Here are my shorthand notes from the Tesla Earnings Call from 4/29/2020.
The most notable comments were:
- Elon confirmed a subscription model will be available by the end of the year for FSD.
- The model S has an actual range of 400, which will be proven later…
- The Model Y casting will be made into a single piece by the end of the year.
- Battery day will likely be the third week of May.
- The next Gigafactory will be in the US and will be announced in 1 to 3 months.
- Tesla could enter the Residential or Commercial HVAC market.
- In the first of 2 bombshell statements Elon said “We are worried about not being able to resume production. That should be identified as a serious risk. We only have Shanghai and bay area. Since bay area produces most of our cars…over constitutional lines. Not why people came to this country. What the fuck, excuse me. It will create harm to not just Tesla but many companies. What people have worked for their whole life is lost. It’s causing a lot of strife to a lot of people.”
- In the second Elon said “I think it’s time we invested in infrastructure. We have a lot of crumbling highways. China infra is much better. Europe has better infra. It’s bad that US roads and highways are bad. Our airports are an embarrassment. We spend a lot of money, what do we gain from it? If this was 1920 do you want to invest in steam engines or combustion engines. This is the time to think about the future and to ask is it right to infringe upon peoples rights, which is what is happening right now. People are angry, if someone wants to stay is fine. To say they can’t leave their house, this is fascist, this is not freedom. Give people back their God damn freedom.”
- When asked again on timelines for full autonomy (with driver ):
Q: Full autonomy by end of year (with driver engagement). End of next year the hope with full autonomy? Elon: sounds right.
Full Notes:
Elon:
Q1 ended up being a strong quarter with challenges. Achieved 20% gross margin while ramping 2 major products. We learned a lot, after the TM3 our products come faster…MY ramp is even faster then the giga ramp (china) in Q1. MY is profitable already in Q1.
AP new software with FSD package last week. Auto stop at light or stop sign. Car is capable of much more than this. We are only exposing functionality we feel good about and is a safety improvement. This number will grow exponentially…will be collection data from over 1 billion per month (intersections). The driver is effectively labeling reality as they drive. This is an advantage no-one else has. This is difficult to appreciate. All confirmations are training on neural net as well as making turns. I feel extremely confident it can make a drive from home to office with little to no interventions be the end of the year. We can almost do this already with the alpha builds which are driving the car.
We increased range of S and X again. The real S range is 400 miles. When we did EPA test, they left the car open and keys in car with (waiting for driver mode and loss range of 2%). We will redo the test and achieve 400 mile rating. The true range is 400 miles for the last 2 months. We are improving all details like handling, etc.
MY introduced 2 piece casting. We will be making a single piece casting later this year. Rear 3rd is a single piece. There isn’t even anything on par with the 2 piece casting for MY. We are pushing manufacturing and engineering. Allows us to reduce weight, cost, NDH.
Also introduced revolutionary heat pump, allowing more range. MY has remarkable range, despite being a bigger car that weighs more, the heat pump contributes to that.
Feedback from My customers has been universally positive. Confident this will be our best selling product ever.
In conclusion, we are continuing our MY expansion in berlin and China. Cost in China and Berlin can bring cost down. We are pedal o the metal on new products and expanding the company.
We are looking forward to sometime next year being a global…with China and Berlin.
We launched MY ahead of schedule.
It’s hard to understate the significance of Profit on first quarter of production.
Despite not running on full capacity.
We also launched a performance variant of TM3.
Order rates were not impacted. Exited quarter with highest ever backlog.
First ever Q1 profit.
Continue to make progress…
Experienced launched efficiencies with solar roof which show profitability.
Free cash flow were impacted in increase in end of quarter inventory due to interruptions. We were trending to highest cash flows.
Taking near term actions
MY in Shanghai and Berlin continue on plan.
Shanghai remains operational
Fremont, as soon as possible.
Continue to deliver cars from first quarter.
One of the most improved…locally sourced materials.
The shutdown will effect performance.
Working on cash flows to remain….
Reduced non-critical expenses.
Overall, modelled many scenarios, will proceed fully on short term and long term investments.
Have ability to adjust spending and claiming as required.
Questions:
Most Owners have yet to experience FSD. What can you do to expand…will you premium subscription?
Elon: we will offer as a subscription as a service. It will be towards the end of this year. It will make sense to buy as an option. Buying is an investment which will pay off to the benefit of the consumer. FSD option is something that people will not regret doing.
Rolling the up front option will be least expensive way if you roll it into monthly cost.
This will enable this option to customers to experience FSD who can’t purchase up front.
It’s what results in long term value creation.
Our goal is to do the best thing for the customers.
If we behave like this, the customers will behave well to us.
Elon:
For China we will be reducing the price of the standard range TM3 standard range. We are confident this will result…
Q: Impact from shutdown?
Elon:
We are looking at cost structure. Right way is to continue to expand rapidly. There is clearly an uncertain future. Long term prospects are extremely good.
Prioritization on key projects help execute.
It’s always been our vision at Tesla to be digital as possible. Touchless delivery, sales, etc.
Elon: Tesla is the only car you can order online in 5 minutes and have all the paperwork done. Normally, buying the car is (worst than going to the dentist). Typically the process is more painful than a root canal. For Tesla, it’s as easy as ordering something from the app store or from amazon. I think if you really went fast you could order in 90 seconds.
Q: Could you give a preview of battery day?
Elon: We don’t want to pre-empt battery day. There will be a lot of exciting news to tell. It will be one of the most exciting days in Tesla history. The right timing will probably be the 3rd week of May. We think probably that is the right timing. Depending..either CA or TX.
Q: Could you update progress on commercialization of FSD. How much revenue?
A: Currently in North America. We take half as revenue and half as deferred revenue (half of $7000) a little more than $600 million.
Elon: Toward the end of the year as a subscription or
Q: Elon mentioned 50% compound growth. Is 40% or more a realistic target?
Elon: it’s hard to predict. Few people could predict. In the absence of some large event, 30% is the likely number. It’s possible it’s 40%.
Q: When will you announce next Giga? How many in next 5 years
Elon: will announce next as soon as a month. Maybe as soon as…could happen. Will be within 3 months, and possible within 1 month. It will be in the US. Don’t know about next 5 years. Several more than today, but not sure.
A: Our Gigas have gotten bigger with multiple products. There might be less but produce more. As much vertical integration as possible in one facility.
Q: Update on Solar Roof ramp?
Elon: we were getting momentum before COVID. COVID shut us down from install and permits. Shelter in place..can’t install, can’t physically do it. Long term trend is extremely good. In the next year or EOY we should be installing at rate of 1k per week. In Spring, installing (which is the hard part). We shown we can hit 1k per week already. The problem is building up install teams, 3rd party installers. Internally we want at least 1k install teams. Demand is good, production is good. It’s all about the install. Building up the training. A diverse group of companies which can also install, allow scale to increase. We are seeing interest outside of north America. Seeing interest from China.
Q: Residential or Commercial HVAC market?
Elon: Personally extremely excited to build a system which has hospital grade particle filtration. Filter out viruses, bacteria, pollen, fungi, neutralizes alkaline gases. Quite, efficient. These are things we achieve in our cars. Model 3 and Y are better than most cars. Continuing to improve filters on TM3 and Y. We are seeing demand on stationary storage, more than we can apply.
Elon: Our brain is full. Overarching goal is to expand sustainable energy. Power generation, storage, electric transportation. We don’t have market share goals. Want to sustainable for world as soon as possible.
Q: Zack, any real time update on liquidity?
A: Don’t have additional 8.1 billion in cash equivalents. Increase in inventory of vehicles. Making progress. We’ve been looking at this over next 18 months, currently with payables from Q1 that need to be payed off. We will be through that and have a gap since we don’t have parts coming in.
Elon: we are worried about not being able to resume production. That should be identified as a serious risk. We only have Shanghai and bay area. Since bay area produces most of our cars…over constitutional lines. Not why people came to this country. What the fuck, excuse me. It will create harm to not just Tesla but many companies. What people have worked for their whole life is lost. It’s causing a lot of strife to a lot of people.
Q: A lot of comparisons to early 1930’s…what is message to US lawmakers longer term? Specifically around EV infrastructure and renewable energy.
A: I think it’s time we invested in infrastructure. We have a lot of crumbling highways. China infra is much better. Europe has better infra. It’s bad that US roads and highways are bad. Our airports are an embarrassment. We spend a lot of money, what do we gain from it? If this was 1920 do you want to invest in steam engines or combustion engines. This is the time to think about the future and to ask is it right to infringe upon peoples rights, which is what is happening right now. People are angry, if someone wants to stay is fine. To say they can’t leave their house, this is fascist, this is not freedom. Give people back their God damn freedom.
Q: Elaborate on gross margin is already positive. Commonality with Tm3 and what does it mean for…
Zack: First, carries higher ASP than TM3. Deliveries started with performance initially. This helps create margin. This will come down in time. It’s similar to trends with Tm3 3 years ago. The commonality is huge, the manufacturing processes are very similar as well. Followed in Shanghai. Existing factory and people to support launching was very important.
Elon: We want to make it lighter, simpler, incrementally improve and lower cost. For a 5 seater we expect marginal costs to be comparable to Tm3 once we reach 20,000 units.
Q: Cell strategy. In Reno you have integrated there. Buying cells in Shanghai and Germany. How are you looking at this going forward?
A: From a sales perspective, with all partners we are looking for competitive pricing and tech. We will talk more on battery investing day. We don’t have one model to pursue, looking to find what’s best.
Q: Mr. Muzuno on entering the board.
Elon: We all need a hero. He brings a tremendous amount of experience. Has done work at Japan….largest fund of any kind in world. Generally conversations give incredible insights into global security markets work. Seems like a strong philosophical understanding on making future better. A very sensible smart person.
Q: Full autonomy by EOY. How does rollout play out?
Elon: it’s going to play out as it has. Release more and more functionality. It goes through extensive testing. We have a simulation team which run any code changes and simulation. Global QA team (I’m on) and we test releases in real world to find differences between real world and simulations. Then we release to a small group of beta testers in company. Then a larger audience outside. Then early access, then a broad release. There are many stages. By the time something is going to wide release to US it has gone through all stages. The software at the early stage is much more advanced. It has to go through a rigorous process. Is it very good at intersections, complex turns at intersections, busy malls and parking lot, office park, or special events…Those are extra hard cases. AP team is…extremely talented group. I’m deeply involved with the team. We talk every week. Have a deep understanding of where we are, we have tremendous momentum. Can get FSD by end of year. Then extra step which is to improve reliability to it. Supervised by driver, improve reliability until it no longer needs to be supervised. Show regulators, regulators would give approval with no human on board. The regulatory process is hard to predict, it is out of our hands.
Q: Full autonomy by end of year. End of next year the hope with full autonomy?
Elon: sounds right.
Q: Rob taxis?
Elon: I think it’s quite likely in my view, I could be wrong, we’re ahead in some areas. When I give a guess, it’s likely midpoint, not with margin. That means half my predictions will be right half wrong, or right but in some cases a few months or a few years. It might have come late, but it did come true. Punctuality is not my strong suit, but I always come through in the end. Next year. Not in all markets, but some.
Q: 3 moving parts, credits, MY ramping, margin down. Being closed last week of quarter. Auto gross margin could have been up.
A: We exclude credits for margin. Model Y ramping bringing down gross, agree. Shut down inefficiencies weighed on margin. Shanghai was below average margin. If you removed those factors, I think your intuition is right. Margins continue to improve despite lower models. This lends itself to the power of contribution of company. Once we can spread out fixed costs..feel very optimistic.
Q: You always mentioned demand for energy storage has …more than supply. Capacity? Timeline?
A: I think what we’ve been doing is how to reduce cost of investments in new cell capacity. When you look at a car, vehicle product, there is more than just the cells. For energy storage it’s all about cell investments,. That’s what we’ve been focused on. This will be addressed on battery investment day.