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28 April 2022

Tesla up 50% a year, Musk looks to Robotaxi, Optimus and Twitter

Tesla has been in the news more this week for the fact that Elon Musk personally acquired Twitter for $44 billion, rather than the Tesla results which were out just after we went to press last week, when Tesla produced 305,000 vehicles in the quarter and delivered 310,000, despite ongoing supply chain challenges and factory shutdowns.

Most Musk watchers are this week trying to guess how Musk will re-direct Twitter, with many publications suggesting that Musk’s love of freedom of speech will have him open the platform more widely to right wing politicians, such as Donald Trump, and that his intervention will “spoil” the service, not improve it. Our feeling is that Musk rarely knowingly does anything to ruin investments. If Musk does abuse his position, one would expect Tesla to benefit from a strengthening of messages against fossil fuels and global warming, and in favor of space exploration and getting the human race a second home, potentially on Mars.

As a result of the Twitter acquisition, news from the Q1 investor numbers has been obscured, and it’s worth going over the momentum which is displayed by Tesla. The word “headwinds,” was used about 20 plus times during the presentation, and it has been a common theme throughout the past few results seasons – not just for Tesla, but what is not so common is automotive revenue growth of 87% to $16.86 billion, and gross margin rising from 26.5% a year ago to 32.9% in Q1. Net income a year ago for Tesla was just $438 million but rose to $3.3 billion. We’ve not seen those type of numbers since 2000 during the dotcom explosion – although that was for the most part a bubble, and we don’t believe this is.

But it is in the answers to investor questions that you look for the big news from Tesla. First item we picked up was the idea that net debt had gone down to zero, so after Tesla went to the market for $5 billion of cheap cash a few years ago, just in case it needed it, it is now confident that it no longer needs it, and will run from here on in on its own cash generation. Impressive.

What happened to its Shanghai factory? – Yes it suffered Covid shutdowns, but it is already back up to full speed and despite upstream supplier challenges – read battery deliveries from CATL and semiconductor supplies – it is “coming back with a vengeance,” and although Q2 output will only be the same as Q1, there will be “exponential” growth in output in Q3 and 4, ensuring the entire company can go to 1.5 million cars produced, and possibly beyond it to 1.6 million within a year. Berlin and Texas are on similar ramps, but will take 9 to 12 months for these to reach 5,000 vehicles a week, which will see the bulk of 2023 growth already built in.

On the new product front there is no more mention, not even any questions, about an EV priced below $25,000. In fact to some extent prices have had to rise – explained away by finance supremo Zachary Kirkhorn as making cars where a price was agreed a year ago, but paying for components which were delivered now at higher prices – hence small price increases to keep margins healthy.

But the new, new product is the Robotaxi – no steering wheel, no pedals – optimized to produce the lowest price per kilometer travelled of any car, to enter volume during 2024. This is consistent with Musk’s statements for the past few quarters, whereby he has kept saying that Full Self Driving is almost ready. “We are issuing a new release of full self-driving every two weeks,” he said and revealed that already 100,000 people are in the early release program.

“We have seen more false dawns in this technology than in any other I have worked on, because ultimately we have to solve the real world, real time problems associated with eyes or cameras and neural networks, at least as well as the human brain solves them.” It is these facts which have many people still not quite ready to accept that a full self-driving car (FSD) will go on full release as soon as 2024.

And he hammered on once more about the Optimus robot. “A lot of you don’t seem to understand the magnitude of this produce, it will be worth more than the car business or FSD.”

Musk also talked up the Tesla car insurance business which has gone from minus 40% margins to break even in just over 4 years. Potentially too this is a colossal business.

What even Tesla has been unable to save has been the revenues gains for solar and grid storage – solar in the quarter was 48 MW deployed in the quarter, down from 92 MW a year ago, and for storage it shows up as a 90% rise, from the year ago quarter, but the truth is that it has dropped by 50% since the last few quarters to 846 MWh from its highest point of 1,295 MWh two quarters ago.

“Next year we will address shortages in battery and solar,” said Musk, “and I have never been more excited about the future.”

The truth is that geniuses have floundered before – including this genius, and both FSD and the Optimus robot have fewer people confident that it will lift the share price of Tesla – what everyone agrees on however is that Tesla has consistently proved that it can grow the car business at 50% or more each year and can  continue to do this for a few more years yet, and as such there is no reason for betting against this. If he delivers FSD at scale and then the robot, the Tesla share price will fly higher than a SpaceX rocket.