, Austin & Berlin) of the four H1could add capacity quickly as they do have land available at those sites; hence, for growth beyond 2023, we would need an additional new plant or expansion announcement from Tesla in the near future so that they could start production in 2024. According to market chatter, Tesla’s 450K capacity Shanghai factory is on track to be expanded to 2 mm by 2024.
– EBIT Growth: Higher wait times for the base version in each model incentivizes customers to order higher-end premium versions which are more profitable than the base version thereby increasing margins. Moreover, about 40% of Tesla’s current production is from the cheaper shanghai plant and the shanghai plant is expected to increase production capacity to 4x by 2024 thereby helping improving margins partially offset by rolling off of long term supplier contracts. TSLA doesn’t have any of the legacy costs its competitors face from pensions, OPEB, and other legacy costs and hence could sustain relatively higher EBIT margins (compared to its competitors) for a longer period.
EPS Growth: We estimate TSLA to grow EPS at a CAGR of 76% between CY21-23. The bulk of this growth is driven by 50% vehicle delivery growth in CY22 and 40% in CY23 and the rest from operating leverage. While 50% vehicle delivery growth seems like a sharp curve, we think it may be on the conservative side given that it’s two newly built plants are ramping up which will double TSLA’s production capacity over the next 12-18 months. Moreover, this is TSLA’s third and fourth plant and so they have learned their lessons and are capable of constructing world-class car manufacturing facilities. Moreover, they are greatly reducing the complexity and number of parts/welds required in a car which eliminates manufacturing issues to quite an extent.
TAM Growth: Based on Historic averages and the three regions where Tesla has a production plant, the US, EU & China, the total sales of passenger cars are 50 million cars per year. With Tesla selling 1 million units in the TTM, we are at 2% of the total market share of these regions. In the short-medium term, the market for EVs is growing at a pace where demand is not an issue and the constraints are on the supply side. Even with a high price tag of $50-$150K, wait times are in the 6-12 month range with cheaper options (~$50K)  having the longest wait times.
– As with many quality growth stocks, valuation is the only major concern for the stock. TSLA trades at 44x CY23 PE multiple.