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2012/07/25 Q2 2012 Q&A Conf Call notes

Discussion in 'Tesla Motors' started by brianman, Jul 25, 2012.

  1. brianman

    brianman Burrito Founder

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    I'm not fast enough to do a full transcript, but I did take some notes. Sharing them, in case it's of interest to others.

    Deepak:
    Delivered 10 in the quarter. Produced a few more. Focus was for test drives, etc.

    Elon:
    Made a total of 40 production vehicles so far. Production is ramping quite well. Steps up in geometric or exponential fashion, not linear.

    Deepak:
    100 [powertrain] units, start of ramp

    Deepak:
    About 130-140 Roadsters left to sell. Expect sell out by EOY.

    Elon:
    It is normal in auto industry for exponential growth in production.
    About 97-98% components are new for Model S.
    Personally inspecting the cars whenever I can.
    I changed the production ramp to slow it down at the beginning and ramp up faster towards the end.

    Deepak:
    Deliberately up-front planned for 500 units [in Q3].

    Elon:
    I think it's probably that we will produce more than 500 units [in Q3].
    Imagine the production ramp as a quite sharp S curve.
    One of the things that I've been really emphatic about is that in 2013 we'll produce at least 20,000 units and the gross margin will exceed 25% [and a

    third thing but I type too slow]....

    [Regarding production slow-down]
    100 little things...
    - Chrome plating of the door handles had tiny pits, so switched to a different plating supplier
    - Banana leaf interior trim sample looked good, but car didn't look good
    Decisions are made w/r/t ensuring the product is the best possible product.

    Elon:
    We do not have a demand problem.
    One of the biggest reasons people don't put down a reservation is because you have to wait a year... 10 months.

    ["Who from the competitive standpoint is closest to Tesla, and how far behind are they?"]
    Next best are the powertrains we provide to our partners.
    After that you fall a long way... Leaf I guess. Range issues. Not as fun to drive.
    Nissan should double-down on EV investments, and improve the product.
    People are buying our car because it's the best car, when you look at the characteristics - aesthetics, safety, handling, performance, user interface,

    functionality, technology, fit and finish.... Evaluating the car as a product.

    ["10 cars a week now... average 40 a week in 3Q... and then ramp average to 375 in 4Q... more of a switch than ramp. That vertical portion of the S curve

    would have to happen early in 4Q, which would imply way over rate of 20k a year at the end of the year...exit rate in 3rd or entry rate in 4Q?"]
    You're right... we will be at a higher production rate than 20k at the end of the year.

    Elon:

    [Supercharger]
    Anticipating a September event.... I'm really excited about that announcement. Way cooler than anyone realizes. I think it's going to have a profound

    effect on how the public sees electric vehicles. There will be a few surprises.

    [Warranty]
    For the battery... similar language to Nissan... warrantied for 8 years and mileage depending on version.
    We're expecting the packs to have a usable life somewhere around double the warranty level.
    Once you put a new pack in the car it will be better than new.

    [What type of flexibility for additional personnel, overtime, etc. in production line to meet production goals.]
    Could comfortably have a production great that's 50% greater than 20k.
    At the end of next year, pretty good likelihood we'll have a 30k run rate.

    Deepak:
    We have flexibility. Overtime. Second shift. Depending on the demand, we have flexibility.

    ["When do you expect starting to pay back DOE loan?"]
    Elon:
    We are required to pay it back no later than December.
    Deepak:
    Quarterly payments thereafter.

    [Stores]
    George:
    Our goal with the stores is try to address some new markets. Northeast corridor.
    This year... hitting the hottest spots we have demand already.
    Focusing on places where we know there is existing demand, and build more.
    Traffic in the stores has been incredible. Over a million people through the new design stores.
    I have a goal to have a million people go through our stores in December alone.
    Elon:
    Tesla is not a demand constrained company. Production constrained... Address that, but not at the expense of quality.

    [more on the production ramp]
    There are several thousand unique parts are fine. ~97% are fine.
    A couple dozen suppliers where we have some challenges. Fix the supplier, bring it internal, or get a different supplier.
    Not big things. Ridiculously silly things. Piece of carpet. Piece of molding on the dash doesn't intersect properly with another piece.
    Little things that are extremely annoying.
    Almost all of them are interior, soft trimmish.
    Keep refining to make sure that the gaps and fit are as close to perfection as physics will allow.
    Beefed up our interior trim engineering group.

    The gaps. How well things shut. Want to set a new industry standard how things fit.

    [regarding capital raising]
    Deepek:
    We probably shouldn't comment at this time.
    Elon:
    But...we will not be raising money in the immediate future.

    ["How are reservations converting into final order numbers?"]
    Elon:
    12,200 reservations
    George:
    ~1,000 fully configured, finalized, locked in
    Invited Sig in U.S. only.
    About 10 days ago, first group of general production U.S.
    This week, next traunch of general production U.S.
    Then Canada Sig, Canada general production.

    ["commentary with low reservation numbers...October...Q1... What do you make of it?"]
    Elon:
    I wouldn't read too much into the message boards.
    George:
    I monitor them, watch them on a daily basis.
    [200 founder series rumor] I responded, and shut it down.
    In April, the paperwork and system spit out a date as if it was a firm date. We're correcting that.

    [on the topic of what "sold out" means or would mean for 2013]
    George:
    We never plan to have inventory.
    Our goal is to have 3-4 months of reservations at any given time.

    [incremental demand from ongoing nationwide tour?]
    Elon:
    We're seeing demand acceleration without trying.
    George:
    We don't have a Model S at all in Europe or Asia... and we're sold out of Signature in EU.
    Elon:
    Certainly *not* demand issues with the Model S.
     
  2. AnOutsider

    AnOutsider S532 # XS27

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    Thanks (brian)man! Going to pull bits out to relevant threads
     
  3. Tommy

    Tommy Member

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    May I suggest the first one to pull be for our Canadian friends benefit. And thanks brianman for the info as well.
     
  4. joefee

    joefee Over 2 Million TMC page views

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    Nice job ... Outlook for next year looking good!
     
  5. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    Brianman, you do a MUCH better job than Seeking Alpha. Their transcripts are always full of typos.
     
  6. DavidM

    DavidM P2624, Delivered

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    Brianman - Very good transcript. You picked up virtually all the key points that were discussed. Very upbeat conference call.
    What I took away from it:
    1. There is no issue with demand for Model S.
    2. Reduced production of Model S in 3Q to resolve lots of little quality issues (mostly interior finishes, plus door handle finish).
    3. Tesla will not sacrifice on quality just to deliver 5,000 cars in 2012.
    4. Big announcement in September.
    5. No intention or need to raise more cash (for Model S). But keeping an open mind wrt add'l cash for Model X? or Bluestar?
    6. Multiple new stores planned for the greater NY/NJ area. Lots of sales potential there.
    7. Objective to reduce waiting time from 12 months to 4 months. Some folks want Model S, but are reluctant to wait 12 months.
    8. George B. monitors posts every day. George, if you are reading this post, I'd really like to take delivery of my 85kwh Model S this year. thx
    P2624 (Florida)
     
  7. blakegallagher

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    Very much appreciated. Nice to get an overview from my phone :)
     
  8. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    LOL! I think if George B were reading every thread and every post, he'd have no time to get any other work done! Let's hope he's just selectively reading particular threads, or better yet, having someone on his staff reading carefully and providing him summaries and key posts/threads.
     
  9. MikeK

    MikeK R#129, TSLA shareholder

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    When you mention "gaps" and "fit", were they talking about interior parts, body panels (door, trunk, etc) or both?

    Thanks!
     
  10. brianman

    brianman Burrito Founder

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    Where I used "gaps" and "fit", it was a literally transcription. My recollection from context was that it was talking about the body panel gap concern that has been raised repeatedly as a noticeable concern on lighter colored vehicles.
     
  11. mulder1231

    mulder1231 Active Member

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    Third thing was profitability. The 5,000 deliveries by year end was a "soft" target, as he called it, versus hard targets like the 3 things.
     
  12. brianman

    brianman Burrito Founder

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    Nah, third thing was something about when deliveries would begin. He said it like 4 times, but I never got it typed up in time.
     
  13. mulder1231

    mulder1231 Active Member

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    Maybe you're right, it was the July delivery target. Replay will confirm..
     
  14. Charged_Up

    Charged_Up Member

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    I listened to the call. the three things were 1) deliveries in July 2012, 2) production of 20k units in 2013, and gross margin of 25% in 2013.

    The 5000 units delivered in 2012 he called a "soft target" that was aspirational but the others he considered as hard targets on which he could be held to account. That said, they did say they expect that working through holidays they had a good chance of producing the 5000 units...
     
  15. brianman

    brianman Burrito Founder

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    So technically he was wrong on the first one (since some cars were delivered in June). ;)

    It's the good kind of 'wrong' though.
     
  16. Robert.Boston

    Robert.Boston Model S VIN P01536

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    Is that why my productivity has gone to hell...?
     
  17. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    There's quite a few of us in the boat.......
     
  18. Zythryn

    Zythryn MS 70D, MX 90D

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    Thanks Brianman!
    As I recall, this part:
    Should be 'Banana Leaf interior trim sample looked good, but didn't look good once it was in the car.
    The car still looks great;)
     
  19. brianman

    brianman Burrito Founder

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    Yah, I meant to say "but in car".
     
  20. Robert.Boston

    Robert.Boston Model S VIN P01536

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    I was struck by the statement that Elon expects "the packs to have a usable life somewhere around double the warranty level." So, 16 years/300,000 miles (say) on the 85kWh battery? That changes the ownership economics massively.
     

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