2017 Investor Roundtable:General Discussion

[Krugerrand]

Just a quick point on Model S/X. Yes, the current iteration of these vehicles has seemingly plateaued, but there are plenty of demand levers that remain unpulled. With all of Tesla's focus on Model 3 production, what is the point of pulling these and driving demand to 120k if that means they have to do a bunch of retooling on the S/X lines to match that demand this year? All of that capital (human and financial) is being utilized for Model 3, so it makes no sense.

Just a handful of levers off the top of my head:
-Interior refresh
-HUD
-Tesla Energy bundles
-More lucrative referral progam
-Fleet sales (discounted)
-ummm.... Advertising... heard that's usually something companies do.

As Elon said - production will be 100k and there will be the demand. Since it should be clear why they aren't growing production, that's all that matters.

On that note he said that they have now just reached a point where they are comfortably doing 100k run rate, which has allowed them to look for those cost savings, efficiencies etc... to get those GMs up on the S and X. To bump that run rate again means to have to go through the whole process again of overtime, other expenditures and lower GMs until they learn again how to get comfortable at the new run rate etc... Rinse and repeat. That's clearly not a priority right now as they concentrate on Model 3.

 

[Mkorpal]

Just a quick point on Model S/X. Yes, the current iteration of these vehicles has seemingly plateaued, but there are plenty of demand levers that remain unpulled. With all of Tesla's focus on Model 3 production, what is the point of pulling these and driving demand to 120k if that means they have to do a bunch of retooling on the S/X lines to match that demand this year? All of that capital (human and financial) is being utilized for Model 3, so it makes no sense.

Just a handful of levers off the top of my head:
-Interior refresh
-HUD
-Tesla Energy bundles
-More lucrative referral progam
-Fleet sales (discounted)
-ummm.... Advertising... heard that's usually something companies do.

As Elon said - production will be 100k and there will be the demand. Since it should be clear why they aren't growing production, that's all that matters.

Don't forget the battery upgrade.

But you can take advertising out of it. No need to advertise a product that sells itself.

 

[erthquake]

To me the most significant takeaways.

- model 3 reservations continuing to rise every week
- model S demand is being somewhat cannibalized but they're still confident of selling around 100k s and x this year
- model 3 production planning is going remarkably smoothly
- but the model 3 design won't let them get to the alien dreadnought manufacturing dream
- that will come w the model Y. The fact that he already knows the length of cable ducting for the Y is remarkable... and it's a 15x improvement on the 3. wow. what kind of design simplification happened there
- the key to being by far the world's best manufacturer, their goal, is in software development, and there they have the ability to leave every other manufacturer in the dust
- if they can achieve that, and he thinks all the steps to doing so are now 'obvious', then there's a clear path to $700bn market cap
- to launch 3-4 new gigafactories in coming few years, as suggested at TED, will probably mean more cap raises down the line, but only to facilitate massive growth
- tesla bus is being deleted from the masterplan 2, partly because rides will be cheap enough w/o
- version of model X could be designed to take 10-12 people. that shd be enough
- the semi can be built at really high margin, mostly from model 3 parts, eg multiple model 3 motors
- will offer materially better costs/mile/ton delivered than current state of the art
- surprisingly easy to design and build
- energy sales likely to grow dramatically by end of this year
- mobile eye functionality rebuilt by tesla in 6 months (almost true, not quite)
- overall they're executing well and he's feeling optimistic

I mean... the only way you can sell the stock given all that, is if you truly think he's bullshit artist. We'll soon be in a world where way more people have actually driven a Tesla. Elon could handle the calls a lot better for a casual listener. But for anyone who's tracked Tesla over time, all the writing is on the wall for a massive uplift in next 9 months.

Curious. If the semi is so easy to design and build, what's to prevent a company like Proterra from adapting their bus platform into a semi platform?

 

[Krugerrand]

Curious. If the semi is so easy to design and build, what's to prevent a company like Proterra from adapting their bus platform into a semi platform?

Same thing that's preventing all those other companies from copying Tesla's S/X/3 platform and making an awesome, compelling, long range EV.

 

[replicant]

Just a quick point on Model S/X. Yes, the current iteration of these vehicles has seemingly plateaued, but there are plenty of demand levers that remain unpulled. With all of Tesla's focus on Model 3 production, what is the point of pulling these and driving demand to 120k if that means they have to do a bunch of retooling on the S/X lines to match that demand this year? All of that capital (human and financial) is being utilized for Model 3, so it makes no sense.

Just a handful of levers off the top of my head:
-Interior refresh
-HUD
-Tesla Energy bundles
-More lucrative referral progam
-Fleet sales (discounted)
-ummm.... Advertising... heard that's usually something companies do.

As Elon said - production will be 100k and there will be the demand. Since it should be clear why they aren't growing production, that's all that matters.

How the S/X can have already plateaued? I live in Paris and I haven't seen a handful of Teslas in the past few months. Actually, the ones I notice are the same ones that were already in the streets over a year ago (half of them are taxis).

Haven't seen an X in France yet (saw one in Brussels last weekend, finally). I thought the demand for high-end SUV was much bigger than for the sedans. Yet, I rarely see one when I drive across the country . IIRC, France is the #1 European market for EV. Something's not right.

 

[anticitizen13.7]

I found the information on Model Y to be the most interesting: new platform, elimination of legacy 12V electrical system, and substantially simplified wiring. From a product technology standpoint and factory standpoint, this may be a bigger jump than Model 3.

I was hoping that Tesla would be able to cover the compact crossover segment sooner than 2019/2020. Compact crossovers like CR-V are becoming top selling family cars and displacing midsize sedans like Accord. The 2020-2021 timeframe is when I expect other automakers to have decent long range competing products, so this is potentially a market where Tesla doesn't get a major head start.

I do believe that the decision to make Model 3 a sedan was driven in part by range considerations and styling. Taller crossovers have much worse aero characteristics than sedans, and it is hard to make a crossover sleek and sporty.

 

[RobStark]

How the S/X can have already plateaued? I live in Paris and I haven't seen a handful of Teslas in the past few months.

It seems a long hard slog to convince buyers of premium sedans in countries with national champions to buy an American car.

Germany,France,Italy, and Japan.

Tesla does well in smaller European countries without a national champion.

Britons I guess don't have the same attachment to Indian owned Jaguar Land Rover nor Swedes to Chinese owned Volvo. And my guess is Hyundai doesn't have the heritage nor cachet even in S Korea to prevent Tesla making significant inroads.

 

[Garlan Garner]

How the S/X can have already plateaued? I live in Paris and I haven't seen a handful of Teslas in the past few months. Actually, the ones I notice are the same ones that were already in the streets over a year ago (half of them are taxis).

Haven't seen an X in France yet (saw one in Brussels last weekend, finally). I thought the demand for high-end SUV was much bigger than for the sedans. Yet, I rarely see one when I drive across the country . IIRC, France is the #1 European market for EV. Something's not right.

There is absolutely no way the S/X have plateaued.

1. They are still building/selling them at an astounding rate.
2. The S/X are Tesla's automotive profit margin as they can't build them fast enough.

 

[RobStark]

I was hoping that Tesla would be able to cover the compact crossover segment sooner than 2019/2020. Compact crossovers like CR-V are becoming top selling family cars and displacing midsize sedans like Accord. The 2020-2021 timeframe is when I expect other automakers to have decent long range competing products, so this is potentially a market where Tesla doesn't get a major head start.

I doubt anyone is going to have the ability to make 500k plus long rage compact CUV pure BEVs in 2020.

Dipping your toes in the market with capacity to make 10k-50k is not competing with Tesla.

 

[AlMc]

What I heard is steady state demand at 25k per quarter for Gen II vehicles.

And production is optimized and getting better for 100k vehicles per year. They see gross margins improving.

It was an awkward explanation by EM on that subject.

You knew you were going to get that question on the CC:

Answer ready: 'We are confident that we continue to have the demand for *at least*100k model X/S this year,'

Period, end of story/reply

 

[RobStark]

2. The S/X are Tesla's automotive profit margin as they can't build them fast enough.

Actually, Elon just said they are building them fast enough.

25k per quarter.

 

[Krugerrand]

It was an awkward explanation by EM on that subject.

You knew you were going to get that question on the CC:

Answer ready: 'We are confident that we continue to have the demand for *at least*100k model X/S this year,'

Period, end of story/reply

But that's so *yawn*. What would we talk about if we got the canned answers?

 

[RobStark]

It was an awkward explanation by EM on that subject.

You knew you were going to get that question on the CC:

Answer ready: 'We are confident that we continue to have the demand for *at least*100k model X/S this year,'

Period, end of story/reply

He has answered that question in the past by giving an answer similar to that or saying order rate was increasing.

But he did not say that this time. He said 25k last quarter, enough demand for 25k this quarter and enough demand for 100k this year.

 

[AlMc]

J.B.'s nose whistle drives me nuts. Just sayin...

He can whistle through his nose all he wants since he answers the questions directly and confidently without seeming to be caught off balance.
I know this is EM's manner of speaking and he is brilliant and fearless. However, JB is much easier to understand. At least on these calls where the acoustics sound like the audio from my junior high morning announcements. And I was in junior high a long time ago.

 

[ludicrousspeed]

I think from a guidance perspective, the letter and call were both great.

However, from a financial perspective, there is (and always has been) one glaring concern for me: SG&A costs. This quarter SG&A amounted to over 29.6% of revenues and almost totaled more than their gross profit after the deduction of just COGS. SG&A even totaled more than CapEx. These are recurring patterns. In the letter, it seems that they classify building out the service network under CapEx, so I'm unsure what can be so costly in this area.

Can somebody please explain to me the major components of their SG&A expense and how they can reduce them as a % of revenue????

 

[ikjadoon]

I found the information on Model Y to be the most interesting: new platform, elimination of legacy 12V electrical system, and substantially simplified wiring. From a product technology standpoint and factory standpoint, this may be a bigger jump than Model 3.

I was hoping that Tesla would be able to cover the compact crossover segment sooner than 2019/2020. Compact crossovers like CR-V are becoming top selling family cars and displacing midsize sedans like Accord. The 2020-2021 timeframe is when I expect other automakers to have decent long range competing products, so this is potentially a market where Tesla doesn't get a major head start.

I do believe that the decision to make Model 3 a sedan was driven in part by range considerations and styling. Taller crossovers have much worse aero characteristics than sedans, and it is hard to make a crossover sleek and sporty.

Agreed. I don't quite even understand how they'll transition off 12V; the entire automotive parts system is built on 12V, right? Lights, switches, audio systems, etc. I'm pumped.

However, on your last line, the Mazda CX-5 actually looks kind of what I expected the Model Y to look like (but sans grill and maybe taller):

 

[22522]

What I heard, that matters a lot, is at 1:05: "I think most people are going to be able to get it that have put down a deposit.... We are prioritizing US production. Most people that have put down a deposit will be able to get the full tax credit."

To make that true Tesla had/has to do A LOT of work. That is a giant favor for customers. And should have huge goodwill returns on the stock price. Probably more than anything else they are doing, besides making the Model 3 good.

(As for sorting the "same hours per car" comment. What I parsed out of that is: the standard human hours required to build the S and the 3 are the same. But the focus on automating those tasks has improved line speed by a factor of 5. They are not using humans for all those hours. This implies that the Model 3 is a "pave the cow path" design. The Model Y is more designed around robot capability and likely has fewer parts. Likely leans heavily on the specific kinds of machines the German company they acquired produces.)

It was refreshing to hear that the Model 3 line would be "among the fastest." That is kind of a look in the mirror motivating statement. Here is my paraphrase: "When I look at where we are today on line speed, I don't see any separation. We need to fix that."

 

[SteveG3]

Tesla has 1/3 of US luxury car market. That was the mic drop moment of the call, or may be the mic actually dropped...

perhaps, I liked "what the fools don't understand..." (re years long running of media coverage misrepresenting of Tesla as a welfare queen).

on a more serious mic drop note, I think perhaps it was really about the factory for the Model Y putting them dramatically ahead of other manufacturers as far as automation (i.e. "alien dreadnaught" disruption) as it will be mostly based on software. I think Elon actually said, ~If I was them I don't know what I would do.~

worth another listen, but I think that was far and away the most helpful new information out today in refining a long term view of Tesla's growth. Elon has said before he thinks automation will be their biggest competitive advantage, and today he backed it up with a sensible explanation, a software competition between a Silicon Valley company and decades old automakers. it was a brief description, but, it is very plausible and explanatory. I'm fine with receiving that information in a package deal with the shocking reveal that the S/X do not have infinite demand and that some who might have otherwise chosen the S/X apparently are choosing the soon to be available Model 3.

 

[AlMc]

But that's so *yawn*. What would we talk about if we got the canned answers?

I like boring when it comes to questions you know you are going to get.

Now, I would be OK with EM cadence and poor acoustics if EM dropped a ' We have <crackle> with China to <crackle> GF 3 and no J
<crackle> required.'

 

[Papafox]

How the S/X can have already plateaued? I live in Paris and I haven't seen a handful of Teslas in the past few months. Actually, the ones I notice are the same ones that were already in the streets over a year ago (half of them are taxis).

Haven't seen an X in France yet (saw one in Brussels last weekend, finally). I thought the demand for high-end SUV was much bigger than for the sedans. Yet, I rarely see one when I drive across the country . IIRC, France is the #1 European market for EV. Something's not right.

You bring up an interesting subject. Some regional cultures have yet to embrace the Tesla S and X. I live on an island in the Pacific and yet we have well over 500 Model S and Xs on my island alone. In some of the nicer neighborhoods they're more common than Camrys. Being climate-change oriented is fashionable here, PV panels on the roofs are common, and the 60mwh battery has more range than you can use in a day's driving. On the other hand, when I visit relatives in Reno, NV., home of Tesla's Gigafactory #1, I see very few Teslas on the road. It's somewhat weird, given the importance of Tesla in Reno. There is enough money in Reno and you see Hummers, Porsches and various Lexus vehicles. The local culture is oriented to 4-wheel-drive SUVs and trucks partly because of the snow, partly because of the wide-open spaces in Nevada that lack supercharging so far, and partly because it's not fashionable in Reno to be too quick to adapt the kind of vehicles popular in California. Most people in Reno want to be seen as outdoors-oriented, but not as tree-huggers. I suspect that in Paris and in Reno, you'll see the Model 3 break the ice and get people realizing what great vehicles the company makes. The middle of the United States is another area where, with a few exceptions such as the mountainous areas of Colorado, Teslas haven't worked their way into being fashionable. For France in particular, American cars aren't seen as high end cars. I think you see the Ford Focus and similar vehicles on the lower end of the scale. To drive an American car isn't fashionable yet in France, but someday driving a Tesla will be smiled upon in France because the culture tends to value earth-friendly technology and I think the French can relate to the genius of Elon Musk.