Tesla, Inc.

Good afternoon, everyone, and welcome to Tesla's first quarter 2022 Q&A webcast. My name is Martin Vieka, VP of Industrial Relations, and I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q&A results were announced at about 3 p.m. Central Time in the update that we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue. Before we jump into Q&A, Zach will have some opening remarks.

Zach? Yeah, thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the company. Despite numerous supply interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to COVID, we've continued making progress and achieved our best ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin, and bottom line profitability. Gap automotive gross margin reached 32.9%, and for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials as we make progress delivering cars in our growing backlog. Note that for most vehicles, our delivery wait times are quite long, thus cars delivered in Q1 generally carried pricing set in prior quarters and at levels lower than cars being ordered today. Our per-unit vehicle costs increased as well. Inflation, raw material prices, expedites, and logistics costs continues to impact our cost structure. Factory shutdowns also occurred with little to no notice, hence we were unable to take action to plan those interruptions in a cost-efficient manner. Additionally, we saw a slight mixed shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of $288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without of which credit revenue would have declined compared to the same period last year. The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply, and new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. OPEX as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expense, and other items. As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D, as Berlin started production in late March and Austin in early April. These costs will be in automotive cogs going forward, given these factories are now producing customer sellable cars. Our free cash flows have remained quite strong, yet we're impacted by working capital related to lower than planned production. Additionally, we have reduced our debt excluding product financing to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we've lost about a month of build volume out of our factory in Shanghai due to COVID related shutdowns. Production is resuming at limited levels and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2. Second, as I've mentioned before, Austin and Berlin are just starting their ramps, and thus those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter.

Thank you very much. And Elon, I saw opening remarks as well.