Insight

China Cloud on Tesla’s Q2 2022 Numbers; Fundamentals Remain Strong

July 25, 2022

Tesla sold more than 254,000 vehicles in Q2 2022, an increase of 27% YoY, which was below general expectations.
This was the first time since the COVID-19-hit 2020 that the automaker experienced a sequential decline in sales.

After achieving phenomenal growth in Q1 2022, Tesla’s global sales during Q2 2022 grew by just 27% YoY to over 254,000 units, falling short of expectations. In QoQ terms, the sales fell 18%. Business during Q2 2022 was affected by COIVD-19-related shutdowns in China. Production units in and around Shanghai were closed temporarily due to strict lockdown measures. As a result, Tesla sold just 89,000 cars across China during Q2 2022. Cumulative sales in China during April and May fell by more than 66% YoY. The situation improved only after the production returned to full capacity in June. It was expected that the Berlin Gigafactory would boost Tesla’s sales in Europe after becoming operational in March 2022. But the production was lower than expected. A few rumored reasons for the low production are litigation with the German government and a shortage of human resources. The Berlin factory is currently focusing on the production and deliveries of the Model Y across Europe.

Tesla bets on in-house battery cell manufacturing

Tesla delivered its first batch of cars equipped with the in-house 4680 battery cells and structural battery packs during this quarter. These cells use a little amount of lithium. With lithium prices soaring worldwide, 4680 cells will help lower the vehicle manufacturing cost. The cells will power the Model Ys coming out of the Berlin Gigafactory. However, Tesla will shut the Berlin Gigafactory for a couple of weeks during autumn to upgrade the production system of 4680 cells.

Other businesses see 33% YoY growth

Although Tesla’s vehicle sales in Q2 2022 failed to meet expectations, its other businesses like energy deployment and storage, charging and other services grew more than its vehicle segment. Energy deployment, energy storage, charging and other services grew by 33% YoY. Tesla deployed 106 MW of solar panels and 1.13 GWh of energy storage during Q2 2022. It installed 247 new superchargers worldwide, bringing its global supercharger number to 3,971 units with more than 36,000 connectors.

Tesla converts 75% of its Bitcoins to fiat currency

During Q2 2022, Tesla also converted 75% of its Bitcoins to fiat currency. This was done to have a better cash position against the backdrop of COIVD-19-related uncertainties. This conversion reduced Tesla’s digital assets to $218 million and added $936 million in cash to Tesla’s balance sheet. Tesla Revenue by Segment, Q2 2021-Q2 2022_Counterpoint

Tesla Revenue by Segment, Q2 2021-Q2 2022_Counterpoint

Source: Tesla Q2 2022 Financials and Counterpoint Analysis

Q2 2022 Financial Results

During Q2 2022, Tesla sold more than 254,000 vehicles at 27% YoY growth. The Model 3 and Model Y comprised more than 93% of these sales.
Revenue from vehicle sales stood at $14.6 billion. Total revenue grew by almost 42% YoY, with the COVID-19 impact on China reducing the QoQ number by about 10%. Revenue generated from automotive credit also declined slightly compared to Q2 2021.
The company’s other services, like energy storage, charging and insurance, contributed to 14% of its total revenue. Revenue from insurance and vehicle services saw a 54.2% YoY growth, while the energy storage and charging segment grew by just 8% YoY. The energy storage business was expected to perform better but was restricted due to semiconductor-related supply issues.
Tesla’s gross profit during Q2 2022 reached $4.2 billion and stood at 25%. Though the shutdown in China adversely affected the business, increase in US deliveries along with the higher average vehicle price helped Tesla earn 47% more profit YoY.
R&D costs grew 16% YoY during Q2 2022. Tesla is trying to achieve complete autonomy by 2024 by perfecting Full-Self Driving (FSD) software. But the resignation of Andrej Karpathy, the director of artificial intelligence and autopilot system at Tesla, in mid-July is likely to stall the progress of this project, which is expected to get delayed by a year.

Tesla Production and Deliveries, Q2 2021-Q2 2022_Counterpoint

Source: Tesla Q2 2022 Financials and Counterpoint Analysis

Market Outlook

Despite experiencing a dip during the second quarter of 2022, Tesla’s future outlook seems strong and promising with strong fundamentals. Tesla has secured the supply of LFP batteries for its Shanghai Gigafactory by signing a deal with BYD. Transitioning to LFP batteries and 4680 battery cells will help Tesla reduce vehicle manufacturing costs. Moreover, Tesla expects the Berlin Gigafactory production capacity to cross 100,000 units by the end of 2022. With all these developments, Tesla is expected to cross more than 1.2 million units of vehicle deliveries by the end of 2022.

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Team Counterpoint

Counterpoint Research is a global industry and market research firm providing market data, intelligence, thought leadership and consulting across the technology ecosystem. We advise a diverse range of global clients spanning the supply chain – from chipmakers, component suppliers, manufacturers and software and application developers to service providers, channel players and investors. Our veteran team of analysts serve these clients through our offices located across the key innovation hubs, manufacturing clusters and commercial centers globally. Our analysts consistently engage with C-suite through to strategy, market intelligence, supply chain, R&D, product management, marketing, sales and others across the organization. Counterpoint’s key coverage areas: AI, Automotive, Cloud, Connectivity, Consumer Electronics, Displays, eSIM, IoT, Location Platforms, Macroeconomics, Manufacturing, Networks & Infra, Semiconductors, Smartphones and Wearables.