Tesla (TSLA) Q2 2017 Earnings Call

Elon Reeve Musk – Tesla, Inc.

Model 3 is here with high production targets and zero promotion

 “…having with us steady production of Model 3s was an incredible milestone in the company’s history. We wanted to make a great, affordable electric car which is a fundamental thing that is missing. We wanted to make that from day one, and if we could only have done it sooner, we would have….I’m very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year. And we remain – we believe on track to achieve a 5,000 unit week by the end of this year….what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year….We’re not promoting the car. If you go to our stores, we don’t even want to talk about it, really, because we want to talk about the thing that we can supply. If somebody orders a Model 3 now, it’s probably late next-year before they get it.”

The demand for Model 3 is pretty high

“there have been 518,000 gross reservations for 3, and we have 455,000 net reservations. But those cancellations occurred over the course of more than a year. The net gain since Friday, net of cancellations, has been over 1,800 per day.”

Demand for Model S and Model X unaffected by Model 3 release

“It should also be noted that one of our big concerns was that Model S, particularly, and Model X demand would suffer with the introduction of the Model 3. In fact, this has turned out to be the opposite situation. Model S and Model X demand increased with the release of Model 3.”

Learning to be less dumb

“When we make mistakes is because we’re stupid, not because we’re trying to mislead anyone. I just want to emphasize – I – we aspire to be less dumb over time. “

There may be more gigafactories coming

“we’re also thinking hard about, where do we put Gigafactorys three, four, five and six? We expect to keep the majority of our production in the U.S., but it’s, obviously, going to make sense to establish a Gigafactory in China and Europe to serve the markets there, because it’s not to build cars (29:23) in California and truck them halfway around the world, particularly when you’re trying to make things as affordable as possible – that really hurts.”

Rolls-Royce Holdings’ (RYCEF) Q2 2017 Earnings Call

Warren East – CEO

They are ramping up engine production

“Clearly we’re in the midst of, and we’ve been talking about for some time, a period when we are ramping our volumes of large engines that we deliver. And clearly this has been a question mark: Are we going to be able to ramp up sufficiently, or not? Last year, we grew volumes year-on-year from the previous year. This year, we have a big step-up to do. We’re halfway through the year. We are achieving a step-up, volume production’s up, volumes produced up 37%, deliveries up 27%, so I think we’re addressing that question.”

Stephen Daintith – CFO

Accounting changes coming up

“Accounting changes, a couple of items that are on the horizon. As you know, with effect from the 1st of January 2018, we move to IFRS 15….We welcome IFRS 15. I think it will allow for a purer and clearer view of the business….And indeed, we are hoping that for the March results next year we can show you the ’17 results on a current basis but also the full results on an IFRS 15 basis as well so you can see that fair comparison, probably spend quite a lot of time on that. And that will then allow you to think about how you want to think about 2018 on an IFRS 15 basis….IFRS 16 comes into play on the 1st of January 2019, and we’ll be taking operating losses onto the balance sheet. Again, no impacts on cash.”

General Motors (GM) Q2 2017 Earnings Call Notes

Mary Teresa Barra – General Motors Co.

On autonomous cars

“From an autonomous vehicle perspective, miles driven is certainly a factor, but it’s not the only factor, because what is the quality of the miles driven? Right now, to our knowledge, we’re the only one testing our autonomous vehicles in Downtown San Francisco, which is a pretty dense urban environment with a lot more, I’ll say, opportunities to learn from different situations. So it’s not just the miles traveled. It’s the quality of those miles in the number of incidents that you’re exposed to that the vehicle learns. And so although we don’t have a very specific mile, there’s quite a bit of work we’re doing, even with agencies or groups outside of the company to put that together.”

Charles K. Stevens – General Motors Co.

Passenger cars to perform marginally better in H2

“…we expect to see is better sales in the second half versus the first half, which is kind of the way the industry runs. Within that perhaps marginally better passenger car, but we’re certainly not counting on a recovery.”

Trucks to have a downtime

“we built inventory in the first half in preparation for our previously announced downtime in trucks and crossovers in the second half of the year. ….all else being equal, we would expect to see more truck downtime next year versus this year. But by the same token, we will have incremental opportunities for compact and mid-crossovers next year because we’ve got significant downtime. But if I was providing an outlook right now, I would say probably production volume is going to be down in 2018 versus 2017 given the downtime.”

Ford Motor (F) Q2 2017 Earnings Call Notes

James P. Hackett – Ford Motor Co.

They are reassessing regions they operate in and their capital allocation to these areas

“the new reality that I can kind of confirm to you is that we really have to ask ourselves what do we have to believe to get to the kind of returns that we expect and you expect. And if we can’t answer that, then we can’t be there. That’s making the choice when you hear us talk about playing to win and where to play, that is what that code means, is that you are clarifying where you’re going to put capital.”

Robert L. Shanks – Ford Motor Co.

Bad times in Europe with Brexit playing a mjaor role

“in Europe, all the key metrics are lower…The revenue is down largely because of the volume…we were down about $380 million. Almost literally half of that is related across a number of these factors due to Brexit. The biggest impact is exchange, so a much bigger effect than actually what’s shown in the singular bar there, directly related to Brexit. We also saw the industry decline, which is buried within the – in fact the industry – as I mentioned to you, the industry was up, but you can see the industry dollars is down. That’s the effect of the UK, because it’s a high margin market.”

Expecting imporvements in Middle East and Africa

“we still continue to expect the Middle East and Africa to improve this year compared to 2016 due to lower cost, favorable exchange and lower volume. And a lot of that – in fact, all of that improvement is going to take place in the second half of the year. So, I expect to see better results on a year-over-year basis in the second half of the year than what we’ve seen in the first half.”

They expect a soft gradual decline in auto sales

“Our view is that what, however, you wanted to describe it, an eroding plateau, I’ve seen that, or however you want to characterize it, very strong sales, we don’t see anything in terms of the economy, the health of the consumer, housing, oil, the oil production is back up and that’s had an impact on trucks for example, that would suggest that over the next two – let’s say two years, that there’s any kind of significant collapse or dramatic change. We do think it’s going to decline. We think it will be a soft gradual decline.”

General Motors 3Q16 Earnings Call Notes

General Motors (GM) Q3 2016 Results

We recognize that the industry is increasingly competitive

“However, given the recent increased interest in industry incentive and inventory levels, I’d like to spend a few additional minutes to share our view. Cleary, we recognize the industry is increasingly competitive, especially as consumer preferences are shifting away from sedans and more towards SUVs and trucks. We’ve remained absolutely committed to our disciplined retail-focused go-to-market strategy, and we have demonstrated that by managing supply and demand, and through disciplined pricing.”

Making progress with autonomous

“Sure. We are making great progress on the autonomous development. As I mentioned, we have a fleet now running, not only in San Francisco, but also in Scottsdale, so 30 vehicles on the road. And that’s important because it’s not just the miles, but it’s really the experiences and the scenarios that they continue to learn every day and I’m very pleased with the team’s performance.”

Autonomous will begin with ride sharing because it can be geo-fenced

“As we look at launching autonomous into the marketplace, we believe it will first happen in a controlled environment, in a ride-sharing environment, hence the alliance that we did with Lyft, as well as the work that we’re doing with Maven. But as we see it going into ride sharing, that’s because it will be geo-fenced, you’re going to have limitations with speed and other limitations, and that’s why the ownership will stay with the company in these first models as we continue to learn.”

Safety is top concern

“And so, that path is very much on track, but I will say what is going to gate our launching of autonomous vehicles into the marketplace for consumers is safety. And we are working very hard with the experience that we have to do that in the safest manner possible because it does then really address the issues that we have of over 90% of fatalities in today – in today’s U.S. streets are human error. ”

China is going to lead in the penetration of electric vehicles

” we believe that China is going to lead in the penetration of electric vehicles into the market, and that’s why we’ve announced that we have 10 new energy vehicles coming out. I would say we’re also the only OEM that actually manufactures batteries in-country right now. Clearly, we have the strength of the products that we have available to sell globally, with the second generation Volt as well as the Bolt EV and the Ampera-e, along with many other electrified products in China.”

Charles K. Stevens – General Motors Co.

Industry in China running stronger because a purchase tax incentive, but that could go away next year

“Obviously, this year the industry is running stronger than we expected, because of some uncertainty around the purchase tax incentive, if that was to end and the government was to announce an end to that, our planning assumption would be that – there could be some volatility in maybe the first quarter and second quarter of next year, but then we would still expect the industry to continue on that growth path towards 30 million units and as we’ve talked before, a little bit more volatile growth pattern and in the kind of low single digit range over the next number of years, again it really depends on what’s announced from the government’s perspective, we have no insight on that”

Truck buyers are the most loyal of any customer

“truck buyers are the most loyal of any customer. The loyalty rates of truck buyers are north of 60% and generally you are in the 50% range, so that’s first, you are dealing with that aspect.”

Tesla (TSLA) Q2 2016 Earnings Call

Tesla (TSLA) CFO Jason Wheeler said they are focused on reducing costs across their operations in order to deliver the Model 3 at their projected price point of $35K 

“On a go-forward basis, the way we’re thinking about margins is we certainly see opportunities for continued cost-downs, both on the engineering front, also on the commercial front as well. We’ve got a supplier base that is very excited about the Model 3 and it’s giving us the ability to leverage that on commercial cost downs, also continue manufacturing efficiencies. As we mentioned in shareholder letter, labor hours per car is trending quite positively right now and we’re laser focused on continued improvement in that key metric.”

And optimizing efficiency on their capital expenditures 

“On a go-forward basis, thinking about CapEx efficiency, you’ve heard Elon talk a lot about the machine that makes the machine. A big part of that is focusing on volumetric efficiency. In our call on Monday, I talked about how when we started to review a lot of the Model 3 CapEx plans across the company, there were a bunch of new buildings everywhere. And the reaction to that was, wait a second, we’ve actually got a nice facilities footprint already and how can we just densify those facilities and not have to invest further in this area? And we’re starting to see a lot of that take hold now.”

Tesla (TSLA) CEO Elon Musk said full autonomy requires highly detailed maps

“What we’ve said thus far is that there’s need to have much higher definition maps than currently exists anywhere in the world in order to have full autonomy. And we’re in the process of building those and I think making good progress.”

Tesla (TSLA) CEO Elon Musk said autonomous cars will remain capacity constrained for years to come

“Well, I think the demand for autonomous cars will vastly outweigh the production capability. So it’s more in our mind that the global fleet of vehicles is about 2.5 billion roughly and total new vehicle production per year is only about 100 million. So, the fleet is basically turning over every roughly 20, 25 years. So we would have to make some truly enormous number of autonomous vehicles for there to be any land saturation because it will basically be the only car anyone wants to buy.”

Tesla (TSLA) CEO Elon Musk described his near term priorities 

“Well, I think the Model 3 is overwhelmingly our focus. Yeah. Things feel really quite stable with Model S and Model X. We’re kind of in the mode of continuous improvement, but no fundamental issues. So, I feel like the machine that’s making Model X and Model S is actually functioning quite well right now. And I definitely burn out of few neurons and a lot of other people did solving the production ramp earlier this year. I feel we’re in a good place at this point. So, the focus really is on Model 3 and followed by full autonomy as – well it’s our two priorities.”

Tesla (TSLA) CEO Elon Musk said Tesla got too much media attention from the recent Model S autonomous driving crash 

“Unfortunately and fortunately, Tesla cannot sneeze without there being a national headline. So I think you don’t have to worry too much about whether we’ll report it because the media will and then inflate it in size by 1,000. Like last year there were 35,000 automotive deaths in the U.S. How many did you read about?”

Tesla (TSLA) CEO Elon Musk said the first half of this year was hell from a car production standpoint 

“Basically, we were in production hell for the first six months of this year. Man, it was hell. And then we just managed to climb out of hell in like basically partway through June. And now the production line is humming and our suppliers mostly have their shit together. There’s a few that don’t. One I’m going to be visiting on Saturday personally to figure out what the hell’s going on there. But we’ll solve it. But just the thing that’s crazy hard about cars is that there’s several thousand unique items and you move as fast as the slowest item in the whole car. nd I feel actually really good about Model S and Model X right now, but I’ll get a whole lot of mental scar tissue from first six months of this year.”

Tesla (TSLA) CEO Elon Musk calls the Gigafactory the “alien dreadnought” 

“The internal name for designing the machine makes the machine is the – we call it the alien dreadnought. At the point at which the factory looks like an alien dreadnought, then you know you’ve won. It’s like, what the hell is that? So we’ve got alien dreadnought version 0.5 will be Model 3. It will take us another year get to version 1 and probably a major version every two years thereafter. By version 3, it won’t look like anything else. It might look like a giant chip pick-and-place machine or a super high-speed bottling or canning plant, and you really can’t have people in the production line itself. Otherwise you’ll automatically drop to people speed. There’s still a lot of people at the factory, but what they’re doing is maintaining the machines, upgrading them, dealing with anomalies. But in the production process itself there essentially would be no people.”

Tesla (TSLA) CEO Elon Musk said we’re getting closer to full autonomy 

“Full autonomy is really a software limitation. I mean the hardware is just to create full autonomy, so it’s really about developing advanced, narrow AI for the car to operate on. I want to emphasize narrow AI, it’s like not going to take over the world, but it needs to be really good at driving a car. So increasingly sophisticated neural maps that can operate in reasonably sized computers in the car. That’s our focus. I’m very optimistic about this. It’s exciting, it blows me away, the progress we’re making. So I think if I’m this close to it and it’s blowing me away, it’s really going to blow other people away when they see it for the first time.”

Ford (F) CEO Mark Fields Interview

Ford (F) CEO Mark Fields says the company’s emphasis on quantity of vehicles sold is changing

“If you look at major urban areas, car density is going to go down.  It’s physics.  There’s only so much space in cities.  The way we’re thinking about this as a company, our business model was always around how many units we sold, right, we’re now really thinking about it around vehicle miles travelled.  When something becomes available at a lower cost, guess what, people use it more.  You’ll have vehicles on the road 24/7 that rack up miles and need to be replaced more. So we’re going from an automobile company to an auto and mobility company.”

 

 

Source: Recode Podcast June 1st, 2016

Ford at Bank of America Conference Notes

Bob Shanks – EVP and CFO

China looks really really good

“China started off very strongly. Little hard to tell in the first two months because of the impact of the Chinese New Year but it looks really, really good. Pricing there is starting to stabilize. We still expect it to be negative year-over-year but certainly we’re starting to see pricing stabilize, if we look at it on a sequential basis, which is a good sign.”

See auto sales in the US in the 17.5-18.5m range

“Yes. We see the U.S. economy, as I just mentioned, growing at sort of probably the low twos percent, maybe. We’ve got a range of 2.3, 2.8; we think we’re probably at the low end of that range. We think the industry is going to be in that range, I just mentioned 17.5 million to 18.5 million. So that seems to be holding up well. Pricing is looking good. Our pricing is up more than the industry but the industry actually is up in terms of transaction prices, although incentives within that are up modestly but pricing still looks to be healthy.”

Cars are under pressure vs trucks and SUVs but overall industry is quite healthy

“We see cars as being under pressure, and that’s more I think driven by the fact that consumers for quite some time have been shifting from cars into utilities; trucks holding up pretty well. And so, I think that’s really more of what’s happening there. It’s more of a consumer demand driven dynamic than anything else in terms of cars. But, the industry still looks quite healthy.”

No imminent recession and even the market seems to be recognizing that

“There’s nothing that would suggest that we’re eminently ready to go into a recession here in the U.S., which is what we’ve been saying for quite a number of months, which I think the market is starting to recognize as well. So, things seem to be getting back on track in terms of even a market perception. So, I think that everything is being set up of for the type of year that we had thought it would be, in terms of the U.S.”

The industry has been moving to more leasing at longer terms

“What we have seen is a continued shift, and this has been something that’s been happening for many, many years, not just recently to longer and longer terms. We’ve also seen more and more leasing in the industry.”

For Brazil to turn it’s going to take some structural changes to the economy

“It is entirely externally driven; it’s — an economic downturn is driven by the commodity cycle, but it’s also overlaid I think by all the political issues that we see in Brazil and read about every day. Frankly, the turnaround is going to require the cycle to turn. And I think resolution to some extent of the political crisis that we see because – for Brazil to unleash its potential is really going to require some structural changes to the economy, which is going to take government just have the ability and the will to do that. So, I think it’s dependent in part on that.”

Auction value of cars has been falling due to the demand shift into utilities

“Cars is a different issue. I think this is more of an industry issue. We’re seeing the auction value of cars decline and pretty sharply. And again, I think, this is going back to what I said earlier around the whole consumer demand shift from cars into utilities, and that’s playing out now in the auction price.”

Ford credit is going to have headwinds from auction values

“I think things appear to be a little healthier than what we thought, when we look at January and February. But I think if you — as I mentioned yesterday, if you — when you see our results for the first quarter, our expectation is that when you look at Ford Credit’s results, which I think will be quite good in the aggregate but within that on a year-over-year basis, you’ll see headwinds from auction values;”

Fiat Chrysler 4Q15 Earnings Call Notes

Fiat Chrysler Automobiles NV (FCAU) Sergio Marchionne on Q4 2015 Results

We are not of the view that this industry is facing impending demise

“We are not inside FCA of the view that this industry is facing an impending demise and I think that part of this presentation today is designed to provide you with some comfort that we have appropriate or adequate controls over the strategic development of those business that we do feel that we will be able to navigate through these rough waters and that we will come out of this process as better organizations.”

Need to move from auto making to the business of transportation

“But I think that ultimately trying to move the discussion the way from the concept of auto making, trying to re-pitch our future as being involved in the transportation business in the broadest sense of the term we doesn’t do much service to the sort of needs and objectives of the sector that it faces today.”

The Brazil market lost 1m cars

” the 7 million number was a number that was substantiating or supporting a view of markets as we saw them back in May 2014, we have readjusted all of our plans to reflect current market conditions. We have seen the Brazilian market which was expected to perform much, much better, lose over 1 million cars in less than 18 to 24 months which has had pretty significant impacts on our volume ambitions. So we have recast all those. We are going to stay away going forward from enunciating goals that relate to volumes ”

Development portfolio in the US driven by the regulatory environment

“I have always viewed the development of our portfolio in the United States as being already driven by the regulatory environment and this by the need for all of in the market to achieve the 2025 standards and to achieve the greenhouse gas emission targets that we have all signed up to.”

Autonomous technology is probably going to come from an efficient supplier base

“I am absolutely convinced that all the things that have been talked about by other industry participants will effectively materialize over a period of time and I am absolutely convinced that the relevance of the automaker in that process is not going to be as key as it has been historically in terms of the development of the automotive sector. We are going to have to rely by necessity in efficient supplier base and there is one which continues to break barriers and continues to provide solutions which are going to be available to us and to others. ”

We have to ask ourselves what is the value of a brand in the autonomous paradigm

“one of the questions that we all have to ask ourselves is what is the value of a brand in the presence of autonomous driving if effectively at the end of the day, it is not the driver that effectively exercises control and the way in which that reflects itself in margins and positioning and the relevance of the brands in the marketplace is an unknown issue. ”

The industry has historically done a good job of distracting itself from its primary function: making good cars

“And so we need to be very, very careful that we don’t spend – we have done, by the way, this industry has done a tremendous amount, if you look at its – even its recent past, it has always looked for ways to sort of defocus its primary function of making cars and making them relevant in the marketplace by looking for ancillary side solutions and somehow we will change the paradigm. ”

I do agree that we are at top-ish volumes, but 16m would be too bad

“I do subscribe to the notion that we are looking at top-ish volumes today. The rate of adjustment is unknown. I also know that there is a phenomenal amount of allowed amplitude and the isolation of volumes. I mean, if we went to 16 million, it’s not going to be the end of the world in terms of size and I think that we will all adjust to reflect those market conditions.”

More than half our fleet in the US should come from hybrid in the medium term

“In the medium-term I’d say more than half of our fleet in the United States is going to be in some form of hybrid. Calling the right time for the conversion is difficult to tell.”

There’s always something to monetize

“There are things that I can monetize. I mean, including my office chair, the question is do I need to do that. And the plan is calling for a €5 billion cash holding by the end of 2018. I think you guys should be asking for distributions and that point of time is opposed to my – worrying about monetizing assets.”

CarMax FY 3Q16 Earnings Call Notes

http://seekingalpha.com/insight/earnings-center/article/3765156-carmaxs-kmx-ceo-tom-folliard-on-q3-2016-results-earnings-call-transcript?part=single

New cars eventually come back to market at some point as used cars

“I think this is probably short-lived. Obviously, it’s been driven by low gas prices. We have seen bigger increases in new car sales as it relates to SUVs and trucks compared to the used car market increases. But ultimately, these cars will all come back into the market at some point.”

The average new car dealer sells about 50 cars per month

“our average store sold 340 cars a month during the quarter. If you look at industry data, the average new car dealer sells about 50 cars a month. So it’s really hard to say that we are losing ground and a lot of that stuff that you read about for – from new competition are very small players in very limited markets.”

A couple of years from now there will be a lot of trucks and SUVs available on the wholesale market

“we are seeing, as you know highest SAAR we have ever seen and the bigger of the increase in the SAAR is related to trucks and SUVs. If I was thinking about that over a long period of time, that means a couple of years from now we will see lot of trucks and SUVs out in the wholesale market, which if there is demand, then we will be able to take advantage of that and buy and sell them.”

Spreads in the asset backed market should stabilize as the Fed has given guidance on interest rates

“Historically, as rates have come up, we have been a little bit as the market has slower to adjust upward, because that rates can be sticky and conversely when rates have been coming down, you are usually a little slow to adjust downward because the market is going to drive that as well and you see a little bit of a benefit. But as far as going forward, yes, the market will tell. I think now that the Fed has given some guidance, I think about where they are going with interest rates that stabilize things from the perspective of spreads in the asset-backed market.’

Traffic was slightly down, but it may have been more prepared to buy because conversions up

“we did get enough traffic to sell 340 cars a month per store. And it was only slightly down. And then conversion was slightly up. And we ended up where we ended up. But in terms of traffic through the door, I think there is a chance that customers are being more prepared and are more likely to buy when they show up. And for us if we could get traffic that’s more prepared and more likely to buy, that’s just as good for us as it is if we just got plain old extra traffic.”

At some point we knew the tide was going to turn in credit

“Charge-offs has to do with what’s in the portfolio and it’s been put in there over the last several years. And the way I characterize it is we have had a long stream of favorable experience and at some point, it was – the tide was going to turn in. Things were probably going to normalize. I would probably characterize it as giving back some of the favorable experience we have had over the last several quarters. It’s too early to tell what that means from a go-forward perspective.”