Tesla (TSLA) Q1 2017

Elon Reeve Musk – Tesla Motors, Inc.

On production targets for Model 3

“The trick is that when you got a whole new product and a whole new factory, trying to predict exactly what that initial S-curve, the initial portion of the S-curve looks like is extremely difficult. Inevitably, the production starts off slowly and then you gradually eliminate the constraints and eventually it starts taking off exponentially. But because of that, sort of initial slow ramp that then grows exponentially, a small change in where that lands in the quarter can have quite a big impact on total volume. It’s a lot easier to predict where the upper flat portion of the S-curve is likely to be, but predicting the rapidly changing portions of the S-curve is I think not within the ability of anyone to predict with accuracy. ”

It´s not all about production and supply chain

“We continue to be surprised by how sort of frankly naïve people are – a lot of people are about production and supply chain. It’s as though there is some like easy way to increase production. It’s truly not. Any given production system, you design it for optimal output and then you aim to improve efficiency, reliability, quality, and so forth at that output. But the Model S and Model X system as we said last year, was designed for 100,000 units, and now initially to get to that rate, we have to use a lot of overtime, a lot of expediting, and that affected our gross margin on the car. And now we’re sort of at steady state with kind of the top part of that S-curve that we’re targeting.”‘

Lower prices result in higher demand

“The demand actually increases really exponentially as price drops. (58:52) when we looked at it, I think we are looking at the right numbers, but the demand at the Model 3 price point appeared to be somewhere between 30 times and 70 times higher than at the Model S price point.”

Trying to replicate success in sedans

“Consider 17 million cars and trucks sold in the U.S. per year, of which only 100,000 are premium sedans and we have a one-third market share. If we can replicate that in other segments, the results are obvious.”

High demand for model 3 

“If you come into our stores and you want to buy a Model 3, you could buy a Model S or Model X instead. We antisell the Model 3. But our net reservations continue to climb week after week. No advertising, antiselling, nothing to test drive, still grows every week.”

Tesla does not need the incentives to survive

“it’s almost like over the years there’s been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits. It drives me crazy. Here’s what those fools don’t realize. If Tesla is not alone in the car industry, but all those things would be material if we were the only car company in existence. We are not. There are many car companies. What matters is whether we have a relative advantage in the market. And in fact the incentives give us a relative disadvantage. Tesla has succeeded in spite of the incentives not because of them. But these incentives have limited lifetime and limited scale.”

On the tax credits in Nevada

“I hope somebody doesn’t mention those Nevada tax credits, which for the Gigafactory, it makes it sound like we got a $1.3 billion check from the State of Nevada. We did not. Those tax credits are made up – the vast majority is just sales and use tax abatement on equipment in the Gigafactory. Taxes that otherwise wouldn’t have been there because there was just a bunch of rocks there before. And you don’t get a lot of taxes from rocks. So that’s why it’s essentially a no-lose proposition for the state. And in order for us to actually earn $1.3 billion in tax credits for the Gigafactory, we have to generate over the course of 20 years about $100 billion in output from the Gigafactory. So it’s worth about like 1%. Don’t look a gift horse in the mouth and we appreciate it, and that’s nice. But this is obviously 1% is not the difference between success and failure output of the factory. But a lot of articles provided it in the past tense. Tesla received $1.3 billion. No, we haven’t. We did not receive that. If somebody wants to send us that, great we’ll take it. But looking at the bank now I don’t see it there.”

 

Tesla Motors (TSLA) Q3 2016 Earnings Call

Elon Reeve Musk – CEO

Best Quarter ever

“…we were able to have our best quarter ever, achieved full GAAP profitability and, moreover, I think we are headed to have a great fourth quarter as well…we currently believe that Q4 will be profitable, excluding non-cash stock-based expenses. I think there’s actually a chance that we will be profitable even including non-cash stock-based expenses. There’s just a chance.”

On SolarCity

“So contingent upon shareholder approval, we expect SolarCity to be somewhere between neutral and a cash contributor in the fourth quarter. And yeah, I mean things are looking good. ”

Some nuggets of wisdom

“It’s really just we want to make products that people love. And then make enough money from that to be able to develop new product. And that’s it really. There’s like so few products, like, how many products can you buy that you really love? So, rare. And I think if you do something like that, people will buy them. They will pay a premium for something that they love, of course.”

On Autopilot fatalities

“And what’s sort of less visible to the outside are all the cases where the version one of Autopilot actually did a lot to mitigate the accident so that the impact velocity went from being potentially fatal or severe injury to customer stepped out and walked away. There are many of those which provides a much more statistically significant sample set than the fatalities, because the fatalities are extremely rare, and you need really 1 billion miles or more to try to achieve a statistically significant conclusion on fatalities.”

A full year of production of model 3 sold out

“…when somebody comes into our store to buy a Model 3, we say, well, why don’t you buy Model S or an X instead? So we anti-sell the 3. Still a lot of people order to the 3, but whatever. Plus the 3, like, we basically sold out the first year of production, so the first 12 months production or thereabouts. So what’s the point of trying to sell the 13th month of production? Very little gain to be had there in doing so.”

Jeffrey B. Straubel – Chief Technology Officer

More reliable cars create greater demand

“I think one additional thing is that the reliability of the cars continues to get better, so our warranty costs sort of decreasing as well. And that’s a really – that’s a key driver for us, not only from the cost side but from the demand side where we’re creating demand in market given the reliability of the vehicles.”


SK Additions:

I probably took a year off of my life camping out at the factory

“I personally probably took a year off my life or more camping out at Fremont (17:27) factory solving that along with a number of other members of the Tesla team. We went through bloody hell in the first half of this year. We got out of that basically around mid-June, and then the result is achieving a weekly production target of roughly 2,000 cars a week.”

Elon getting testy when asked about autopilot design

“First of all, I would separate what Tesla says from, say, some supplier of ours is issuing, bullshit. Okay? The blog that I wrote was very clear that radar is moving from a supplemental to also a primary sensor. It is not to the exclusion of vision, but it is also a primary sensor. Vision is still the main thing, but radar, instead of merely being, like, a cross-check against vision is really, when done well, and we’re very confident at this point that it can be done this way; it can be a primary sensor such that you can take actions based on radar information alone. You can also take actions just based on vision alone. Much as a person who might take action based on whether you hear something or you see something, but you don’t need to both hear it and see it. Yeah, so, there’s no – we feel highly confident that the 8-camera solution with 12 ultrasonics and a Ford radar, and the computing power that we now have onboard is capable of full autonomy at a – it’s simply greater than human (26:44). There are obviously skeptics out there. Well, I suggest that they do not bet against us.”

Trying to get people to buy other models

“And then when somebody comes into our store to buy a Model 3, we say, well, why don’t you buy Model S or an X instead? So we anti-sell the 3. Still a lot of people order to the 3, but whatever. Plus the 3, like, we basically sold out the first year of production, so the first 12 months production or thereabouts. So what’s the point of trying to sell the 13th month of production? Very little gain to be had there in doing so.”

Alien dreadnaught v1 should be ready by summer 2018

” So sort of an internal codename for the factory machine that builds machine is the alien dreadnought so a point in which our factory looks like an alien dreadnought and we know it’s probably right. So we think with Model 3, it will be alien dreadnought version 0.5 approximately, and then it will take us about another year or so, I don’t know, summer 2018 to actually get to alien dreadnought version 1.”… “Yeah. I mean, the long-term aspiration for the machine that builds the machine in the factory, alien dreadnaught thing, is the long-term aspiration is limited physics. I maybe call it, like, limited physics manufacturing.”

Reasonably confident we’re on timeline for Model 3, but improving internal capabilities to produce parts

“I think our confidence has been approximately the same. Obviously, as time goes by, there’s some amount of the uncertainty is collapsed. And so, I guess you could kind of call that confidence, but it’s – yeah, it’s looking good for production volume, second half of 2017. As always, I really want to remind people that a car is – consists of several thousand unique items. We can only go as fast as the slowest item. And so what we’re trying to do in advance of 3 production is increase the scope of Tesla’s internal capabilities so that we’re internally capable of making almost anything.”