Tesla Conference Call Notes: Model S & X Demand, Giga Factory, Entry To China + More
On Wednesday after the market closed, Tesla reported 4th quarter earnings that handily beat Wall Street estimates for the auto maker. Overall the company made $46 million (ex-items), or 33 cents per share on $761 million in revenue. (full story and ‘the numbers’ can be found here)
However, it is generally the press conference after the report when Tesla CEO Elon Musk and CFO Deepak Ahuja really get into the interesting stuff, and take question from the media about where the company is today and where they are headed. Here are the highlights:
On the difficulties selling (and eventually manufacturing) in China:
The Tesla CEO noted that selling and servicing a car in China is not a problem at all, but manufacturing is another story “where there’s an expectation that you partner with a local entity.”
Mr. Musk noted that the company is still in the very early stages of getting the car to market and that they are “very far away from manufacturing in China” although they do expect to do that on their long term plan.
Demand in 2014 for Europe and China:
As part of the company’s shareholder letter, the Tesla CEO said “we expect sales in those regions combined to be almost twice that of North America” towards the end of the year.
In the conference call, Musk broke those sales down further, disclosing a little slower than expected demand in Europe, but runaway demand in China.
For Europe specifically Musk feels “…there is probably work to do in a number of locations in Europe, mostly because we still have to sort out a number of charging issues,” but feels confident those issue will be cleared up in the “very near term” and that Tesla Model S sales “will pick up quite a bit over in Europe“ in 2013.
For China, CFO Ahuja says that Tesla is seeing good demand there now, and for right hand drive markets in general. Although deliveries have yet to get underway Mr. Musk says “based on current trends it seems unlikely that we’ll be able to satisfy demand in China this year” but declined to put a number on expected Chinese sales when asked.
On margins and potentially lowering the price of the Model S:
The Tesla CFO stresses the benefits of scale and working with suppliers will move margins from 25% to 28%, while CEO Musk says that the company still expects the “take rate” on options to decrease as the Model S reaches “broader markets,” noting the companies expectations to sell fewer P85+s going forward.
It is worth noting that a good bulk of today’s margins at Tesla have come from not passing along the cost savings that the other major manufacturers have in producing electric cars (in fact the cost of the Model S has increased since launch), and the Tesla CEO says they are “not planning on lowering price of the car.”
The Giga factory:
One of the most anticipated disclosures in the recent quarterly report would be any news on the upcoming “Giga factory” Tesla has planned in the future to produce their own cells in conjunction with the anticipated demand for their 3rd generation car.
Unfortunately, not a lot of new information was given in either the quarterly report or when asked about the facility in the Q&A.
Musk alluded to the fact the factory would most likely be built in association with current battery partner Panasonic, but that other suppliers could fill a role as well. Then stopped short in explaining anything further so as not to take away from a further media opportunity coming up shortly.
“I don’t want to talk too much about the Giga factory because we are going to talk about that next week…so I think we’ll have to just punt that answer, details next week.”
On 3rd Gen Tesla and the new “Giga factory’s” role:
The Giga factory was stressed in relation to production for the Model S and upcoming X, but the CEO did say that the main purpose of the factory was to support the 3rd gen car – “it’s happening in parallel with development of the third-generation car,” saying the engineering and tooling on that car should be wrapping up at the same time as the Giga factory.
Asked for a timing up date on the 200 mile, $35,000-$40,000 car, Mr. Musk said the timing was unchanged, and a 2017 launch was still in the works.
On current open NHTSA fire investigation on the Model S:
CEO Elon Musk: “We anticipate a positive result…And it’s worth noting that we’ve been cleared by regulatory agencies in every other country, Germany, Britain, Japan, China, everyone else. So it’s actually just the U.S. regulatory authorities that are kind of the lone holdout at this point. We provided the NHTSA with all the information that they’ve requested and are awaiting a decision from them, which hopefully would come soon.”
On Model S production ramping to 1,000 cars per week at the end of 2014:
The CEO says the company is currently constructing a new line in the factory, but notes “it’s a little complex because there are many pieces that go into making a Model S – some of which are production constrained, and some of which are not.” Mr. Musk says the company needs a new final assembly line, and that is what they are constructing now, and they will be transitioning to this new line around the end of the 3rd quarter.
Elaine Kewi at Jefferies follows up Musk’s statement asking if there would be further capacity past 1,000 if needed after the assembly line is re-constructed.
“Yes, it’s fair to assume that we will be able to go to higher numbers if the demand is there.”
North American Model S sales vs Europe and Asia:
While continuing to stress he can’t accurately predict the future, Mr. Musk says that Tesla is forecasting that “non North American sales will be about twice the size of American sales.”
As to specific US 4th quarter sales (and of particular interest to us here at InsideEVs as we try our best to estimate monthly/quarterly sales for Tesla in the US), a Goldman Sachs analysts asked about the breakdown of North American sales in the 4th quarter.
CFO Ahuja: “No, we didn’t provide that. We haven’t done that in the past…I just want to say most of the growth that came in Q4 is from Europe, though U.S. and North America continued at the same pace as Q3.” Elon Musk: “Q3 to Q4 US deliveries were very similar but the increment went to Europe.”
For Q1 of 2014, the CFO stressed that they company will be ramping more into Europe, and that is why they guided to about 6,400 deliveries for this quarter, over the 6,829 delivered in Q4 of 2013.
“…we could have played games and tried to shift the mix and delivered more cars into the US to hit a higher delivery number in Q1 but we decided to smooth the flow of cars and our operational issues. That’s why you see the small reduction in Q1 deliveries and a shift a little bit more into Europe and Asia…”
Model X Demand:
The Tesla CEO was careful to note throughout the Q&A that any question on future products and demand is purely speculative as it is difficult to predict.
That being said, he did expect the Model X to have “at least as much demand” as the Model S, even exceeding it in his opinion and perhaps sustaining demand of about 1,000 units per week – while stressing to the media to not “hold me to it.”