Tesla Q2 Earnings Call: Autopilot, Optimus and Energy Lead the Way Forward

Tesla Q2 Earnings Call: Autopilot, Optimus and Energy Lead the Way ForwardOn Tuesday, July 24th, Tesla released its Q2 2024 earnings report. The report revealed that Tesla's revenue for the second quarter was $25

Tesla Q2 Earnings Call: Autopilot, Optimus and Energy Lead the Way Forward

On Tuesday, July 24th, Tesla released its Q2 2024 earnings report. The report revealed that Tesla's revenue for the second quarter was $25.5 billion, up 2% from $24.927 billion in the same period last year. Net income attributable to common shareholders was $1.478 billion, down 45% from $2.703 billion in the same period last year. Diluted earnings per share attributable to common shareholders were $0.42, down 46% from $0.78 in the same period last year. Following the release, Tesla held a conference call where CEO Elon Musk, CFO Vaibhav Taneja, Vice President of Vehicle Engineering Lars Moravy, and other executives discussed the earnings report and fielded questions from analysts. Here is a full transcript of the meeting:

Musk's Opening Remarks

We have seen a significant increase in the adoption of electric vehicles, followed by a period of stagnation, as other companies struggled to release compelling electric vehicles. While there have been many competing electric vehicles entering the market, most of them have performed poorly and have had to resort to substantial discounts to compete, which has presented some short-term challenges for Tesla. However, we do not see this as a long-term issue, but rather a short-term challenge. We remain confident that electric vehicles are the optimal choice for customers, and the world is moving towards fully electrified transportation, not just cars, but also airplanes and ships.

Despite the challenges, the Tesla team has executed exceptionally well, and we have achieved record quarterly revenue. Our energy storage deployments reached record highs in Q2, driving our energy business to record profitability. We are investing in numerous future projects, including AI training and inference, as well as substantial infrastructure to support future products. We will not discuss our product roadmap in detail here, as that will be announced during product launch events. But we are moving toward the goal of releasing a more affordable model in the first half of next year.

To date, Tesla's biggest differentiator has been our Autopilot technology. On top of that, we have economies of scale and are the most efficient electric vehicle manufacturer globally. While other companies are focused on different parts of AI and robotics, we are pursuing them all. This allows us to better control costs, scale up faster, get to market quicker, and produce higher-quality products. These advantages apply not only to self-driving vehicles, but also to humanoid autonomous robots like Optimus.

In Q2, we made significant progress on full self-driving and robotaxis and started rolling out version 12.5 of FSD. We believe customers will experience a quantum leap in supervised full self-driving performance. Version 12.5 has five times the parameters of 12.4 and will eventually unify the highway and city stacks. Currently, the highway stack is relatively older, so issues people often experience happen on the highway. With 12.5, we are finally combining the two stacks. I have found that most people don't actually understand how good this system is. I encourage everyone to familiarize themselves with the system by simply trying it out and letting the car drive you around. One thing we are going to start doing is when someone buys a new car or brings their car in for service, we will show them how to use the FSD system and have them take it for a spin around the block. Once people experience the system, they tend to continue using it. So, the system is very compelling, and I think even unsupervised full self-driving will be a massive demand driver.

As we gradually increase the miles driven between two human interventions, Tesla's Autopilot system will smoothly transition from highly supervised full self-driving to nearly unsupervised full self-driving, unlocking and utilizing the immense potential of the electric vehicle fleet.

We decided to push back the release of robotaxis or similar products, now scheduled for October 10th. This is because I plan to make some significant improvements that I believe will significantly enhance the vehicle and robotaxi performance, and that is what we will be showcasing. We will also be demonstrating some other new things. So, pushing back a few months will give us time to refine the robotaxi and add other features to the product.

Furthermore, we are nearing the completion of the expansion of the South area of our Texas Gigafactory, which will house the largest CLP training cluster ever. This is an incremental expansion project and includes 50,000 Nvidia H100 chips and 20,000 Tesla AI Computer (D1) chips.

Optimus is already performing tasks in our factories, and we plan to begin limited production of the production version 1 of Optimus early next year, primarily for internal use at Tesla. By the end of next year, we expect to be producing thousands of Optimus robots and performing real-world tasks at Tesla factories. We will then significantly ramp up the production of Optimus in 2026. At that time, we will make Optimus robots available to external customers, which will be the production version 2 of Optimus designed specifically for the energy business.

The energy business is growing faster than any other business, and we are currently demand-limited, not production-limited. Therefore, we are expanding production at our US factories and building a new Gigafactory in China, which will roughly double, if not quadruple, our output.

In conclusion, we are incredibly excited about progress across the board. We are changing the energy system, how people move, and how people think about the economy. It is a monumental task, but I believe the future is very bright. I really want to emphasize the importance of autonomy, both in cars and with Optimus. While the numbers might sound crazy, I believe Tesla, with the technology it is pushing, will be able to operate like a massive, self-driving fleet. This will push Tesla's valuation to an incredibly high number, for example, $5 trillion. And in the long run, I believe Optimus's valuation will far exceed that. I thank the Tesla team for its exceptional execution and look forward to even more exciting moments in the years to come.

Taneja Discusses the Earnings Report

As Elon mentioned, the Tesla team has performed exceptionally well, achieving significant milestones and breaking several notable records. In addition to these records, we have seen sequential growth in vehicle deliveries. I want to extend a special thank you to the entire Tesla team for their hard work in the automotive business, as they have been instrumental in driving this quarter's strong performance.

Affordability remains a primary concern for customers. In response, we offered attractive financing options in Q2 to offset the impact of high interest rates. These programs had an impact on per-unit revenue this quarter and will continue to do so in Q3. As we have done with similar programs in the past, we are now offering highly competitive financing options in most parts of the world. Now is the best time to buy a Tesla. If you're on the fence, now is the time to get your new car!

We reached record quarterly numbers in both carbon credit sales and net automotive revenue, while our automotive gross margin remained stable. It is important to highlight that the demand for carbon credits depends on other automotive manufacturers' production and sales plans, as well as regulatory changes. We are proud to be the largest producer of American-made cars, and we are committed to further localizing our supply chain as we continue our journey. This is not only in the United States but also in Europe and China, serving their respective factories.

We are continuously working to provide the most compelling products and sell them at reasonable prices. We have stepped up our efforts to release more vehicles with a range exceeding 480 kilometers. We believe that, coupled with the expansion of our Supercharger network, this is the right strategy to eliminate range anxiety. Since the price adjustments to some models in North America, we have seen a significant increase in reservation rates, and we expect this to be a positive driver for vehicle sales.

The cost per vehicle will continue to decline sequentially as the feature set improves. While we are observing a downward trend in material costs, please note that there is a lag in costs, and these reductions will become apparent when the vehicles are delivered and recognized on the income statement.

Additionally, as we enter the second half of the year, it's worth noting that we are still scaling up production of the Cybertruck and Model 3, while being impacted by raw material and finished goods tariffs. While our team is working hard to offset these challenges, unfortunately, this may impact costs in the short term.

With regard to the potential of the energy business, we are excited about the foundation we are steadily laying as it is yielding the desired outcomes. Storage deployments have more than doubled, driven by both Megapack and Powerwall, leading to record energy business revenue and profitability. As previously discussed, while the storage backlog remains strong, deployments can fluctuate over time, with some quarters seeing more deployments than others. The revenue recognition of storage gigawatt-hours depends on various factors, including logistics time, our shipments from a single factory to markets around the world, customer readiness, and the pace of construction activities for EPC projects.

Next, let's talk about other aspects of the company. The margins of the service business and other segments improved sequentially, driven primarily by higher service utilization and growth in the collision repair business. The recent restructuring we