Instant Reaction: Tesla Beats Estimates, Hints at EV Demand Rebound

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2:23Yeah, let's go right to Tesla. It just crossed the Bloomberg terminal. First quarter adjusted EPS, folks, 41 cents a share, 7 cents better than what the street was expecting. That's adjusted EPS. First quarter gross margin coming in stronger than forecast, certainly a sign of profitability, 21.1 % versus an estimate of 17.7%. First quarter revenue coming in slightly higher than what the street was forecasting, Tim, 22.39 billion. The street estimate was for$22.19 billion. Okay, so some other headlines crossed in the Bloomberg Terminal. You mentioned free cash flow, but worth repeating because it is a redhead, Carol.

3:00First quarter free cash flow,$1.44 billion. The estimate was for a negative$1.86 billion. The Tesla communications around earnings are a slide deck, so it's kind of tough to go through. But Tesla says that the CyberCab, the Tesla Semi, the mega cap production starting in 2026, so that's this year. Tesla also saying the first gen production lines for Optimus, that's the humanoid robot, are being installed. Tesla also saying the CyberCab and the Tesla Semi are on schedule for 2026. The company says seeing its rebounds in demand for EMEA and North America. And we should note that the company also says that tailwinds are persisting for the U.S.

3:41autos business. And it received approval for full self-driving in the Netherlands in April. All right. The stock, as you see, though, investors liking what it has to say about the first quarter in terms of a lot of those metrics actually looking better than forecast. And again, looking at some of the individual businesses, the company also saying it launched unsupervised robo taxi rides in Dallas and Houston. As you mentioned, tailwinds persisting for the autos business, first gen production lines for Optimus being installed. So much of the Tesla story is about what it's going to be done. It's classic vintage, if you will, at this point, Elon Musk.

4:22And we know we've talked a lot. We're anticipating the SpaceX IPO. Speculation, does everything get rolled into one company under the Tesla umbrella, whether it's the AI business? And how does everything work together? And that is certainly something we're watching and we'll be watching out for on the call today. Yeah, on that, the question is about what the identity of this company is. Investors are not and have not for years valued it as a car company. Many people who are bullish on the company say it's about AI. It's about autonomy. It's about creating that fleet of robo-taxis. You mentioned that it launched unsupervised robo-taxi rides in Dallas and Houston.

4:57The company also saying that robo-taxi miles about doubled sequentially. That's a measurement that Waymo uses as well to indicate the scale. You said you're testing or a little bit of both. Exactly. Well, this is usage, right? Yeah. But not everywhere. And the rollout is not as far and wide as it is for Waymo. Danahol on our live blog, senior reporter here at Bloomberg has been covering Tesla. She's saying, Tesla's saying, high up in the deck, that demand has returned. Here's the quote. We saw continued growth and demand for our vehicles and markets in APAC and South America, while also seeing a rebound of demand in both the emerging markets and also in Africa and in North America.

5:37Okay. Look at that. Tesla shares higher right now, as we mentioned, just by about 3.4%. First quarter adjusted gross margin, excluding regulatory credits, was 19.2%. That's up from 12.5 % year over year. The headlines, though, that are important for our audience, Tesla first quarter adjusted earnings per share, coming in above estimates at 41 cents. The estimate was for 34 cents. First quarter free cash flow,$1.44 billion. The estimate was for negative$1.86 billion. All right. With us is Steve Mann, Global Autos and Industrials Research Manager at Bloomberg Intelligence. He joins us from BI headquarters in Princeton, New Jersey.

6:14Steve, come on in. Lots of moving parts, certainly when it comes to Tesla. But it was originally all about the EV business. We can get into other stuff later. How do you think they did in the quarter? Like you said, earnings beat actually not a big surprise, given that production was pretty high in the quarter. and I think positive free cash flow is great versus the negative free cash flow consensus was expecting. That's probably a function of the higher profit for the gross profit for the quarter. I think investors will like this. If I look into their investor deck, shareholder deck, they are ramping up the cyber robo-taxi business.

7:02They have unsupervised ramp up over in three different cities. And then San Francisco area, they actually have it running with a safety driver. So I think that's a good sign. I think that investors are pretty antsy about that, including myself. We're waiting and thinking, how are they doing on this? So I think they're ramping up according to plan. what's also interesting and we actually wrote about this is that the rest of the world markets for their auto sales is improving rest of the world basically excludes their three pillar markets which is you know u.s europe and uh china so you know we we saw you know they're actually doubling the footprint in japan south korea sales right up they're starting to get into the India market, huge market potential.

8:04So let's hear what they have to say about the robot. I'm not as optimistic on a robot. Well, Ed Ludlow is here with us. He's going to help us make sense of all of these headlines. He is the co-host of Bloomberg Tech on Bloomberg TV, follows this company and all EV companies closely, but it isn't even an EV company anymore, Ed. This is the no surprises, no drama shareholder deck. So interesting. The return of the word demand about the core EV business is almost a surprise. We spent all week saying, we look past the EV business. This is about being an AI and robotics company. And we talk about how Tesla trades at 183 times forward earnings.

8:47The rest of the Mag7, those are the biggest technology companies by market cap, trade roughly 30 times forward earnings. In other words, this is what we're saying. Investors value this as an AI and robotics company. And yet the stock is up more than four and a half percent in after hours. And what they're talking about is the return of demand in markets like APAC and Latin or South America and demand in other core markets like EMEA for their electric vehicles. Is that surprising to you, given that China has been able to create and build and develop EVs that can be bought in some of these markets at a fraction of the price that Tesla's can be?

9:22In the absence of any specific commentary about China, I mean, what uh tesla says and i'm just going to read it is including the rollout of the model yl y long range or long length in uh markets outside of china and more affordable trims of both models so that that's the only real sort of specific way they've addressed china they're not saying they saw weakness they're just saying they saw strength outside of china so i find that very interesting shame on us for not like realizing this is still a real business this ev business But they've been trying to communicate to us that that's not the future.

9:57Or shame on them. Well, I mean, there's so many ways we could go about this. In the shareholder deck, they talk about, in passing reference, building the biggest ever chip fab. They don't use the word tariff fab, which I find interesting. The absolutely critical thing for the audience to remember is that any activity relating to Tesla building its own chip factory is not factored into its full financial year capital expenditures guide, which is$20 billion. They haven't changed that in this deck, unless I missed it, and I can check right now. But to build a chip fab that they're talking about would take in the trillions of dollars.

10:33And so one overhang that investors have been worried about, clearly they're not. The stock's up 4.5%, have been, how much money is Tesla going to spend to get all of this done? At some point, they're going to have to put the money where the mouth is to get these projects underway. Okay, go ahead. Yeah, let's bring back Steve Mann, Global Autos and Industrials Research Manager at Bloomberg Intelligence, out there in our BI headquarters in Princeton, New Jersey. You've been listening to us talk with Ed and this kind of idea that, you know, EV is actually still a big deal at Tesla and they're developing and growing in markets outside the United States.

11:06Yeah, I think you should think of cars from Tesla's perspective as a robot on wheels, right? Right. You know, for them to proliferate AI in cars and then later on with a humanoid robot, you know, they do need to sell more cars. Right. They need to get these this FSD approved. And they had some good news recently. At the end of last year, South Korea approved FSD. And more importantly, a few weeks ago, Netherlands approved FSD. And that's critical because, you know, that that can actually help them proliferate beyond Netherlands into the rest of Europe. So it's a big deal for them. Like, you know, Ed was talking about the Model Y, the length and longer Model Y.

11:56You know, it's important to have that vehicle, especially in Asia, because a lot of the households over there are multigenerational households. So they do need a little bit more room, a little bit more seating room for the buyers over there. So that's why you were seeing that, you know, that car actually resonates, has been resonating with the Japanese and as well as South Korean consumers there. Ed, is this a real business for the company going forward? Are investors betting that the Optimus business will be? There's a distinction between going forward and near term, medium term, long term. Well, that's the Tesla story, right?

12:32The language is so specific. Preparations for our first large-scale Optimus factory will begin shortly. What does that mean, putting a shovel in the ground? Yeah, exactly. Well, we just don't know, and I'm sure that they'll get questions on it in the call. You know, Steve's absolutely right that they did discontinue production of the Model S and X, but they also, for a very long time, Musk himself said they only made that vehicle for sentimental reasons, right? It was so low volume. I find it really interesting that the second part of that paragraph, the first generation line for Optimus designed for 1 million robots a year will replace the Model S and Model X lines in Fremont, California.

13:16We are also preparing Gigafactory Texas for the second generation line, which is being designed for long term annual production of 10 million. And I think that's a really significant piece of news for the Bay Area and the state of California that actually just just in writing confirmation that Optimus as a program starts at that Fremont facility. You know, it's a big it's a big deal. I mean, given what Elon has said about California, the moving out of California. What was it? Was it Gavin Newsom? Yeah, Gavin Newsom said that Elon called him, and this was in Matt Winkler's opinion piece recently, that Elon called him and said, we can't find the talent that we're looking for outside of California.

13:54Yeah, and also, by the way, I'm not saying this is barnstorming breaking news. I'm just making an observation that they've set the plan out in writing for something that's hard for many people to believe. Steve makes a very critical point. Again, Tesla's talked about this. The first use case of Optimus is within Tesla's own facilities in the manufacturing context. And he's talked about selling it to the general population as a babysitter or as care for the elderly or as part of the labor to address the deficit in labor in various sectors. But I'm just saying, like, they outlined a plan. And if you think about the history of this company, the big tent at Fremont that they put together, you know, the Frankenstein's monster of a factory that it once was.

14:35It's interesting how they do things. I also want to bring in Ross Gerber. He's president and CEO of Gerber Kawasaki Wealth and Investment Management. We're going to roundtable it and you guys talk to each other and we're going to talk to you. The firm has about$4 billion in assets under management. So talk to us a little bit about your first impressions when it comes to these results. This idea of seeing demand in certain parts of the world for the autos business. What's your take? Thrilled. Couldn't be happier to see demand for the autos business. That's the business I'm in is EV business. I care about climate.

15:07I want to see them sell as many EVs as possible in the world and they still make the best EV. And so I was like the fact we're talking about cars. I'm so happy because like that's how they actually make money and that actually matters. Nobody needs another cab service. OK, there's plenty of cab services. If you're in Santa Monica, you can take a robo taxi right now. We got Amazon up next. I haven't seen a Tesla yet. I'd love Tesla to come here where it's really hard to drive and test it out. But but that said, you know, I'm excited about I'm an EV guy. I'm a climate guy. It's Earth Day. I hope they sell as many EVs as possible.

15:42Guys, I'm just going to jump in here, Ross. Thank you for joining the show. It's not my show. I'm going to ask you to please hold and stand by. And you guys forgive me for that one. Something just dawned on me. What? So last quarter, they didn't either. But typically in the third page of the deck, they'll give you a financial summary where they put the headwinds and tailwinds to the top and bottom line. And I didn't even realize last quarter, they didn't do it in Q4, and they've not done it this time. So, for example, we don't know what the impact of volume changes is or FX, as an example, or any other specifics, what the impact of operating expenses is on profitability.

16:23They haven't spelled it out. And I'm just making that observation. Well, all right. So let me agree with that observation. So what do you make of that, Ross? Well, you've got to wait for the SEC documents to drop, you know. OK. But I kind of was surprised by the number. So I was trying to parse through why it was better than expected, because with all the extra excess inventory that they added should have hit cash flow harder. So I'm just you know, I want to see their numbers didn't add up with my numbers, basically, because of the excess inventory, which they now have 27 days of inventory, which is actually a high for them.

17:01But yet that didn't hit cash flow at all. Or maybe it did because there was$1.4 billion, they say, of free cash flow, but the actual cash that hit the books was$700 million. But I just want to see how these numbers are parsed out.

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