Tesla, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Overview Our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, charging, insurance, financial and other services related to our products. Additionally, we are increasingly focused on products and services based on AI, robotics and automation. In 2024, we produced approximately 433,000 consumer vehicles and delivered approximately 387,000 consumer vehicles through the first quarter. We are focused on profitable growth, including by leveraging existing factories and production lines to introduce new and more affordable products, increasing vehicle production, utilized capacity and delivery capabilities, reducing costs, improving and developing our vehicles and battery technologies, vertically integrating and localizing our supply chain, further improving and deploying our FSD capabilities, including through our planned robotaxi product, and expanding our global infrastructure, including our service and charging infrastructure. In 2024, we deployed 4.05 GWh of energy storage products through the first quarter. We are focused on ramping the production and increasing the market penetration of our energy storage products. During the three months ended March 31, 2024, we recognized total revenues of $21.30 billion, representing a decrease of $2.03 billion, compared to the prior year. During the three months ended March 31, 2024, our net income attributable to common stockholders was $1.13 billion, representing an unfavorable change of $1.38 billion, compared to the same period in the prior year. We continue to ramp production and build and optimize our manufacturing capacity, expand our operations while focusing on further cost reductions and operational efficiencies to enable increased deliveries and deployments of our products, and invest in research and development to accelerate our AI, software, and fleet-based profits for further revenue growth. We ended the first quarter of 2024 with $26.86 billion in cash and cash equivalents and investments, representing a decrease of $2.23 billion from the end of 2023. Our cash flows provided by operating activities during the three months ended March 31, 2024 and 2023 were $242 million and $2.51 billion, respectively, representing a decrease of $2.27 billion. Capital expenditures amounted to $2.77 billion during the three months ended March 31, 2024, compared to $2.07 billion during the same period ended March 31, 2023, representing an increase of $701 million. Overall growth has allowed our business to generally fund itself, and we will continue investing in a number of capital-intensive projects and research and development in upcoming periods. Management Opportunities, Challenges and Uncertainties and 2024 Outlook Automotive—Production The following is a summary of the status of production of each of our announced vehicle models in production and under development, as of the date of this Quarterly Report on Form 10-Q: Production Location Vehicle Model(s) Production Status Fremont Factory Model S / Model X Active Model 3 / Model Y Active Gigafactory Shanghai Model 3 / Model Y Active Gigafactory Berlin-Brandenburg Model Y Active Gigafactory Texas Model Y Active Cybertruck Active Gigafactory Nevada Tesla Semi Pilot production Various Next Generation Platform In development TBD Roadster In development 25 Table of Contents We are focused on growing our manufacturing capacity, which includes capacity for manufacturing new vehicle models such as our Cybertruck and future vehicles utilizing aspects of our next generation platform, and ramping the production at our Gigafactories to their installed production capacities as well as increasing production rate and efficiency at our current factories. The next phase of production growth will depend on the continued ramp at our factories and be initiated by advances in autonomy and the introduction of new products, including those built on our next generation vehicle platform, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range. Our goals are to improve vehicle performance, decrease production costs and increase affordability and customer awareness. These plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by new product and manufacturing technologies we introduce, the number of concurrent international projects, any industry-wide component constraints, labor shortages and any future impact from events outside of our control. For example, during the first quarter of 2024, we experienced a sequential decline in production volumes partially caused by the early phase of the production ramp of the updated Model 3 at our Fremont factory, and factory shutdowns at Gigafactory Berlin-Brandenburg resulting from shipping diversions caused by the Red Sea conflict and an arson attack. Moreover, we have set ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory. Automotive—Demand, Sales, Deliveries and Infrastructure Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles’ affordability and have allowed us to competitively price our vehicles. We will also continue to generate demand by improving our vehicles’ performance and functionality, including through product offerings and features based on artificial intelligence such as Autopilot, FSD (Supervised), and other software, and delivering new vehicles, such as our Cybertruck. In addition, we have been increasing awareness, and expanding our vehicle financing programs, including attractive leasing terms for our customers. Moreover, we expect to continue to benefit from ongoing electrification of the automotive sector and increasing environmental regulations and initiatives. However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, interest rate fluctuations and the liquidity of enterprise customers. For example, inflationary pressures have increased across the markets in which we operate. In an effort to curb this trend, central banks in developed countries raised interest rates rapidly and substantially, impacting the affordability of vehicle lease and finance arrangements. Further, sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations. Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to adjust and continue to execute well to maintain our momentum. Additionally, our suppliers’ liquidity and allocation plans may be affected by current challenges in the North American automotive industry, which could reduce our access to components or result in unfavorable changes to cost. These macroeconomic and industry trends have had, and will likely continue to have, an impact on the pricing of, and order rate for our vehicles, and in turn our operating margin. Changes in government and economic incentives in relation to electric vehicles may also impact our sales. We will continue to adjust accordingly to such developments, and we believe our ongoing cost reduction, including improved production innovation and efficiency at our newest factories and lower logistics costs, and focus on operating leverage will continue to benefit us in relation to our competitors, while our new products will help enable future growth. As our production increases, we must work constantly to similarly increase vehicle delivery capability so that it does not become a bottleneck on our total deliveries. We are also committed to reducing the percentage of vehicles delivered in the third month of each quarter, which will help to reduce the cost per vehicle. As we expand our manufacturing operations globally, we will also have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction. In particular, as other automotive manufacturers have announced their adoption of the North American Charging Standard (“NACS”) and agreements with us to utilize our Superchargers, we must correspondingly expand our network in order to ensure adequate availability to meet customer demands. We also remain focused on continued enhancements of the capability and efficiency of our servicing operations. 26 Table of Contents Energy Generation and Storage Demand, Production and Deployment The long-term success of this business is dependent upon incremental volume growth. We continue to increase the production of our energy storage products to meet high levels of demand, including the construction of a new Megafactory in Shanghai and the ongoing ramp at our Megafactory in Lathrop, California. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones. As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products. Cash Flow and Capital Expenditure Trends Our capital expenditures are typically difficult to project beyond the short-term given the number and breadth of our core projects at any given time, and may further be impacted by uncertainties in future global market conditions. We are simultaneously developing and ramping new products, building or ramping manufacturing facilities on three continents, piloting the development and manufacture of new battery cell technologies, expanding our Supercharger network and investing in autonomy and other artificial intelligence enabled training and products, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to exceed $10.00 billion in 2024 and be between $8.00 to $10.00 billion in each of the following two fiscal years. Our business has generally been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also generally facilitating positive cash generation. We have and will continue to utilize such cash flows, among other things, to do more vertical integration, expand our product roadmap, invest in autonomy and provide financing options to our customers. At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales. Critical Accounting Policies and Estimates For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2023. Recent Accounting Pronouncements See Note 1, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Results of Operations Revenues Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Automotive sales $ 16,460 $ 18,878 $ (2,418) (13) % Automotive regulatory credits 442 521 (79) (15) % Automotive leasing 476 564 (88) (16) % Total automotive revenues 17,378 19,963 (2,585) (13) % Services and other 2,288 1,837 451 25 % Total automotive & services and other segment revenue 19,666 21,800 (2,134) (10) % Energy generation and storage segment revenue 1,635 1,529 106 7 % Total revenues $ 21,301 $ 23,329 $ (2,028) (9) % 27 Table of Contents Automotive & Services and Other Segment Automotive sales revenue decreased $2.42 billion, or 13%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to lower average selling price on our vehicles driven by overall price reductions year over year. Additionally, there was a decrease of approximately 27,000 combined Model 3 and Model Y cash deliveries partially due to the early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns resulting from shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin-Brandenburg. The decreases were partially offset by an increase of approximately 7,000 deliveries of other models as we ramped our production of Cybertruck. Automotive regulatory credits revenue decreased $79 million, or 15%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Automotive leasing revenue decreased $88 million, or 16%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease was primarily due to a decrease in direct sales-type leasing revenue driven by lower deliveries year over year. Services and other revenue increased $451 million, or 25%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was primarily due to increases in non-warranty maintenance services and collision revenue, insurance services revenue, paid Supercharging revenue and part sales revenue. Additionally, there was higher used vehicle revenue driven by increases in volume partially offset by a decrease in average selling price of used vehicles. Energy Generation and Storage Segment Energy generation and storage revenue increased $106 million, or 7%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was primarily due to an increase in average selling price of Megapack partially offset by a decrease in solar deployments. Cost of Revenues and Gross Margin Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Cost of revenues Automotive sales $ 13,897 $ 15,422 $ (1,525) (10) % Automotive leasing 269 333 (64) (19) % Total automotive cost of revenues 14,166 15,755 (1,589) (10) % Services and other 2,207 1,702 505 30 % Total automotive & services and other segment cost of revenues 16,373 17,457 (1,084) (6) % Energy generation and storage segment 1,232 1,361 (129) (9) % Total cost of revenues $ 17,605 $ 18,818 $ (1,213) (6) % Gross profit total automotive $ 3,212 $ 4,208 Gross margin total automotive 18.5 % 21.1 % Gross profit total automotive & services and other segment $ 3,293 $ 4,343 Gross margin total automotive & services and other segment 16.7 % 19.9 % Gross profit energy generation and storage segment $ 403 $ 168 Gross margin energy generation and storage segment 24.6 % 11.0 % Total gross profit $ 3,696 $ 4,511 Total gross margin 17.4 % 19.3 % 28 Table of Contents Automotive & Services and Other Segment Cost of automotive sales revenue decreased $1.53 billion, or 10%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Cost of automotive sales revenue decreased due to a decrease in the average combined cost per unit of our vehicles primarily from lower raw material costs, freight and duties in addition to the changes in deliveries year over year as discussed. Additionally, there were higher costs for Cybertruck and the updated Model 3 at our Fremont factory as a result of the temporary under-utilization of manufacturing capacity as production ramps. Cost of automotive leasing revenue decreased $64 million, or 19%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease was primarily due to a decrease in direct sales-type leasing cost of revenue driven by lower deliveries year over year. Cost of services and other revenue increased $505 million, or 30%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was generally in line with the changes in services and other revenue as discussed above. Gross margin for total automotive decreased from 21.1% to 18.5% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease was driven by the changes in automotive sales revenue and cost of revenue as well as a decrease in regulatory credits revenue, as discussed above. Gross margin for total automotive & services and other segment decreased from 19.9% to 16.7% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to the automotive gross margin decrease discussed above. Energy Generation and Storage Segment Cost of energy generation and storage revenue decreased $129 million, or 9%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease was due to an increase in IRA manufacturing credits recognized year over year. Gross margin for energy generation and storage increased from 11.0% to 24.6% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was driven by the changes in energy generation and storage revenue and cost of revenue as discussed above. Research and Development Expense Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Research and development $ 1,151 $ 771 $ 380 49 % As a percentage of revenues 5 % 3 % Research and development (“R&D”) expenses increased $380 million, or 49%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The overall increase was primarily driven by additional costs year over year related to AI, advancement of our proprietary battery cell technologies and other programs. R&D expenses as a percentage of revenue increased from 3% to 5% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 as we continue to expand our product roadmap and technologies. Selling, General and Administrative Expense Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Selling, general and administrative $ 1,374 $ 1,076 $ 298 28 % As a percentage of revenues 6 % 5 % 29 Table of Contents Selling, general and administrative (“SG&A”) expenses increased $298 million, or 28%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This was driven by a $176 million increase in employee and labor costs primarily from increased headcount, including professional services, a $62 million increase in facilities related expenses and a $41 million increase in promotions, advertising and other marketing expenses. Interest Income Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Interest income $ 350 $ 213 $ 137 64 % Interest income increased $137 million, or 64%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This increase was primarily due to higher interest earned on our cash and cash equivalents and short-term investments in the three months ended March 31, 2024 as compared to the prior period due to rising interest rates and our increasing portfolio balance. Other Income (Expense), Net Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Other income (expense), net $ 108 $ (48) $ 156 Not meaningful Other income (expense), net, changed favorably by $156 million in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The favorable change was primarily due to fluctuations in foreign currency exchange rates on our intercompany balances. As our intercompany balances are significant in nature and as we do not typically hedge foreign currency risk, we can experience significant fluctuations in foreign currency exchange rate gains and losses from period to period. Provision for Income Taxes Three Months Ended March 31, Change (Dollars in millions) 2024 2023 $ % Provision for income taxes $ 409 $ 261 $ 148 57% Effective tax rate 26 % 9 % Our provision for income taxes increased by $148 million in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Our effective tax rate increased from 9% to 26% in the three months ended March 31, 2024 as compared to the prior period. These increases are primarily due to the impact of releasing the valuation allowance on our U.S. deferred tax assets in the fourth quarter of 2023 and changes in mix of jurisdictional earnings. See Note 9, Income Taxes , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. Liquidity and Capital Resources We expect to continue to generate net positive operating cash flow as we have done in the last five fiscal years. The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities, the construction of future factories, and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger, including to support NACS, energy product installation capabilities and autonomy and other artificial intelligence enabled products. 30 Table of Contents In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic or business conditions, we may choose to correspondingly slow the pace of our capital expenditures. Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following March 31, 2024, as well as in the long-term. See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs. Material Cash Requirements From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Uncertainties and 2024 Outlook—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to exceed $10.00 billion in 2024 and be between $8.00 to $10.00 billion in each of the following two fiscal years. We also have certain obligations in connection with our operations at Gigafactory New York and Gigafactory Shanghai, as outlined in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Material Cash Requirements in our Annual Report on Form 10-K for the year ended December 31, 2023. As of March 31, 2024, we and our subsidiaries had outstanding $4.90 billion in aggregate principal amount of indebtedness, of which $2.14 billion is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness, refer to Note 7, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Sources and Conditions of Liquidity Our sources to fund our material cash requirements are predominantly from our deliveries and servicing of new and used vehicles, sales and installations of our energy storage products, interest income, and proceeds from debt facilities and equity offerings, when applicable. As of March 31, 2024, we had $11.81 billion and $15.06 billion of cash and cash equivalents and short-term investments, respectively. Balances held in foreign currencies had a U.S. dollar equivalent of $3.47 billion and consisted primarily of Chinese yuan and euros. We had $5.00 billion of unused committed credit amounts as of March 31, 2024. For details regarding our indebtedness, refer to Note 7, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We continue adapting our strategy to meet our liquidity and risk objectives, such as investing in U.S. government securities and other investments, to do more vertical integration, expand our product roadmap and provide financing options to our customers. 31 Table of Contents Summary of Cash Flows Three Months Ended March 31, (Dollars in millions) 2024 2023 Net cash provided by operating activities $ 242 $ 2,513 Net cash used in investing activities $ (5,084) $ (2,484) Net cash provided by (used in) financing activities $ 196 $ (233) Cash Flows from Operating Activities Net cash provided by operating activities decreased by $2.27 billion to $242 million during the three months ended March 31, 2024 from $2.51 billion during the three months ended March 31, 2023. This decrease was primarily due to unfavorable changes in net operating assets and liabilities of $1.19 billion and the decrease in net income excluding non-cash expenses, gains and losses of $1.08 billion. Cash Flows from Investing Activities Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $2.77 billion for the three months ended March 31, 2024 and $2.07 billion for the three months ended March 31, 2023, mainly for global factory expansion, machinery and equipment and AI related capital expenditures as we expand or enhance our product roadmap. We also purchased $2.31 billion and $411 million of short-term investments, net of proceeds from maturities, for the three months ended March 31, 2024 and 2023, respectively. Cash Flows from Financing Activities Net cash from financing activities changed by $429 million to $196 million net cash provided by financing activities during the three months ended March 31, 2024 from $233 million net cash used in financing activities during the three months ended March 31, 2023. The change was primarily due to a $776 million increase in proceeds from issuances of debt, partially offset by a $289 million increase in repayments of debt and a $94 million increase in payments for buy-outs of noncontrolling interests in subsidiaries. See Note 7, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our debt obligations. 32 Table of Contents