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

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0:58Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Yeah, 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 was, 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.

1:42$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. First 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 cyber cab 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 that cyber cab uh and the tesla semi are on schedule for 2026 the company says uh seeing its rebounds in demand for EMEA and North America.

2:28And we should note that the company also says that tailwinds are persisting for the U.S. autos 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.

3:05So 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. And 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.

3:44that it launched on supervised robo-taxi rides in Dallas and Houston. The company also saying that robo-taxi miles about doubled sequentially. That's a measurement that Waymo uses as well to indicate the scale. Usage or 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. Dana Hall on our live blog, senior reporter here at Bloomberg, has been covering Tesla. She's saying, Tesla's saying, hi, 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.

4:28Okay, 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 dollars. 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.

5:05Steve, 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? You know, earning, like you said, earnings be actually not a big surprise, given that production was pretty high in the quarter. And I think, you know, 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.

5:53They have unsupervised ramp up over in three different cities. and then San Francisco area, they're actually have it running with the safety driver. So I think that's a good sign. I think that investors are pretty antsy about that. You know, including myself, you know, like we're waiting and thinking like, you know, how are they doing on this? So, you know, 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. The rest of the world basically excludes their three pillar markets, which is U.S., Europe, and China.

6:40So we saw they're actually doubling their footprint in Japan, South Korea sales. They're starting to get into the India market, huge market potential. So let's hear what they have to say. uh about the the robot you know 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 this is the no surprises no drama shareholder deck so interesting um the 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.

7:28This is about being an AI and robotics company. And we talk about how Tesla trades at 183 times forward earnings. The 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 4.5 % 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?

8:13In the absence of any specific commentary about China, I mean, what Tesla says, and I'm just going to read it, is including the rollout of the model YL, wide long range or long length in markets outside of China and more affordable trims of both models. So 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.

8:48Or 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 terra 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 the chip fab that they're talking about would take in the trillions of dollars.

9:24And so one overhang that investors have been worried about, clearly they're not, the stocks up four and a half percent, have been, how much money is Tesla going to spend to get all of this done? Like, 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, EVs actually still a big deal at Tesla or, and they're developing and growing in markets outside the United States.

9:57Yeah, I think, I think you should think of cars from Tesla's perspective as a robot on wheels, 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 it 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 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, you know, it's important to have that vehicle, especially in Asia, because a lot of the households over there are multi-generational households.

10:55So 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? The 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?

11:32Yeah, exactly. Well, we just don't know, and I'm sure that they'll get questions on it in the call. cool you know steve's absolutely right that um they did discontinue production 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 the second part of that paragraph uh the first generation line for optimus designed for one million robots a year will replace the Model S and Model X lines in Fremont, Fremont, California. We are also preparing Gigafactory Texas for the second generation line, which is being designed for long-term annual production of 10 million.

12:15I think that's a really significant piece of news for the Bay Area and the state of California that actually just in writing, confirmation that Optimus as a program starts at that Fremont facility. It's a big deal. I mean, given what Elon has said about California, the moving out of California. Well, 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. Yeah, and also, by the way, I'm not saying this is barnstorming breaking news.

12:49I'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 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 a 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, it's interesting how they do things.

13:27I 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. 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. I want to see them sell as many EVs as possible in the world and they still make the best EVs.

14:03And 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 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. Guys, I'm just going to jump in here, Ross. Thank you for joining the show.

14:36It'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.

15:15They 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. Okay. 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 excess inventory that they added, should it 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.

15:52But yet that didn't hit cash flow at all. So or maybe it did because there was one point four 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.