Tesla Conference Call Notes: Model S & X Demand, Giga Factory, Entry To China + More

FEB 20 2014 BY JAY COLE 27

Several Model S Sedans Completed A Cross-Country Run Using Only Tesla Supercharging Stations This Quarter

Several Model S Sedans Completed A Cross-Country Run Using Only Tesla Supercharging Stations This Quarter

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:

Tesla Model S Design Studio In China (via Tesla Motors)

Tesla Model S Design Studio In China (via Tesla Motors)

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:

Tesla Has No Plans To Reduce The Cost Of The Model S In The Future

Tesla Has No Plans To Reduce The Cost Of The Model S In The Future

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:

If They Want It There, Tesla Has Room For The "Giga Factory" Right Next Door To Their Fremont Assembly Plant

If They Want It There, Tesla Has Room For The “Giga Factory” Right Next Door To Their Fremont Assembly Plant

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:

This Tesla Model S Fire Is Currently Still Under Formal NHTSA Investigation

This Tesla Model S Fire Is Currently Still Under Formal NHTSA Investigation

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.”

Tesla Deliveries To Be Scaled Back In Q1 To Accommodate Europeans

Tesla Deliveries To Be Scaled Back In Q1 To Accommodate Europeans

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:

Volume Production Of The Model X Gets Underway In The Spring Of 2015

Volume Production Of The Model X Gets Underway In The Spring Of 2015

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.” 

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27 Comments on "Tesla Conference Call Notes: Model S & X Demand, Giga Factory, Entry To China + More"

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So nothing about the battery upgrade then? Maybe we will hear about that next week with the giga announcement. Personally, I think it will be a capacity upgrade as the new cells become available.

Hey David,

Nope, there was nothing mentioned and nothing asked at all about any battery upgrade/expansion during the conference call.

1:11 am. Don’t you ever sleep Jay?

Hehe not so much…but then again, I really enjoy what I do so, (=

Seeking Alpha has a full transcript of every word of the call, you can point people to that for “literally” looking at the call.

Great stuff Jay, thanks for the copious info. Do you remember if anything was said about the AWD version of the Model S?

Sorry Nix, nothing on AWD either. Seemed like a lot more question on the business metrics this time around. Musk not wanting to talk about the Giga factory until next week kind of curtailed some of the conversation I thought.

I wonder if some buyers are holding off buying the ‘S’ because the ‘X’ is coming, I know I would. I feel Elon has some justification in ‘feeling’ sales of the ‘X’ will match or exceed sales of the ‘S’ in NA. Certainly, it will help rural sales because of the AWD and larger capacity.

Personally, I’m holding out for the Model S with AWD and rumored 100+ kWh battery.

I don’t think that Model X sales will match or exceed Models S sales in NA, because the X’s falcon wing doors a too polarizing. Some people will love them, but I think most people will hate them because they limit the utility of the Model X CUV by eliminating the ability to carry skis, kayaks, surfboards, cargo carriers, etc. on the roof. Also, the novelty of falcon doors will soon wear off after having to open them during a drenching downpour or a heavy snow storm.

+1 I’m looking at the X and it just seems weird to me. The S follows traditional styling and fits with what a lot of people think of as a beautiful car. I get so many compliments on mine – “beautiful car”, “bitchen ride” and “sexy” are common. I don’t see that being the case with X. I think people are going to go “weird doors” and “how does that thing fit in a parking garage?”. Then when they realize the rack problem, it will kill the sale. I predict the X will have about 1/2 the take of the S.

weird doors? coolest doors i’ve ever seen, and they will have sensors so they wont hit any objects above.

anyone i’ve talked to said the doors are awesome

Regardless, he makes a very valid point. As soon as the buyer realizes that the roof is unusable for a storage box, kayak, skis, etc. many sales will be lost. That type of versatility is part of what makes SUVs so popular in the US.


Not to mention that I will always think the Model X is the uglier or fatter cousin version of the Supermodel Model S….

Who can reach the roof of an SUV?

The rate of reservations captured by TMC forum posters has shown a much lower rate of US reservations per day from initial rollout of taking orders in Feb 2012 through now, compared to the MS rate per day. And US orders appear to be just above 5:1 ratio of NA:EU. Perhaps a big reason for the delay is lack of stampeding orders flowing in. There are spreadsheets by enterprising forum participants showing Model S orders and Model X orders, and by this I mean reservations which are refundable. I read about one guy with an MX reservation who couldn’t wait and bought an MS. Doesn’t know what to do with the MX res.

Well Foo, once the new line is up & running in the 3rd Q. Then Tesla will be able to do AWD for the ‘S’, however, this will only happen once they have locked design for the ‘X’ as I expect AWD will be the same config for both models.

And yes, there a probably a few S buyers out there who will do exactly as you suggest, and wait for the 100+ kW/h battery to be released with/without AWD.

30 Model S in Germany in January 2014, FYI

Germans love their Mercs, Bimmers and Audi’s and without any incentives in place the (I’m guessing 50+ age bracket) people buying expensive sedans are probably not easily impressed by some newfangled EV done by some unknown US upstart, that’s not supported by proper charging infrastructure yet. I’m sure over time and with the expansion of the Supercharger network Germans will gradually start to appreciate the qualities of Model S.

Maybe someone could explain to me.

If they are losing money (by GAAP accounting standards) how can they have so much cash on hand.???? Where does it come from. Is it because of selling stock?

Also I don’t understand how they could have no ZEV credits.


Tesla was very low on cash not so long ago (less than $200 million – which made it very hard to operate a business building any volume of cars, let alone deal with the DoE loan).

Tesla has actually tapped its market cap and issued shares a couple times, the first for about $200 million, then the large whack for about $850 (all-in – common stock, senior notes, etc), which it then used to pay off the $465 million it owed the DoE.

Look for an even larger event to pre-finance the giga factory and the 3rd gen shortly. That’s when things get interesting both for the company…and shareholders (IMO)

As for the ZEV credits, they are accumulating them, but it is strictly their decision if and when to sell them.

Thx for the response Jay.

their cash flow always positive

13 q3 positive 50m
13 q4 positive 130m

On top of all the very accurate things Jay said, there is one big reason why Tesla’s cash on hand keep going up, even long after they raised all the money Jay listed. Each time Tesla sells a car through their lease program, Tesla sells the car to Wells Fargo or US Bank for the full sale amount, and then the buyer makes payments to the bank, not to Tesla. If they sell a $100K car, that money goes directly in their Cash on Hand that is reported in their SEC filings that quarter. Tesla gets all of their money immediately upon sale. But GAAP accounting doesn’t let Tesla book this entire sales amount as profit immediately upon sale, because that transaction is not considered to be complete under GAAP. Tesla is only allowed to book the amount of the down-payment. Then each month, Tesla gets to book each lease payment as profit until the lease period is over after 36-39 months, and the car is either bought back, or the lease period expires. Only then is the car sale considered final under GAAP accounting. This makes for a very odd situation, where even though Tesla has been paid $100K… Read more »

Additionally, money is incredibly cheap right now, as it has been for many years.

I think Tesla is over estimating the Chinese market….

But I hope I am wrong…

I’m surprised Tesla doesn’t partner with an existing Li battery maker in China. Or partner with Foxconn to make the cars there. I’m sure the Chinese government would help financially. Just use an existing structure for the factory. Lots of idle manufacturing resources over there right now just waiting to be used.