I thought on the whole the Q2 call was very positive, aside from the JB departure but that was not entirely unexpected. Lots of very positive updates on demand and future plans. Elon was slightly back to hype mode - I think partly because he was feeling defensive over the JB announcement - I don't think he would necessarily have let their TWh battery cell plans out the bag otherwise.
Some standout 2Q19 call quotes:
Elon - "we expect growth to continue in the future at -- for several years to come at 50% to 100% level."
Elon - "We also have to finalize a location for our European Gigafactory before the end of the year."
Elon - "Here at Fremont, preparations for Model Y production has already begun.
Elon - "And we expect the manufacturing costs for Model Y despite additional content to be approximately the same as Model 3."
Elon - "We expect to be cash flow -- free cash flow positive in future quarters with the possible temporary exceptions around the launch and ramp of new product. From a profitability standpoint, we expect to be probably around breakeven this quarter and profitable next quarter, so that's -- I feel pretty confident about that."
Elon - "And then in terms of deliveries, we expect deliveries to be between 360,000 and 400,000. We expect production to be a slightly higher number than that, and demand to be a slightly higher number than that."
Zach - "There's $117 million within operating expenses for restructuring. We had a sequential reduction of $104 million related to regulatory credit, which is inherently lumpy. And in our other income line, we saw a $66 million reduction."
Zach - "For Model 3, global ASPs stabilized during the quarter at roughly $50,000, a sequential reduction, yet gross profit per Model 3 improved representing the continued success of our cost management efforts."
Zach - "while operating expenses and capital expenses may appear to be unnaturally low this quarter, that's not the case. Rather these reflect continued progress on cost efficiency and ability to scale our core technologies and processes."
Zach - "nearly all orders generated in Q2 were non-reservation holders."
Elon - "we have already opened to 25 new service locations this quarter and that will increase -- the rate of service center opening will increase dramatically through the course of this year as well as more Mobile Service."
Zach - "And thus far in Q3, our order pacing is ahead of where we were at this point in Q2. And as we noted in our Q2 production and delivery release, our order backlog increased over the course of Q2."
Zach - "I feel as though we've broken through a baseline fixed cost barrier, enabled by the success of the Model 3 business."
Zach - "With continued focus on execution and cost management, the next 12 to 18 months should be the most exciting yet. During this time, we believe that Gigafactory, Shanghai will be producing at scale. Model Y will be in production, addressing the most popular vehicle segment. Our European Gigafactory will be well underway. Our autonomous driving feature suite will continue to develop; energy products business will grow and maybe a few other things along the way."
Elon - JB Straubel, our Co-founder and Chief Technology Officer will be transitioning to a Senior Advisor from the CTO role; and Drew Baglino will be taking over most of JB's responsibilities.
Drew We have seen improvements in the 23-gigawatt hour number. We're in the high 20s now with the trajectory continuing upward. We're not...
Elon So about 28-ish?
Drew Yes 28-ish. I would say, we're not so constrained for any of our activities at the moment.
Elon Cell volume is approximately matching the production ramp rate.
Zach - "And so, I would expect some adjustment to our Model 3 ASPs as a result of this pricing change, but the trim mix will offset some of that. And we continue to make great progress on cost efficiencies. And so, overall in that our expectation is that the Model 3 gross margin will continue to grow."
Elon - "Are you asking like what do I think the long-term demand for Model 3 is in Greater China region? I think it's about, from Shanghai Gigafactory, I think it's actually -- long-term demand is about 5,000 a week."
Elon - "I think for Battery Day, we're going to do a comprehensive review of cell chemistry, module and pack, architecture, and a manufacturing plan that has a clear roadmap to a terawatt-hour per year. The time for this probably is about six months like maybe February or March next year, show and tell"
Elon - "it's probably 2021 before we have an operational Gigafactory in Europe."
Elon - "I think say long-term demand is for Model 3, it's probably 15,000 units a week globally something like that."
Elon - "Demand in Q3 will exceed Q2. It has thus far, and I think we'll see some acceleration of that. So -- and then, I think Q4 will be, I think very strong. So, we expect that quarter-over-quarter improvements. I think Q1 next year will be tough. I think Q3 or Q4 will be good, Q1 will be tough. Q2 will be not as bad, but still tough. And then I see like Q3 and Q4 next year will be incredible."
Zach - "But generally speaking, our order rates so far this quarter is higher than where we were at this point in Q2, and we haven't seen a significant impact on U.S. based orders as a result of the step down."
Elon - "And I think we actually want to address that communications issue and just get a better understanding of– from the front lines like what demand should be higher for S and X than it is and will get to the bottom of it and fix it."
Elon - On 3/S/X gross margin. "So, yes, absolutely, I think, like long term we are talking 25%, 30%. Not long term meaning like a year. Long term, like, in terms of vernacular that 30% gross margin is I think quite likely."
Jerome - "Labor cost saw more than 50% reduction in one year. Yes, it's progressing every quarter. Yes. Reduced in half, yes, since the Q3 last year, but it's also all the -- for the fact that's associated with spares, the scrap is reduced to pretty much nothing, reduced 90% year-over-year. Spares are just more than half. So we're -- our goal is to make the car more affordable and sort of pushing everyday, yes. And every week we'll beat records on most lines."
Joseph Osha And just as a follow-on then, could we see you manage to make 8,000, 7,500, 8,000 Model 3s in Fremont by the end of the year you think?
Elon Yes. I mean I feel confident it's -- let's just say that the trend is very clearly towards being able to get to 10,000 vehicles a week of which that would be -- there is rough numbers like 8,300 to 8,600 Model 3s and the balance in S and X. So, there's sort of 1,600 to 1,800 SX. In round numbers 8,500 3s, 1,500 SX per week, but probably a bit more than that.
Zach - "generally as I've commented in the past, we expect regulatory credits to become a more meaningful part of our business." " And as you model regulatory credits in Q3, I would not expect a significant increase in regulatory credits, although it's hard to forecast exactly."
Colin - Can you walk us through the plan for battery sourcing in China? How many -- how much of the supply is going to come from internally produced batteries? How much is coming from externally? ...
Elon - I don't know if we want to talk about the details of battery supply. We've got a good handle on. We don't expect to be self constrained in China for the next year, I don't know. Drew what do you think?
Drew - Yes, that's what our plan looks like right now. In terms of internal versus external, I think we should wait until we have our discussion early next year. But yes, we have agreements in place with -- we're good for next year as you say Elon.
Elon: "To some degree battery day will kind of be master plan part three. Which will be how do we get from tens of GWh per year to multiple TWh per year. That's a pretty giant scale increase. That's an increase of roughly 100x. "
Elon: ... "How do we get to like 2TWh per year"
Drew: "That's the way you have to think about it because that's what you need to do."
Elon: "Yeah exactly. In order to really make a fundamental shift in the world's energy usage, and really transform things to a sustainable energy future, if you're not in the TWh range its a nice news story but its not fundamentally changing the energy equation"
Elon - "long-term sales of – long term meaning, a couple of years I think. The demand for -- sales demand for 3 is like on the order of three quarters of a million units a year, and it's probably 1.25 million per year for Model Year, so they combined is like maybe two million from those two vehicles, and then S/X is like there may be 80,000 to 100,000 a year."
Elon - "Service centers are the key to sales, not the retail locations"
Elon - "Supercharging is incredibly important to us. You can't just have like 80% of the routes somebody who wants to take, you need 100% routes"
Elon - "We really just need to look at the total system efficiency and say in the limit, if Tesla was the auto industry, how would we do it to maximize economic efficiency. And that's -- we're got to kind of like recalculate that optimization, as we achieve greater scale. I'm confident we can achieve a fundamentally better economic efficiency than the rest of the auto industry."
