Flufferbots and fireworks
As we informed you earlier, Tesla officially lost $784.6 million in the past three months. This probably came as a complete surprise to exactly no one, but now that it's in the history books, it doesn't even really matter. What really matters is the future, and how the company intends to meet its challenges. One way we get insight into those plans is by listening in on the quarterly call with financial analysts.
This time around, not only are CEO Elon Musk, CTO JB Straubel, and CFO Deepak Ahuja taking questions from the usual gaggle of money men and women, but also from the young YouTuber, Galileo Russell, who hosts the HyperChange TV channel. He successfully reached out to Musk on Twitter, asking if he could present a crowd-sourced question on behalf of 150 TSLA investors and got, literally, the OK.
Recalling the last call - Tesla Call Highlights Include Model Y Production & Semi PlansWe ourselves went into the call with all sorts of questions, "How does the company get to a profit in Q3?" being the first among them, despite being partially answer in the letter that accompanied the financial results, but also: What's the deal with the Model 3 body engineering, as asked by Munro and Associates? ; Is Model Y production slated to start in November of 2019?; Where do you plan on building Model Y and Semi? How does China's recent decision to open up its auto industry impact the timeline for a Tesla factory in that country?
So, how did it all turn out? Here are our notes:
- Elon Musk kicked off the call with a few remarks, beginning with a mention of production gains at the Gigafactory in Sparks, Nevada, which makes battery cells, modules, and packs along with drivetrain components. Now, he says, they are producing up to 3,000 packs per week while keeping capital expenditures (capex) under control, with peak hourly production, if sustained, reaching the 5,000 pack per week level.
- Touching on automation, he also discussed his tweet about over-automating some things. He emphasized, though, that the vast majority of production is automated, and that some human handled aspects would eventually given back to machines.
- Overgeneralizing design was another factor responsible for slowing things down. The example for this was given as a port in the front of battery packs to accommodate eventual front-wheel motors. Holes were being made, than blanks placed over them, but as these batteries were being made for rear-drive cars, these weren't needed, and only added time and cost. The change in various procedures has seen pack production times reduced from seven hours three weeks ago to under 70 minutes now.
- Musk went on to discuss production rates of other parts of the process: body shop is already capable of over 3,000 cars per week. General assembly, now with temporarily more humans, should be at the 3,000 level soon.
- After touting its increasing share of mid-size premium market from almost the biggest to the biggest later this year, he then touched on his tweet about achieving profitability, saying, although it's not a certainty, he feels it quite likely for both the third and forth quarters. Part of that increased likelihood of profit should come from a "reorganization/restructuring of the company" this month. In particular, he mentioned the number of 3rd-party contracting companies they are using being reduced. He promised to "scrub the barnacles," saying "we've got barnacles on barnacles" and that there will be a lot of barnacle removal.
Tesla Energy power module (with new 2170s)
Asked whether a 5,000 Model 3 per week run rate was dependent on a 24-7 work week, or whether things would move back to a 5-day, 2-shift operation, Musk replied that he thought the latter was "a ridiculous way to operate," as it would be a poor use of cap-ex. Eventually, they want to have all parts of the company working on the same schedule, although that couldn't be 24/7 as robots need maintenance.
- Asked how having more humans affect costs, Musk explains costs should decrease, since it could reduce certain production stations and the number of expensive robot technicians.
- Asked for insight into how costs are being affected by changing battery chemistry (less cobalt), Elon made it clear he thinks they have the lowest costs already, and that they will continue reducing cobalt and "get it to almost nothing" to make further gains.
- In response to another question, this time from Morgan Stanley's Adam Jonas, Musk underlined that he "specifically" doesn't want to do another capitol raise this year.
- The analyst's next question touched on whether Musk saw the roll out of a communications satellite constellation as an opportunity for Tesla to take advantage of some of SpaceX's work, by providing world-wide broadband service for the cars. Musk said he hadn't really thought about it much. "There's a lot of interesting things you could do."
- In answer to a question about what needs to improve at Fremont to get to the 5,000 per week production mark, general assembly was named as the biggest risk, and Musk would be spending time there in the upcoming weeks.
- The Model Y crossover finally came up for the first time with a question concerning the timing of cap-ex towards that program. As he did last quarter, Musk said there will be some minimal spending this year, relative to revenue, but much more in 2019. He then went on to discuss about design decisions impacting eventual cap-ex, and said, " I think Model Y is going to be a manufacturing revolution. It will be incredible from a manufacturing standpoint..."
Tesla CEO Elon Musk
Pressed about changes to gross margin improvements on the Model 3 being pushed back by Bernstein's Toni Sacconaghi, CTO Ahuja pointed to a combination of tariffs, countervailing duties, commodity price increases, and weaker dollar adding costs, in addition to increased labor costs being responsible. Musk then jumped in to say it was only a few percentages different and "don't make a federal case out of it." The tension on the call increased after his question, a somewhat meandering attempt to pin down which costs were being targeted, had Ahuja speaking of smarter expenditures. After pressing even harder, Musk broke in with "next, next," indicating his displeasure, and stating that "Boring , bonehead questions were not cool. Next."
- Joseph Spak from RBC Capital Markets came up next and asked how many Model 3 reservation holders, in light of negative recent news, with the ability to configure had taken that step. This was met by a long silence and it seemed the Tesla execs were talking amongst themselves with the line muted. After a moment, Elon announced, "We're going to go to YouTube (meaning Galileo Russell of the YouTube HyperChange TV channel) . Sorry. These questions are so dry. They're killing me."
- Russell started by mentioning Waymo's autonomous taxi service plan, and asked for an update on the Tesla Network, the automaker's plan to have cars autonomously work as a car-sharing service when not needed by their owners. Musk's response to this spoke of the regulatory hurdles that had to be crossed, and wandered into criticism of the media for inflammatory headlines and laboring under the misconception that autonomy is less safe, but eventually stated that he thought the cars would be capable of this from a technical standpoint by the end of next year.
- The HyperChange TV host then asked about the Fremont factory's capacity in light of the Reuters story that claimed production had been targeted for November 2019, and where the vehicle would actually be produced. Musk replied that "the Reuters report is based on...nothing." He clarified that Model Y production might begin 24 months from now in early 2020, but not at Fremont. That new facility's location hasn't been decided yet.
- He then moved on to ask about the Semi, mentioning that Daimler's CEO had stated that it seemed to break the laws of physics. To this, Musk snorted, "Ha! He doesn't know much about physics!" and went on to mention that he (Musk) had "actually studied physics in college." Answering the question of whether there the Semi and Roadster depended on some sort of technological breakthrough, Musk stated that they could do a 500-mile truck with the technology they have now, and that he thinks the "actual production unit" would be capable of more than 600 miles. CTO Straubel mentioned that he thought the confusion stemmed from a misunderstanding of what Tesla's current tech can actually do.
Kettleman City Supercharger
Staying on the line, slightly unusual because questions are typically limited to two per attendee, Russell asked if they are "actually going to let Porsche beat them to market with 350 kW supercharger" going on to press for details about "V3" Superchargers. After saying a 350 kW system didn't make much sense unless you have a really large pack or a crazy high C rate (a rating for power output), "in which case energy density is going to be really poor," he said they were looking at a 200 to 250 kW charging rate.
- Next, the conversation moved to other car companies using the SuperCharger and Musk said, once again, that the system wasn't meant to be a walled garden or a moat, then moved onto Tesla's planned fixed rate charging for it Megachargers for Semi. Musk spoke of the importance to trucking companies of the economic competitiveness over aesthetics. He then veered off slightly, bringing up a recent lawsuit by Nikola Motors which claims infringement of its truck design, calling it absurd. "Nobody's buying a semi truck because of the way it looks. Or because it's got like a wraparound windshield, or whatever. Please."
- He then asked about Tesla Energy, and how they might be prioritizing residential and utility customers and how the Australian project changed the industry's perceptions about what batteries can do. Musk says utilities that work with them really love the battery pack, and went on to tease an announcement of a gigawatt-hour scale project would be coming within a matter of months. Straubel then admitted they were behind in servicing its residential Powerwall backlog and would be putting more emphasis on that in the second half of the year.
- Asked about Semi reservations and when it might be produced, Straubel said they were around 2,000 spoken for at the moment. Musk emphasized that they were actively selling that product at the moment and that companies were approaching them. Their focus is still on the Model 3 and becoming profitable, "it's high time we became profitable." He didn't give any color on the timeline, however.
- In response to a question about when the next factory would be announced, Musk said maybe next quarter, but definitely before the forth quarter. He also mentioned that a Gigafactory, which will include vehicle production, for China would also be announced soon.
Source: Tesla, Inc.