Tesla (TSLA) Q1 2016 Earnings Call

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Tesla (TSLA) CEO Elon Musk said the model 3 car reservations they received make it the most successful consumer product launch in history

“In the first week of taking deposits for Model 3, we received more than 325,000 reservations despite no advertising or paid endorsements. This implies about $14 billion in future sales, making the Model 3 introduction the biggest consumer product launch ever. Since then, reservations have continued to grow to surpass even our expectations.”

Tesla (TSLA) CEO Elon Musk said they may need to raise capital to meet demand

“Given the demand for Model 3, we have decided to advance our 500,000 total unit build plan (combined for Model S, Model X, and Model 3) to 2018, two years earlier than previously planned. Increasing production five fold over the next two years will be challenging and will likely require some additional capital, but this is our goal and we will be working hard to achieve it.”

Strong Model S order growth from Asia

“Q1 Model S net orders rose 45% compared to a year ago, and grew at a faster pace than last quarter. The more rapid pace of growth was driven by increased order growth in North America and Europe, and a more than 160% increase in orders from Asia compared to a year ago.”

Consumers are continuing to opt for leasing their cars as opposed to buying

“The popularity of leasing increased again this quarter, as did the percentage of Tesla direct leases. Tesla directly leased 1,405 cars to customers in Q1, worth $149 million of aggregate transaction value.”


SK Additions:

Elon Reeve Musk – Chairman & Chief Executive Officer

Tesla is going to become hell bent on becoming the best manufacturer on Earth

“Tesla is going to be hell-bent on becoming the best manufacturer on earth. Thus far, I think we’ve done a good job on design and technology of our products. The Model S and X I think are generally regarded by very critical judges as technologically the most advanced cars in the world. And so I think they’ve done well in that respect. The key thing we need to achieve in the future is to also be the leader in manufacturing. We take manufacturing very seriously at Tesla. It’s the thing that we need to obviously solve if we’re going to scale and scale rapidly and make the cars more affordable. So I really want to sort of send the message out there to the best manufacturing people in the world, we want you to come join our company. And that is going to be the primary focus of Tesla, is how do we get super-good at making large, complex objects?”

I’m spending an enormous amount of time on the production line

” I’m personally spending an enormous amount of time on the production line. My desk is at the end of the production line. I have a sleeping bag in a conference room adjacent to the production line, which I use quite frequently. The whole team is super-focused on achieving rate and quality at the target cost.”

No element of the Model 3 will be approved without having manufacturing’s approval

” And with Model 3 we’re being incredibly rigorous about ensuring that we don’t have anything that isn’t really necessary to make a very compelling version one of the car. We also have a much tighter feedback loop between design engineering, manufacturing engineering, and production. And so no element of Model 3 can be approved unless manufacturing has said that this is easy to manufacture and that the risk associated with manufacturing it is low”

You cannot extrapolate from the Model X to Model 3

“It’s always tempting for people to reason by analogy instead of first principles. And that would be the mistake of assuming that anything to do with the X production has bearing on Model 3. They are very different programs with completely different approaches. So I would not try to extrapolate from that any more than it would’ve made sense to extrapolate from the Roadster that when we were making 600 cars a year to 20,000 cars a year with the Model S.”

Move your desk around

” my desk has frequently been in the factory. This is not some new thing. On the Model S ramp, my desk was also in the middle of the factory at the start of the body line for a year. So I move my desk around to wherever the most important place is for the company. And then I sort of maintain a desk there over time to sort of come and check in on things.”

We’re not going to actually meet our July 1 deadline because that is impossible

” I want to emphasize that the July 1 date is not a date that will actually be met. It’s an impossible date. However, it’s a date we need to hold ourselves to internally and we need to hold suppliers to. But it is an impossible date because there are 6,000, 7,000 unique components in the Model 3 and that would assume that all of them arrive on time”

We’re going to have to raise some money

“Well, I don’t think we want to rely too much on customer reservation money as a source of capital. Maybe there is a buffer or something, but it’s not as a primary source of capital. So yeah, I mean, I think it’s going to make sense for us to raise some amount of money, some combination of equity and debt and make sure the company has a good buffer of cash on hand. I think it’s important for de-risking the company.”

It’s feasible to make 1m cars at the Gigafactory and Fremont

“Well, I think it is actually feasible, maybe not advisable, but feasible to do it with just Fremont and the Gigafactory. We actually believe that Fremont and the Gigafactory could scale to a million vehicles. Whether that’s actually wise is a separate question, and as I said earlier, it’s going to make sense to do localized production at least on a continent basis. Otherwise your logistics costs end up being quite extreme.”