Tesla (TSLA) Q1 2017

posted in: Earnings Call, Notes | 0

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.”