Tesla 2Q16 Earnings Call Notes

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Tesla Motors (TSLA) Elon Reeve Musk on Q2 2016 Results

No reason to merge TSLA and spaceX

“Yeah, I don’t think there’s a strong product rationale to combine SpaceX and Tesla whereas there is for Tesla and SolarCity. It’s really quite tenuous for SpaceX and Tesla. And there’s a little cooperation that happens between the companies, but it’s not that would justify merging them into one entity.”

Former mobileye solution will now be Tesla internal solution

“I think we’ll have a more significant announcement on that later. So it’s not really – earnings call is not the right time for that except that it will be a Tesla solution, internal solution.”

Model 3 and full autonomy are our two top priorities

” 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 can’t sneeze without it being a national headline

“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?”

We were in production hell for the first six months of this year

“Yes, I mean, sorry, I would also like to say a few words and Jason can address it. 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 halfway through June. And now the production line is humming and our suppliers mostly have their stuff (37:05) 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.”

Autonomy is going to happen faster than anyone thinks it will

“Well, again, major product announcements are not – I shouldn’t do those on an earnings call, obviously. And all I’d say is that full autonomy is going to come a hell of a lot faster than anyone thinks it will. And I think what we’ve got under development is going to blow people’s minds. It blows my mind, so.”

Our code-name for the model 3 production machine is the “alien dreadnought”

“The Model 3 – 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 making place (45:00) 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.”

The autonomous stuff we’re doing is blowing me away

“Well, 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. 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 probably going to blow other people away when they see it for the first time.”

We’ll probably exit next year at triple or quintuple our current production

” in the case of next year, I mean our unit volume – we’ll probably exit next year at unit volume that’s 200% or 300% what our current volume is, maybe 400%.

Jason S. Wheeler – Chief Financial Officer

Clearly disappointed with delivery numbers

:We’re clearly disappointed with our delivery numbers, but there’s some underlying stories that we feel really good about and I’m going to walk you through those briefly. First, automotive gross margin expanded this quarter. Automotive gross margin excluding ZEV credits grew from 20.1% in Q1 to 21.2% in Q2. :