Tesla Reveals Q2 Capital Spending and Future Expectations
Tesla revealed that it focused intensely on its Gigafactories during the second quarter of 2022 – to the tune of around $1 billion in capital spending.
The announcement was made in a Securities and Exchange Commission (SEC) filing. Tesla intends to continue to accentuate its battery development, among other projects, to solidify its business plan and mission. “The long-term success of this business,” Tesla explained in the filing, “depends on increasing margins through higher volumes.”
Compared to Q2 2021, Tesla’s profit nearly doubled and beat analysts’ estimates for earnings. The SEC filing detailed how Tesla’s April forecast of $5 billion to $7 billion for capital spending rose to levels of around $6 billion to $8 billion. It was one of many statements contained in a July 25, 2022, quarterly report.
In 2022, through the second quarter, Tesla has produced 563,987 vehicles and delivered 564,743 vehicles. To support these positive vehicle trends, the company has identified several areas of focus:
- increasing vehicle production and capacity;
- improving and developing battery technologies;
- improved FSD capabilities;
- increase the affordability and efficiency of its vehicles;
- expanding its global infrastructure.
During the second quarter, the Gigafactory Texas site began shipping Model Ys with Tesla-made 4680 cells used in structural batteries. The goals of this plant include improving vehicle performance, lowering production costs and increasing accessibility. In line with the company’s approach of innovating manufacturing techniques at its new factories, Tesla says it expects to pioneer new methods related to the mass production of these cells and the concept company’s unique structural battery pack.
Tesla says success in capital growth depends on its ability to add to its available sources of battery cell supply. Manufacturing its own cells, which are developed to have high production volume, lower capital and production costs, and longer range, is key to these longer-term goals.
In 2022, through the second quarter, Tesla has deployed 1.98 GWh of energy storage products and 154 megawatts of solar power systems. Current priority areas include:
- the ramp-up in the production of energy storage products;
- improve the capacity and efficiency of installing solar rooftops;
- increase in the market share of solar energy systems for renovation and new construction.
Critical Challenges Tesla Faced in Q2 2022
Identifying COVID-19 as having widespread global impact, Tesla’s report to the SEC acknowledged that increasing vaccine availability and administration and easing restrictions are helping businesses. Yet infection rates and regulations continue to challenge business models and drive up logistics and supply chain costs in several ways:
- increased port congestion;
- intermittent supplier delays;
- a shortage of semiconductor supplies;
- temporary manufacturing closures;
- employment and compensation adjustments;
- barriers to product delivery and deployment.
“We are dependent on our suppliers, including single-source suppliers,” the filing states, “and the inability of those suppliers to deliver the necessary components of our products in a timely manner at the prices, quality levels and volumes acceptable to us, or our inability to effectively manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and results of operations.
The report also noted how different levels of inflation have affected the company’s electric vehicles, solar power generation and energy storage arms through:
- various supply chain disruptions;
- increased shipping and transportation costs;
- increased raw material and labor costs.
Bitcoin bombs affect Tesla results
Tesla’s valuation has been negatively affected by the steep drop in bitcoin price. Explaining that the company’s investment policy provides the flexibility to diversify and maximize returns from its cash outside of operating cash, a portion of Tesla’s cash investments are directed to “certain alternative reserve assets, including digital assets, gold bullion, gold exchange-traded funds,” among others.
Their investment in bitcoin is indicative of the company’s broader perspective on growing or shrinking digital asset holdings, based on business needs and the company’s view of market conditions and of the environment.
The company reported an initial investment in early 2021 of $1.5 billion in cryptocurrency, and it has now “converted approximately 75% of [its] Bitcoin buys in fiat currency. So far, more than one hundred million dollars have been lost on cryptocurrency investment – “in the six-month period ending June 30, 2022, we recorded $170 million in impairment losses resulting from changes in the book value of our bitcoin and gains of $64 million on certain conversions of bitcoin into fiat currency by us.
Cautious optimism as Tesla looks to the future
Tesla’s next phase of production growth depends on factors at Gigafactory Berlin-Brandenburg and Gigafactory Texas and the upgrade and expansion of Gigafactory Shanghai.
The company says it will continue to ramp up production, build new manufacturing capabilities and expand operations to enable increased product shipments and deployments and additional revenue growth. Noting that the company is in a cyclical industry “sensitive to political and regulatory uncertainties, including trade and environmental”, the company remained cautious in its optimism.
“As long as we see an increase in sales, and excluding the potential impact of macroeconomic conditions, including increased labor costs and certain asset impairment charges,” Tesla expects that operating expenses to revenue decline as it continues to increase operational efficiency and process automation. “We expect operating expenses to increase in 2022 as we expand our operations globally.”
The effects of the future global impact due to the COVID-19 pandemic, inflationary pressures and potential increases in interest rates could affect profitability.
Likewise, competition will influence Tesla’s value as new EV makers enter the market. Again, Tesla dominates the global electric vehicle market and is on a continued growth trajectory, while traditional automakers like Toyota and General Motors are seeing a sharp drop in sales.
In its quest to help bring the world closer to sustainable transportation, Tesla says it will have to continue to execute well to maintain its capital momentum. “The inflationary impact on our cost structure,” Tesla concluded, “has contributed to price adjustments for our products, despite a continued focus on reducing our manufacturing costs where possible.”
Tesla Businesses and Capital Expenditures
Tesla described its two operating and reportable segments in the SEC Q2 filing: (i) automotive and (ii) power generation and storage.
The automotive industry understand :
- the design, development, manufacture, sale and rental of electric vehicles;
- sale of automobile regulatory credits;
- after-sales services for out-of-warranty vehicles;
- used vehicle, retail merchandise and third-party customer sales and automobile insurance revenue.
The energy generation and storage segment understand :
- the design, manufacture, installation, sale and rental of solar power generation and energy storage products;
- related services and sales of solar energy system incentives.
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