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Tesla Releases Q3 2014 Shareholder Letter - Earning's Call LIVE BLOG

Tesla Releases Q3 2014 Shareholder Letter - Earning's Call LIVE BLOG

Some juicey parts:

* In Q3, global Model S orders increased by more than 50% from a year ago, and grew at a faster pace in North America, Europe and Asia, than during Q2.

* Model X Signature Series reservation holders are converting to firm production orders at a much higher rate than we witnessed with Model S.

* Since the Model X launch event, order rates have accelerated for both Model S and Model X. Although it is too early to draw firm conclusions, this supports our belief that Model X expands the market for Tesla vehicles, with little to no cannibalization of Model S

* Thousands of Autopilot-equipped Tesla vehicles are gathering over one million miles of driving data per day. We then analyze this data and feed it back to the fleet to continually improve our customers’ driving experiences. Autopilot is so advanced and unique that test drive requests from prospective customers have increased significantly since its introduction.

* To manage this volume of requests efficiently, consumers can now schedule their own test drives online, representing
another industry-first by Tesla.

* We began production of Tesla Energy products in Q3 at our Fremont factory, with a long-term plan to shift production to the Gigafactory. Faced with growing demand for Powerpacks and Powerwalls, we have accelerated our plans to expand manufacturing capacity. In early Q4, we relocated production from Fremont to an automated assembly line at the Gigafactory

*We have also accelerated plans to begin cell production for Tesla Energy products at the Gigafactory by the end of 2016. This is several quarters ahead of our initial plan.

* Our warranty reserves were generally in line with the prior quarter, based on our analysis of projected warranty costs.

*The number of pre-owned Tesla vehicles that we sold in Q3 exceeded the number of customer trade-ins that we received, leading to a 17% sequential reduction in trade-in unit inventory.

* In Q4, we plan to build 15,000 to 17,000 vehicles, and deliver 17,000 to 19,000 vehicles, which will result in 50,000 to 52,000 total deliveries for the year.

* The primary limiting factor to higher Q4 deliveries is the near term ramp of Model X production, with the biggest constraint being the supply of components related to the second row monopost seats. To eliminate these supply constraints and achieve a better overall outcome, we have brought manufacturing of these seats in-house.

* After Model X production stabilizes in Q1 2016, we expect Model X gross margin to improve rapidly and become comparable to Model S gross margin over the next several quarters, even as we launch a lower priced version of Model X with a smaller battery pack during 2016.

http://files.shareholder.com/downloads/ABEA-4CW8X0/961491706x0x858516/F5...

Mike83 | November 3, 2015

I don't think it could get any better than this.
Thanks for posting SamO

SamO | November 3, 2015

2 significant hires:

Jason Wheeler- CFO (next month) Will work with Deepak together. From Google. #2 Super smart guy. Great cultural fit.

John McNeil - Head of Global Sales and Service. Former CEO of Incivio? First time in a decade that John has not been head of the company he's working at. He founded Sterling Collision, reducing average repair time 90%.

SamO | November 3, 2015

First caller: Colin Langen UBS

Q: Chatter about cancellations for the X . . . what about regular order cancellation.

Deepak - Signature series conversion is much higher. We don't see any fundamental issues.

SamO | November 3, 2015

We'll get to several hundred X vehicles per week by the end of the year.

SamO | November 3, 2015

Any big orders for Tesla Energy Storage?

Elon - That is a production limited thing. Scaling up production. Sold out of whatever we could produce in 2016. Even if only a small portion of orders convert.

We expect very dramatic increases in stationary storage production. Cautious about giving estimates because the exact calendar window is very important to estimates.

I want to be a little more cautious when we have dramatic increases.

SamO | November 3, 2015

Margins for storage at 15% should be easy to make.

JB - in excess of 15% margin target after the very early stage.

AmpedRealtor | November 3, 2015

Listen to the live call here:

http://edge.media-server.com/m/p/8a8sg5vu

SamO | November 3, 2015

James Albertine Steifel

Q - are there many paying for activation?

Most people already paid for autopilot. Those that haven't, can turn it on for $3000. That's something we will allow people to do in the coming months, like an in-app purchase.

Q - Now that we are past the peak spending on Model X, how should we think of cash flow and expenditures.

Deepak - still in peak of Model X investment and is being paid off in Q4, as suppliers are proving out production. Clearly 2016, our capex should be lower than 2015.

Elon - strong push to free cash flow. We aspire to be positive cash flow in Q1.

SamO | November 3, 2015

Adam Jonas - MOrgan Stanley

Q - Assuming autonomous transport, will you sell to ride sharing firms or directly from the companie's platform.

A - No comment.

Q - is this a dumb question?

A - this is a smart question. Still no comment.

SamO | November 3, 2015

There is a right time to make announcements and this is not that time.

Nor is the strategy fully baked. We'd prefer to announce something when we have the full story understood.

SamO | November 3, 2015

Any stats on autopilot?

JB - I don't think we want to share details on user feedback, but it has gone out to the fleet and they are accruing 1 million miles per day

Elon - Early data is that it is VERY positive. So we are aware of many accidents prevented, and we aren't aware of any that are caused by autopilot. This is a good indication. Quite beneficial from a safety standpoint.

SamO | November 3, 2015

Joseph Spec RBC Capital

Q - How you feel you are set up to deal with in person repairs. Ratio of service centers. How do you handle a hardware situation?

A - We have handled recalls in the past. We try to be proactive. Well before we are forced to do a recall, we try to fix things that might be an issue in the future. Customer happiness, measured by will your next car be a Tesla, 97% of respondents said TESLA. This is the only question people should care about.

Q - Autopilot will add sensors over time. How will you manage that over time with different experiences for owners?

A - Continuous improvements. 20 engineering changes made per week. It's not nearly as discrete as other manufacturers who bundle changes by model year. There are cases where some weeks might be higher than other, such as when camera and ultrasonics were added, but that is rare.

When should I buy a Model S. Won't you make a better one in 6 months. If you only want to buy where there are NO significant improvements, then you'll never buy one.

SamO | November 3, 2015

Patrick Archambault

Q - GM said they were working on a battery at $145/kWh, how did you guys react to their slide?

A - JB we read the report and we're not terribly concerned about it. There were issues of cell vs pack price.

carlk | November 3, 2015

Thank you SamO. I was watching the MarketWatch blog. Yours is whole lot better.

AmpedRealtor | November 3, 2015

So is my drive unit the 200,000 mile DU that Elon mentioned or the million mile DU that Elon mentioned? Would the owners of older vehicles like to know that their DUs are likely rated to last only 200,000 miles?

NKYTA | November 3, 2015

Thanks again SamO!

Mathew98 | November 3, 2015

@SamO - Awesome reporting as usual. I'll listen to the call tomorrow.

SbMD | November 3, 2015

Many thanks, SamO!

SamO | November 3, 2015

There was more but I had to run out . . . sorry for the incomplete. I'll post the transcript later and update the thread so people can listen or read the call in it's entirety.

tes-s | November 3, 2015

Did anyone ask about delivering 2000 more cars than they are going to manufacture in Q4?

sbeggs | November 3, 2015

Thanks once again @SamO.

@tes-s,
I think they made 2,000 more than they delivered during 3Q and will deliver in 4Q, which will make possible the number of final deliveries for 4Q that they forecast.

SamO | November 3, 2015

Continued:

We don't think anyone is on a cost trajectory similar to us. (re: cell and pack costs)

We are fixing fundamental weaknesses in EU and Asia because sales were WEAK. It takes time to build consumer confidence and need to hear about Tesla a lot before they are ready to buy.

All regions have improved significantly.

Q - Some reports of autopilot doing things on it's own.

A - I don't think it should be a surprise that there were reports of errors. The system is improving with "each passing week." It will feel quite refined in a few months.

SamO | November 3, 2015

Rod Lache Deutsche Bank

Q - Can get a few hundred produced by year end? Just the seat or other unique challenges for ramp?

A - Elon Several hundred per week by next month of the X. Hard to predict where we are exactly on our exponential ramp. A bunch of little things: door seals, monopost 2nd row, series of constraints that change from one day to next but now fundamental constraint to production.

Q - 1600 per week by the early part of 2016?

A - Likely that we can be in that range in Q1. I'm guessing we'll be to the lower end of that range. Exceed that by the end of next year. Depends on macroeconomics worldwide.

Q - Ramped up capex to increase target for Tesla Energy . . . how far can you ramp?

JB - Capex for Tesla Energy is not much of the capex total. Deepak - Capex in 2016 is primarily for Model 3 and Gigafactory, not necessarily for capacity requirement. A little, but not the driving factory. Most of capex will be put in place by the end of this year for next year.

SamO | November 3, 2015

John Murphy

Q - Opportunity to insource more parts to solve supplier issues and how you make that decision. INcrease cadence of product launch.

A - We've only made one acquisition: Riviera tooling in Michigan. Use as a hub to recruit tool and die engineers. HOw do we reduce our critical path to market? End up constrained by tools and molds. Anything we can do to tighten. $10M was less than the expediting cost of our tooling dies. Want to make sure Model 3 as soon as humanly possible.

We have substantially insourced the seats and Tesla is producing it's own seats.

Q - 17-19k delivery. Range dependant on ramp of Model X? Mix in Q4?

A - Big variables are which week are we able to increase production. A few weeks on either side will impact Model X numbers and we still have to make delivery around the Christmas and New Year holidays. Plus "blizzards and things".

jordanrichard | November 3, 2015

AR, I too caught that little nugget of info. and I would be lying if I said it raised an eyebrow with me.

I have a Mar '14 car.

SamO | November 3, 2015

Q - Diesel Gate and ZEV credits are helpful . . . over time is there opportunity to sell at a much higher price?

A - Depends on what happens to Zero Emission requirements. Should have tighter standards. CA Air Resources board is not being sufficiently stringent.

SamO | November 3, 2015

Dan Galves Credit Suisse

Any metrics to share about hitting production numbers in 2016.

A - Shutdown increased Model X capacity. Work on manufacturing cost reductions in S and X. We see opportunities. We are a multiproduct company.

Q - Mapping is a key constraint. Does your miles driven help in that regard. Are you planning to come up with your own mapping.

A - This is not the time for future product announcements. We are going to punt.

Q the Newer drive unit. How is the quality compared to the initial drive unit?

A - We are very happy. Internally, we've changed the goal from 200K miles to being 1M miles. We want DU that never wear out. The units shipped for the last few months are much improved. One period of time that we transitioned from manual to automatic grease injection, with variation on how much grease made it to the spline.

sbeggs | November 3, 2015

Manual to automatic grease injection, with variation of how much grease made it to the spline...

Possible drive unit noise maker?

SamO | November 3, 2015

Andrea James

Q - You were targeting 28% margins by this time. Clearly the world changed with currencies. how should we think about margins for the next 18 months.

A - Exceed 40% on the S and X within 18 months. Hopefully sooner than that. Will require significant efforts and assumes no radical shift in currencies.

Q - Autopilot is where driving is going: is that Tesla's view and how central is autopilot to revenue goals.

A - I think all cars will go full autonomous in the long term. Manual cars will be the exception in the 15-20 year timeline and for TM it will be a lot sooner. Non autonomous cars will be like owning a horse: for sentimental reasons.

Bighorn | November 3, 2015

I think the grease problem led to recall/replacement of many Norwegian DUs, which led to a domestic shortage. He said premature wear, I think which would likely be audible--which noise, who knows?

SamO | November 3, 2015

Emanuel Rosner CNSA 43:28

Q - How do you ramp Model S deliveries so fast?

A - It's not as big a leap as it seems since there is a whole week missing and we continue to ramp from Q3 through Q4. Not too much a stretch. We've had bigger sequential jumps before.

2010, Tesla was delivering 500 cars/year. Now we deliver 500 cars in two days.

Q - Have you started X production? What issues are slowing you down.

A - SInce there are thousands of unique components, then we can only work as fast as the slowest part. Less than 1% of the parts are an issue. That's what makes vehicle production really challenging. You don't know in advance what those issues are going to be, or you'd fix it in advance.

Bighorn | November 3, 2015

Andrea James got gypped.

SamO | November 3, 2015

Ryan Brinkman

Q - going back to diesel gate. What impact these revelations will have? Increase demand?

A - This shines the spotlight on the emissions testing process. Now it's obvious that gasoline and diesel have real world emissions exceeding testing. We expect that regulators will no longer turn a blind eye to these things. The cost of producing the ACTUAL emissions standards will be quite a bit higher. Car companies will ramp their EV brands. We haven't seen any benefit to tesla yet, but there might be one.

Q - Model X demand medium to long term and pricing beyond signature. Similar equipped Model X will be $5000 more than S.

SamO | November 3, 2015

@Bighorn,

And she usually has really great questions. :-(

SamO | November 3, 2015

Colin Rush Oppenheimer

Q - Gigafactory ramp? Cells produced in NV?

A - JB - WE've accelerated the products at Gigafactory. Cell production will start 2nd half of 2016. Some will go to Tesla Energy. 2017 cells for vehicles.

Q - Lease take rates or ownership dynamics?

A -Deepak - INcreased lease take rate in North America. That has been fully assumed by banking partners, so if resale guarantee or lease, it makes no difference to us. There is nothing deep or significant in that trend.

SamO | November 3, 2015

Q - 4Q finished goods inventory. What is going to be different on hitting ramp vis a vis drawing down inventory?

A - Deepak - We were carrying in transit finished goods to support Q4 higher deliveries. That allows us to hit our Q4 number. This won't change much. Overall, the increase is demand based and fully do-able.

Q- Model X pricing is based on what?

A - Comparably equipped battery, seats etc.

Q - Auto is capital intensive, there is a lot of capital going into tooling and service. In 3 years, is that how you are going to spend capital?

A - Deepak - Our capex spend has been very efficient compared to other automakers. This is an asset intensive business. The key here is how efficient we are. That's what we are focused on. We are getting better over time. Companies build value by doing hard things. Not outsourcing those things to other people.

SamO | November 3, 2015

Brad Erickson - Pacific Crest

Q - Does the recent focus on quality change your opinion about Model 3 ramp.

A - Model 3 in about 2 years. The cadence of future products should improve as we get more resources to shorten the critical path. Like tooling and dies. The car can take almost 2 years to get fully tooled up. We want to reduce that significantly.

SamO | November 3, 2015

Ben Kalo - Baird

Q - Demand for S and X? Isn't batteries supply a commodity? What are the margins on the X going to be?

A - As we mature in various markets around the world, how long does it take . . . many markets are harder to crack. When will there be another recession? I think in the long-term, there is close to 100K vehicles of S demand and something comparable for X, assuming full market maturation.

JB - Energy is a commodity market but doesn't change the market. It makes it bigger. We see a lot of technical differentiation. Just because energy is a commodity, doesn't mean there aren't many ways to address these things.

Elon - If you can supply a $1 of value for $.80, you want to be in a commodity business.

Model X margins will be within a few points of one another in time.

KevinR.co.us | November 3, 2015

Thanks SamO

Great reporting!

SamO | November 3, 2015

I've done this live blog 5 or 6 times over the years. This is the most "together" I've ever heard a call. They are confident, composed and ready to ramp production.

My apologies, again, for the delay in completing. I hope this is helpful for those without access to the audio of the call that @AmpedRealtor posted above.

nav66 | November 3, 2015

Thank you, SamO, your reporting was most helpful, indeed! Go Tesla!

NKYTA | November 3, 2015

SamO, I'd always rather catch up on yours with the comments sprinkled it. Listening is too distracting, and I'm still at my "day" job at 7pm.

Thanks a bunch!

tes-s | November 3, 2015

I think they made 2,000 more than they delivered during 3Q and will deliver in 4Q, which will make possible the number of final deliveries for 4Q that they forecast.

They made 1488 more cars than they delivered in Q3. So that means they would deliver 512 more cars in the second half than they made in the second half. Are leased cars counted in "delivered"? If not, that would add to the gap.

Surprised nobody asked about that. I know it is possible - but it is not sustainable.

Q - 1600 per week by the early part of 2016? A - Likely that we can be in that range in Q1. I'm guessing we'll be to the lower end of that range. Exceed that by the end of next year. Depends on macroeconomics worldwide.

Weren't they planning 2000 per week by the end of 2015? Sounds like they are taking another year to get to that production level...maybe?

Tâm | November 3, 2015

@SamO

Awesome blog!

Thanks so much!

JAD | November 3, 2015

Thanks for the work SamO

NomoDinos | November 3, 2015

SamO - awesome job as usual! Thanks again.

mclary | November 3, 2015

Who are the IDIOTs on the call that keep asking the Stupid questions? How do they get on the call in the first place? Are they related to the Vegan Idiots from the shareholder's meeting?

Please pay attention and stop asking questions you have no idea about!!!!

SamO | November 3, 2015

Correction: In response to Andrea James question about margins, the answer should say:

TSLA margins will exceed 30% on the S and X within 18 months.

NomoDinos | November 3, 2015

Wow... Uh, +1 mclary

(It had to happen eventually)

deeageux | November 4, 2015

@tes-s.ct.us

2000 was Q4 2015 capacity target.

1600 is Q1 2016 production target

1800 is Q4 2016 production target.

They will likely announce an increase in capacity in Q3 or Q4 2016.

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