Thursday, July 20, 2023

CORRECTED—Earnings - Tesla Reports, Stock Slides, Elon's Buying A Supercomputer (TSLA)

correction: At this level of performance one does not simply buy a supercomputer, one builds a supercomputer. 
Original post:

First up, Investor's Business Daily, July 20, with a tight little riff on the release and conference call:

Tesla Earnings Jump 20%; Elon Musk Says 'Autonomy' Will Make Sliding Margins 'Look Silly' 

Tesla (TSLA) reported better-than-expected second-quarter financials late Wednesday, even as vehicle price cuts and discounts kept gross margins below the 20% "floor" Tesla has targeted in the past. TSLA shares dropped early Thursday.

Tesla reported Q2 profits growing 20% to 91 cents per share while revenue increased 47% to $24.93 billion. Analysts expected profits to edge up around 4% to 80 cents per share with revenue totaling $24.22 billion, up 43% compared with last year.

Meanwhile, total gross profit grew 7% to $4.53 billion. Total gross margins came in at 18.2%, down from 19.3% in Q1 and a decline of 682 basis points vs. last year. Auto gross margins, excluding regulatory credits and leases, came in at 18.1%, down from 18.3% in Q1.

That is below the 20% gross margin "floor" Tesla previously targeted. Ahead of earnings, a slew of analysts rang warning bells on gross margins.

"The short term variances in gross margins and profitability really are minor relative to the long term picture," Chief Executive Elon Musk told investors Wednesday.

"Autonomy will make all of these numbers look silly," he added during the Q2 earnings call.

Tesla stock fell 4.3% early Thursday during premarket trade. Losses started during the earnings call Wednesday. During regular trade Wednesday, TSLA fell 0.7% to 291.26.

Analysts Focus On Margins
Wedbush analyst Daniel Ives, a longtime Tesla bull, said the big focus is on auto gross margins "to gauge the impact of the price cuts and what this means for margins going forward."....


The stock is down $11.88 (-4.08%) at $279.38 pre-market.

And from Bloomberg via Yahoo Finance, July 19:

Musk Says Tesla to Spend Over $1 Billion on Dojo Supercomputer

Tesla Inc. is sparing no expense to become a player in supercomputing, with Elon Musk saying the carmaker plans to invest more than $1 billion on its so-called Project Dojo by the end of 2024.

The chief executive officer told investors Wednesday the in-house supercomputer is being designed to handle massive amounts of data, including video from Tesla cars needed to create autonomous-driving software.

“We will be spending well over $1 billion on Dojo” over the next year, he said said during a conference call with analysts.

The disclosure of that big-ticket expenditure appeared to spook investors, contributing to the more than 4% postmarket slide in Tesla’s share price.....


For some background on Tesla and AI here is our introduction to June 9's "Elon Musk Predicts Nvidia’s Monopoly in A.I. Chips Won’t Last" (NVDA; TSLA)":

Before we get to the headline story, some background. Tesla and Nvidia have a history.

In 2015 - 2016 when everyone thought that autonomous driving was just around the corner, the challenge was seen as both a sensor issue, for example: LIDAR vs cameras, and a machine learning/artificial intelligence problem which boils down to training the AI 'puters with as much data as you can so that out in the real world the autonomous vehicle can say to itself: "Yeah, I've seen this situation before, here's the response that worked best. Both the training and the on-the-road-recall, if they are to be anywhere near efficient, require the fastest chips you can find. Tesla had a whole bunch of data from a few billion miles of actual driving for computers to train on, and, combined with Nvidia's fastest-in-the-world GPU chips, it was a match made in heaven.

Except it wasn't.

The challenge of autonomous driving on open roads alongside non-autonomous vehicles was bigger than anyone in that simple, optimistic time ever envisioned, even in their nightmares. Here's one example about Waymo from a 2017 post:

"When Google was training its self-driving car on the streets of Mountain View, California, the car rounded a corner and  encountered a woman in a wheelchair, waving a broom, chasing a duck. The car hadn’t encountered this before so it stopped and waited."

In May 2015 we were posting " Nvidia Wants to Be the Brains Of Your Autonomous Car (NVDA)" and seven months later the more declarative "Class Act: Nvidia Will Be The Brains Of Your Autonomous Car (NVDA)"

Then in October 2016, what was probably the high-water mark for the relationship "Nvidia Could Make $1B From Tesla's Self-Driving Decree: Analyst (TSLA, NVDA)"

Sadly, the task was just too difficult but Mr. Musk thought it was doable if only he could get even faster chips than Nvidia had on offer:

NVIDIA Partner Tesla Reportedly Developing Chip With AMD (TSLA; NVDA; AMD) 
Today in leveraged WTFs....

"During a talk at a private party, Elon Musk said Tesla is developing specialized AI hardware "'That we think will be the best in the world;" (TSLA)  

"Tesla says it’s dumping Nvidia chips for a homebrew alternative" (TSLA)
The only reason for Tesla to do this is that NVIDIA's chips are general purpose whereas specialized chips are making inroads in stuff like crypto mining (ASICs), Google's Tensor Processing Units (TPUs) for machine learning and Facebook's hardware efforts. 
 Watch Out NVIDIA: "Google Details Tensor Chip Powers" (GOOG; NVDA)
We've said NVIDIA probably has a couple year head start but this bears watching, so to speak....

Culminating in August 2018's
"Nvidia CEO is 'more than happy to help' if Tesla's A.I. chip doesn't pan out" (NVDA; TSLA)

And now on to the headliner, from Observer, June 8:
Elon Musk Predicts Nvidia’s Monopoly in A.I. Chips Won’t Last....

And possibly related July 13:
Elon Musk's x.AI Launches
The company was formed in March so it's valuation is probably around a hundred billion or so.

Just kidding. I have no idea what sort of valuation it has been assigned. x.AI is a Nevada corporation which, as our corporate attorney readers well know, is handy as hell for a privately-held stealth company. As part of the company's coming-out I think they dropped the period in the name on the original incorporation papers.

Mr. Musk was one of the founder/funders ($100 million gift not equity) of ChatGPT parent OpenAI when it was a .org (non-profit) and seemed a bit miffed when Sam Alman hooked up with Microsoft to the tune of $10 billion.

So Elon went out and bought a garage-full of GPUs.

Here's a twofer, first up TechCrunch, July 12:....