Tesla Motors, Inc. Second Quarter 2014 Financial Results Q&A Conference Call

Tesla Motors, Inc. Second Quarter 2014 Financial Results Q&A Conference Call

I'll try to get big stuff, but it won't be verbatim.

SamO | July 31, 2014

Adam Jonas: forward year guidance 100,000 units? China demand? Ability to deliver and service volume? How many China service centers?

Elon: Rough guesses on 100K runrate by end of next year. Rough split between S and X. 1000 units/week of each. Market demand for sedans and SUVs currently, they are roughly split.

Reasonable to expect if we are at 1000 now, then we will be at the same or greater run rate than the S.

On the service front we are spending a lot of money on service expansion. Primarily service expansion, not as much sales.

How do we ensure demand is well served.

100 service centers alone in china by the end of next year, 300 worldwide. Off the cuff here.

I've been impressed with Tesla China team. The China team is smart and they work super-hard. And the pace of progress is AMAZING.

Key metric in service is the % of customers that are delighted (10 of 10 score). Goal is to get that from a majority of customers. Domestically, we are about 70%, rate it 10/10.

Another key metric is the average time to service something. Our average is less than 1 day. In most cases, we can pick up your car, fix it and give it back to you without you knowing it was gone.

NKYTA | July 31, 2014

It should be like if elves serviced your car - awesome!

SamO | July 31, 2014

Our goal of service is invisible elves. Like you don't even see it and when it's done you love it.

Chance to revolutionize service. Lot to be learned from the formula 1 approach. Super-fast, and make sure that we anticipate issues so you don't have to come back again. We hit the car like a formula 1 pit crew. A team attacks it. Improving tools and metrics to get the car perfect as fast as possible. And we are bringing in formula 1 teams to help train our team.

SamO | July 31, 2014

Adam: Anyone else committed to sharing your patents? B.S. move to get CARB to rewrite rules?

Does Mr. Burns try to run over you in an i8.

Elon: No death by i8. Im not the biggest proponent of Hydrogen. Theoretically optimal fuel cell car and compare it to battery electric on key metric of mass, volume, infrastructure . . . it's a lot. Best case (future) fuel cell cannot beat the current case electric car, then why even try. Success is not one of the possible outcomes.

JB: Fuel cell range and refuel times are a bit better, but people make a mistake of comparing the future of fuel cells and the present for batteries.

Elon: We are quite confused as to why they are doing this.

JB: The infrastructure costs haven't been taken into account.

nobueno | July 31, 2014


SamO | July 31, 2014

Andrea James: quality control. Improvements made and where you need to go. Like what's going on with the drive train.

Elon: Definitely issues in the beginning and I think we've addressed all of those for current production cars. We are also getting better at diagnosing.

We have replaced drive units but it wasn't the drive unit. We replaced drive units where cables were vibrating against the case.

A fair number of drive trains will need to be serviced(shim the differential). It's like a $.50 shim. Several service bulletins will be instituted.

Product excellence every week (cross company group) to review issues customers are having with the car. To get the car platonic ideal of the perfect car.

The best service is NO SERVICE.

SamO | July 31, 2014

QC Team is excellent and we weren't there in the beginning, but I'm confident we are there.

I want an order of magnitude better service than traditional cars.

SamO | July 31, 2014

Andrea: Gigafactory?

Elon: Completed the construction pad in Nevada. Substantially complete. We are going to be ddoing something similar in 1-2 more states. Makes sense to have multiple in parallel.

Before we pour concrete, we want to make sure we hyave things at the state level. Incentives. We are not going for a deal that is unfair to the state or tesla but compelling for all parties.

Ball is in the court of Governor and State Legislatures.

Andrea: Panasonic?

Elon: We are keeping them closely informed, but they haven't provided advice. They are in agreement on location.

JB: Tesla is managing utilities at the site. Not just from Pana, but from other potential partners.

SamO | July 31, 2014

Ryan Brinkman: 4-5B Gigafactory investment. On track to sign suppliers/partners and when announce their committments?

Elon: 4B or less before 2020, then as we continue invest output, probably closer to 5B by 2020. Of that number, Tesla will provide 40-50% of the total, Panasonic about 30-40%, state 10% and other industrial partners 10-20% depending on how vertical we go.

Panasonic was never in doubt from my standpoint. Panasonic was conservative in their words, but their actions are of an excellent partner. We feel confident that there will be enough money to reach 35GW production 50GW Pack.

SamO | July 31, 2014

anode cathode production

Model X orders? Compare to Model S orders?

Elon: There are no cars avail for test drive. No info about the cars in the store. If someone comes in for the X, we try to sell the S. No details. Despite that there is huge demand from all over the world.

People are right. We will NOT HAVE A DEMAND ISSUE.

SamO | July 31, 2014

Collin: Battery constraints will be eliminated?

Elon: We see a path to potentially 150,000 to 200,000 cars per year without the gigafactory. Need the gigafactory for the remaining 300,000.

Collin: Chemistry going to be the same?

Elon: There are improvements to chemistry and geometry of the cell. Expecting energy density and cost improvements.

JB: Cathode and Anode are next generation. We are seeing improvements of 10-15% energy density. Optimizing packaging efficiency.

Elon: Optimal cell size is close, but roughly 10% more diameter and 10% more height result in 30% more energy per cell. Then actual density per unit mass increases.

JB: Chemistry of what's inside determines cost efficiency.

SamO | July 31, 2014

Collin: Model 3 vertical integration?

Elon: Outsourcing does not decrease the cost. The reason we outsource is we have too many fish to fry but when we've insourced, it's always gotten cheaper.

How far did that molecule move. If a molecule is taking several trips around the world, its going to have higher cost.

logicalthinker | July 31, 2014

are they suggesting square cells? Interesting comment re: *geometry* of the cells.

SamO | July 31, 2014

Bryan Johnson: Help us understand about the gaps between production and deliveries.

Elon: Production in Q4 will significantly exceed delivery. The time from production and delivery (depends on domestic or foreign delivery)

NA is two weeks

INTL add another 3-4 weeks on top of that

Average (blended) is 4-5 weeks.

Cars made in OCT will be delivered in Q4.

SamO | July 31, 2014

Production in Q4 will be a bit more than 1000/week.

SamO | July 31, 2014

Elon: long term,

40% asia

40% N.A.

20% EU

Reasonably well in Japan. Go into Korea. Hong Kong. Australia, NZ. 40% asian pacific.

Demand is not strong in Europe, but it could go 25-30%.

SamO | July 31, 2014

Rob Lackey: case for $100kW/h pack in 10 years?

Elon: I'd be disappointed if it took 10 years to get to $100/kwh

SamO | July 31, 2014

Rob Lackey: How to get to beyond 30% increase in efficiency?

JB: We're tracking things with a variety of improvements, but we don't need a breakthrough. In the long term, there are many interesting things on the horizon.

Elon: It's heading to a place of no-contest. Time is important here. Sooner it's done, sooner we can reduce carbon output and reduce chances of a catastrophe.

SamO | July 31, 2014

Rob Lackey: expecting trajectory of capex and other expenditures?

Deepak: Share more at the end of the year. Give our ramp up in deliveries and revenue, should see improvements as a percentage of revenue for CAPEX.

Elon: In the past we've seen all our cards, but we are not currently showing all our cards.

SamO | July 31, 2014

Patrick Archambault: Cadence of sales? Big ramp from 7800 to 13000.

Elon: Does seem like a leap but we point out there is two weeks missing in Q3. Add 2000 units to what Q3 would have had. More like 9500 units. More sensible in that context.

SamO | July 31, 2014

Elon: At end of Q3 we'll be delivering 1000/week.

Patrick: Hold regional delivery rates in Q2, it does imply that you are starving one or more regions. For asia, it implies 5-6000 deliveries in our preliminary math. Backlog?

Elon: DEMAND WILL NOT BE A PROBLEM. We're building hardly any stores. We can drive demand up at will. If we drive it up too much then people get angry. Guy in China bashed his car.

The only unhappiness was because customers had to wait too long. We'd better not stoke demand.

Sales per square foot is double that of Apple.

Sam_S | July 31, 2014

Elon projected battery cost reductions of 30% when Gigafactory opens.

This could mean if we need a battery replacement after the 8 year warranty expires, our cost could be much less than a replacement costs today.

SamO | July 31, 2014

Patrick: Obviously OPEX, how do we think of R&D in the short term?
$400M this year?

Deepak: Lot of product related action, creating an artificial pump ?and Model X activities. We want to work on so many exciting things, if there is somewhere we want to spend $ it's there.

Elon: CAPEX and R&D look better because there are things you DON'T KNOW ABOUT.

SamO | July 31, 2014

John Lovallo: Seems like the Chinese Gov't is favoring domestic OEs. Charging station standards. Tax policy. Non OEs to have license to make cars. Increasing pressure to help domestic?

Elon: Impressed with Chinese gov't at all levels. They have done some parochial actions in the past, but I don't think that's what they are doing going forward. Sales tax avoidance does apply to TM cars. We do have to adhere to chinese charging standards. Those standards were not published until a month ago.

Now that it has, we are committed to meet those standards.

JB: Chinese standards are similar to EU standards.

Deepak: Also have exemption for license plate standards. A world of positive reception we have received.

Elon: They are genuinely committed to EVS

logicalthinker | July 31, 2014

wait, Elon is only projecting 30% cost reduction? Previously I'd heard 50% cost reduction (by increasing cell energy density and decreasing production cost, or something to that effect.

85kWh @ $35K today = $24.5K with 30% cost reduction. Still too much for an affordable car.

SamO | July 31, 2014

John Lovallo: Lots of service complaints. . . . B/S

Elon: Edmunds got one of our early production units. Service team was ultra-proactive and they were doing their best to make Edmund's happy, but that resulted in them changing things out on the off-chance something was off. That happened with Edmunds.

JB: Drive unit is complicated and an assembly of different parts. Failed parts are very cheap. Entire drivetrain is being replaced now, but we are going to start just doing repairs.

SamO | July 31, 2014

Deepak: Overall impact on our warranty reserves has been very minimal.

SamO | July 31, 2014

Ben Kallo: Biggest production increase happening now or some other time next year?

Elon: There is a big step for Q1 next year, which is the bring up of the body line of the X.

We just finished the assembly line.

Body line is where the core skeleton of the car is created.

Body line will be brought up in parallel capable of 2500 units/week at a lower cost point.

Paint shop upgrade will be really big improvement. Most advanced auto paint shop in the world. It's expensive to do that.

SamO | July 31, 2014

Ben Kallo: When will we see the different versions (Alpha and Beta)?

Elon: Advanced prototype has been seen. Production Alpha to Beta will happen quickly.

X chassis and powertrain is already done.

Beta in three months. Fast advance. Expect to see production cars on the road for testing validation Q1 of next year.

Because we are moving quckly to high production mode (vs MS 6 months to reach 400/month) we are going to move to several hundred units/week in 3 months. We really want to do serious validation before going to volume production.

SamO | July 31, 2014

Collin Rush: 75K units in 2015?

Elon: 2000 units per week of production and demand. Hard to say what the area under the curve. At least 60,000.

Collin: Weight reduction efforts?

Elon: Model S has gotten steadily lighter over time. 1/4 pound here . . . Model S is a few hundred pounds less than the start of production.

riceuguy | July 31, 2014

Thanks for doing this SamO...I'm at 34,000 feet and no streaming audio or video allowed! :-)

SamO | July 31, 2014

Elon sounded like he may have crossed over to supervillain.

Elon: There are things we know that we aren't telling you!


logicalthinker | July 31, 2014

Yes thank you!

J.T. | July 31, 2014

Thank you for taking this on SamO. It's much appreciated.

SamO | July 31, 2014

I'm listening anyway. It helps me to hear the tone of the meeting. Elon was ON FIRE.



Guiding to 150,000 run rate by end of 2015 . . . shorts better run for cover.

We're talking about $15B in revenue.

Bighorn | July 31, 2014

I agree--great to see/hear after his apathetic/perturbed performance last go-round. I bet some price targets get raised in the coming fortnight

NKYTA | July 31, 2014

+1 Samo
I listened in to most of the call, but I really appreciate you recording this for our posterities. ;-)

LEvans | July 31, 2014

@SamO: Thanks so much for taking the time to share this information with us! All good news. Great to hear how quickly they are ramping up and that they will be moving to replacing individual components in the drive unit to keep future out of warranty repair costs down. | July 31, 2014

+1 SamO! Driving my MS to the airport at that time, so I couldn't listen to it directly.

sbeggs | July 31, 2014

Thanks, SamO

NomoDinos | July 31, 2014

SamO - you rock, man. Thanks!

SamO | July 31, 2014

+1 to all the contributors (& shareholders) here on TM Forum. This has been a great community sourced fountain of misinformation ;-)

I've done this call 3-4 other times, so Elon seemed much more confident.

Still chewing his cup of ice . . . glad that things never change.

I used caps when Elon talked about demand. Not sure where the FUD slingers have left to hide.

Chief | July 31, 2014

How many CEO's say, we better not stoke demand, on an earnings conference call? | July 31, 2014

It was a good call for Elon--he seemed a bit slow out of the gate, but soon hit his stride

tes-s | July 31, 2014

Another key metric is the average time to service something. Our average is less than 1 day. In most cases, we can pick up your car, fix it and give it back to you without you knowing it was gone.

That is the kind of stuff I love about Tesla. Throw out all the nonsense and old models, and just build it the way it should be. They have both the vision and the execution. Rare indeed.

P85D | July 31, 2014

Does the Federal Tax Credit end with the 200,000 built?

timf2001 | July 31, 2014

It phases out over the course of a year once 200,000 Teslas have been sold in the U.S.

RedShift | July 31, 2014

Thanks SamO.

This caught my eye:

"Elon: Model S has gotten steadily lighter over time. 1/4 pound here . . . Model S is a few hundred pounds less than the start of production."

What? When? How much?? I am a stickler about curb weight. So they saved a couple of hundred pounds lighter? Why don't they put the new curb weight on their website then.

I'd happily trade in my 60 for a P85+ if it's wright has started to approach what my 60 weighs.

RedShift | July 31, 2014

Weight, not wright.

P85D | July 31, 2014

So I wonder if Tesla will reduce the price of the cars by $7500 once the credit runs out?