Digesting Tesla’s amazing Q2 2020 financial results and Q&A with Musk

Early this morning Tesla released the financial results for Q2 2020. As we know from the delivery numbers released at the end of June, Tesla had an amazing quarter,...

Early this morning Tesla released the financial results for Q2 2020. As we know from the delivery numbers released at the end of June, Tesla had an amazing quarter, given their largest factory was closed for a month or around a third of Q2.

Financially the big question was around Tesla’s profitability and for the first time in the company’s history, they have managed four consecutive quarters of profit in a row.

Tesla achieved $327M GAAP operating income, with a 5.4% operating margin in Q2. Overall, this correlated to a net income of $104 Million. This now positions the company well for the heralded S&P inclusion.

At the time of posting, Tesla’s stock is up after hours to 1,657.00 an increase of +64.67 (4.06%). Probably the next big milestone will be reaching a Market cap of $300 Billion, with the current figure at $295.17B.

Ordering a Tesla Model S, 3, X or Y
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In Q2, Tesla delivered 10,614 Model S and X, 80,277 Model 3 and Y, for a total of 90,891 vehicles delivered and 82,272 produced. Tesla’s under-rated energy business also produced 27MW of solar, along with 419MWh of storage (Powerwalls, Powerpacks etc).

Tesla also now has expanded its recharging infrastructure to 18,100 Superchargers in 2,035 locations.

What’s really impressive about Tesla’s results is not just their progress in vehicles and energy, but the fact they’ve been able to be profitable during a time of such expansion.

Gigafactory Shanghai was an amazing effort last year and that hasn’t stopped, they’re almost doubling the plant size, adding a Model Y line to the existing Model 3 production.

Gigafactory Berlin is under construction and today we learned of the next Gigafactory location in America will be located in Austin, Texas. Musk also revealed that construction has already begun there last weekend and while building cars are hard, building factories is harder.

A big theme running throughout today is that Tesla are on a recruiting bend, to find the best engineering talent. Everything from production line optimisation to batteries, they want to hire right now, a crazy concept given the global economy.

During the earnings call, Elon Musk outline the division of work between the factories.

  • Giga Austin will make Cybertruck and the Tesla Semi
  • Giga Freemont will make continue to make Model S, X for the world, 3 and Y for Nth America and eventually the Tesla Roadster

During the Q&A section of the call, Musk responded to a question regarding future products by saying that it’d be logical for them to create a smaller, more compact vehicle. Given the steep ramp they’re currently in with Cybertruck, Semi and the factories, I wouldn’t expect that anytime soon.

When it comes to other profit areas, one of the biggest points of discussion was the the FSD package which is essentially software which has great margins. Musk talks about the potential value unlocked by FSD, particularly in reference to the Tesla fleet.

In the second half of 2020, we’re actually not far away from 3 years since the Model 3 started shipping. That’s an important date as Tesla has said they want vehicles back from lease, ultimately to add to their fleet. This brings us to the current state of FSD.

FSD was supposed to be feature complete by the end of 2019, but that didn’t happen. Now Musk has reiterated, with confidence, that by the end of this year it will be achieved, although not perfect.

Musk’s confidence in FSD today appeared to be based on personal experience with an early Alpha build, running on his car today. He mentioned that it’s really close to being able to drive him to the office without intervention.

Given that’s the current state of play, the big question now is how rapidly can the software progress through the necessary steps of beta, and eventual public release.

When asked about other potential services revenue opportunity, I hoped we’d hear a suggestion of a 3rd-party app store in the car, but Musk replied simply that while Productivity and Entertainment apps would be logical, they’re not a priority right now, FSD is.

The final notable point from today’s earnings call was around batteries and supply. Obviously we have the big battery investor day coming up in September, but a little snippet was revealed today.

Musk was discussing their approach to overcome the issue of being cell constrained. He went all but say, they’re ready to buy batteries from anyone, Panasonic, LG, CATL and more. In fact he’s also now entertaining running two different types of battery chemistry to help solve the demand problem.

Ramping large vehicles like the Tesla Semi will consume massive amounts of battery compared to the base level Model 3, so it’s clear Tesla have a plan to unlock the ability to make and buy batteries so they’re no longer cell-constrained.

Musk capped this off with a comment about mines, which he has joked about getting into mining in the past. One of their batteries relies heavily on Nickel and Musk said explicitly, if you mine Nickel, do more of it, because there’ll be a very lucrative, long-term contract with Tesla if you do.

This demand for Nickel could actually be very profitable for Australia has some of the largest Nickel resources on the planet. Australia is believed to be mining the 5th highest volume of Nickel in the world, behind Indonesia, Philippines, Russia and New Caledonia.

In the investor report, Tesla loves to include some progress photos and today we seen some new photos from inside the Model Y plant in Shanghai. With the factory this far progressed, we could see Model Y start rolling off the line in China in just a few months.

Probably my biggest takeaway from what Tesla has been able to achieve this year is this. The following chart shows Tesla increasing deliveries, while virtually all other automakers are down between 20 and 45%.

Ultimately Tesla has worked out how to build cars (and factories) faster than legacy auto learned how to do technology.

You can read Tesla’s full financials for Q2 2020 here.

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TeslaVehicles

Creator of techAU, Jason has spent the dozen+ years covering technology in Australia and around the world. Bringing a background in multimedia and passion for technology to the job, Cartwright delivers detailed product reviews, event coverage and industry news on a daily basis.
One Comment

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  • elvis
    23 July 2020 at 5:58 pm

    Is everyone financially illiterate when looking at Tesla? At 100 million profit a qtr, a valuation of 300 billion puts the return on investment at .13 of a %. You can do better in the bank in a passbook account! Of course if you are a speculator that doesn’t matter, you just have to be one of the first to bail out.
    But long term, car makers values are pretty much well known. If you make as many cars as say BMW then you make x amount of profit and the value is taken from there. So when Tesla makes as many cars as BMW then their profit will be about the same and they will be valued the same. Except Tesla is valued at 10 times BMW… so to get that valuation Tesla needs to make 10 the cars BMW makes. Or in other words 20 million cars a year or 1/3 of the total cars produced a year. 2020 they will make 500k. So only 19.5 million short of the number they need to justify their valuation. They need to make as many cars as Toyota, Ford and GM COMBINED to justify their valuation. So if you go out on the road, change every one of those makes to a Tesla in your head and that’s how many cars they need to make…..

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