The Tesla 2018 Q3 earnings report is in, and as CEO Elon Musk had predicted, the company recorded a profit. And, at $2.90 a share, not a tiny one either. So now, with Tesla bulls ebullient and bears barely able to lift the goal posts they seem to so often be moving, we turn our attention to the quarterly financial call with analysts. Like last time, we will listen live and fill you in on the most notable bits, crossing our fingers for information about what to expect from the company with regards to progress and products.
In a change from past presentations, the financial call this time around begins at 6:30 Eastern time. Hopefully, we'll get some details about the company's new timeline for the China Gigafactory, which is already in the early stages of construction, and which was just confirmed to produce both the Model 3 and Model Y. We can't help but wonder, too, if the Gigafactory 1 will be home to Model Y and Semi production. Typically, they avoid making explicit product announcements during these calls, but sometimes they do give us some strong hints.
We also look forward to hearing about other efforts Tesla is involved in: energy storage, along with solar panels and roofs. While we understand the solar roof seems to be stuck in a lengthy "product validation" period, we wonder how the regular panel sales and installation business is doing.
Here, now, is our takeaways from the call:
- Elon opens the call with opening remarks about safety and other issues. Delivered more cars in Q3 than 2017.
- Best quarter ever for solar.
- Expect to see positive cash flow in Q4 and other quarters going forward.
- Elon chokes up talking about customers pitching in to help with deliveries, and thanks them.
- Vehicle safety: Todd Maron speaking, says electric architecture gives advantages over traditional cars. Model 3 scores above 943 other vehicles in tests. Is number 1. Not finished, either. Will continue improving. They discuss how they try not to just pass the various tests, but how to improve safety in any condition.
- Stuart Bowers: Navigate on Autopilot coming. Future version will allow car to pass without driver tapping turn signal, but manual for now.
- Can still order full self-driving, just off-menu. Was creating confusion between enhanced autopilot and full self-driving.
- Andrej Karpathy: Team is excited about upgraded computer. Have neural networks greatly improved, but waiting on new hardware to make them more functional. The improvement should be dramatic.
- Talking about factory safety now. Aiming to be safest company in the world.
- Elon talks about claims they were under-reporting injuries, but have been cleared by CAL OSHA. Laurie Shelby, VP of Environmental, Health, Wellness, and Safety says injuries are a fraction of what they were when plant was NUMMI. Most injuries are muscle strain and sprains. This quarter saw 15,000 safety improvements. Opened new improved health clinic, overseen by leading orthopedic doctor. She lists an impressive number of efforts to be proactive in improving.
- Dan Galves, Wolf Research asks about cell supply. JB Straubel answers: Supply is tight, but they have other partners to lean on besides Panasonic. Started another cell production line with Panasonic with two more coming soon.
- Plans for cell supply in China? Long-term will be China, short term, they are not sure yet.
- Pierre Ferragu from New Street Research asks about improved Model 3 margins. (20% instead of expected 15%) 15 % was a conservative guidance.
- Asks about Medium Range Model 3, why now?
- Elon: Expect to begin production of the Model 3 for Europe in January, begin deliveries there around end of February. Asia Pacific deliveries may only begin in Q2.
- Romit Shah of Nomura Securities: where do you expect to see weekly production. Elon says global demand is 500,000 to a million per year. Want to have production be able to supply that. China production will help with some of that next year (2019). Mentions European factory needed as well, but not for Model S or Model X.
- George Galliers of Evercore asks what capex (capital expenditure) is needed to achieve Model 3 production level. Elon says can reach 7,000 with minimal additional capex. Reaching 10,000 will take more effort to reconfigure lines at Fremont.
- Expectations of product mix in Europe? Elon says they've given that zero thought. Have to first sell car to see what demand is.
- In response to question from Maynard Um of Macquarie, Elon says of Model Y that he just approved prototype to go into production, but Elon is most excited about Pickup.
- Regarding ridesharing, Tesla will compete directly with Uber and Lyft and offer ride-hailing service. Customers can also add their car to fleet.
- Adam Jonas, Morgan Stanley asks about top models being traded in. Martin Viecha says it's all across the board, but mostly lower than $35,000 price. No apparent pattern. A lot of people trading up.
- He also asks if Q3 is a milestone where company becomes self-funding and not need outside funding. Elon says plan, for now, is to pay off debt and be self-financing.
- Elon goes own about effort to reduce time to get car from factory to customer. Was 30 days, improved to 20. Will aim for fewer than 10 days next. (hence, cars sitting in parking lots getting their picture taken by shorts) This measure will save the company a lot of money. Eventual target is under 7 days worldwide. Will greatly improve capital efficiency.
- Tony Sacconaghi asks Deepak Ahuja about operating expenses being seemingly high. Deepak says it has decreased 5%. Says opex will increase in future, but slowly.
- Also asks about Model 3 gross margins. Now, he calculates a $35,000 Model 3 would have zero margin. Elon says the situation is rapidly changing. They will get to a $30,000, but aiming for less than $30,000. Overall costs will continue to fall with further scale.
- Regarding battery costs, Elon says safe to say they have the lowest cost in the industry but won't give a number.
- Phil LeBeau of CNBC asks about the Federal tax credit. What kind of impact could that have on sales? Elon says he expects demand to sustain in the U.S.
- Elon claims Model 3 is most efficient EV and has lowest cost. Talks about competitors, says they need to invest more than they have and make bigger effort. Because they didn't, Tesla has a strong competitive advantage.