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CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
©2014TheStreet,Inc.Al l R ightsReserved Page1of25
TeslaMotors(TSLA)EarningsReport:Q12015ConferenceCallTranscriptThefollowingTeslaMotorsconferencecalltookplaceonMay6,2015,05:30PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
JeffEvanson;TeslaMotors;VPofGlobalIRElonMusk;TeslaMotors;Chairman&CEODeepakAhuja;TeslaMotors;CFOJeffreyBrianStraubel;TeslaMotors;CTO
OtherPart icipants
DanGalves;CreditSuisse;AnalystJohnLovallo;BofAMerrillLynch;AnalystAndreaJames;Dougherty&Company;AnalystColinLang;UBS;AnalystRodLache;DeutscheBank;AnalystColinRusch;NorthlandCapitalMarkets;AnalystAdamJonas;MorganStanley;AnalystBrianJohnson;BarclaysCapital;AnalystRyanBrinkman;JPMorgan;AnalystTripChowdhry;GlobalEquityResearch;AnalystPatrickArchambault;GoldmanSachs;AnalystBradErickson;PacificCrestSecurities;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Gooddayladiesandgentlemen,andthankyouforstandingby.WelcometotheTeslaMotorsFirstQuarter2015FinancialResultsQ&Aconferencecall.
(OperatorInstructions)
Asareminder,today'sconferencemayberecorded.Now,mypleasuretoturnthefloorovertoJeffEvanson.Sir,floorisyours.
Jef f Evanson (VPofGlobalIR):
Thankyou,[Hughie],andgoodafternooneveryone.WelcometoTesla'sfirstquarterQ&Awebcast.I'mjoinedtodaybyElonMusk,TeslaChairmanandCEO;JBStraubel,ourCTO;andDeepakAhuja,Tesla'sCFO.Weannouncedourfinancialandoperationalresultstodayinashareholderletterthatisavailableatthesamelinkasthiswebcast,Andareplayofthewebcastwillbeavailablelatertodayatthesamelink.
TheshareholderletterincludesGAAPandnon-GAAPfinancialresults,aswellasreconciliationsbetweenthetwo.Ournon-GAAPmeasuresaddbackdeferredrevenueandrelatedexpensesforcarsdelivered
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
©2014TheStreet,Inc.Al l R ightsReserved Page2of25
wherecashhasbeenorwillverysoonbecollected.Thesenon-GAAPresultsalsoexcludestock-basedcompandnon-cashinterestexpense.RevenuesandcostsassociatedwithcarsleaseddirectlythroughTeslaaretreatedthesameinourGAAPandnon-GAAPfinancialinformation.
Duringourcallwe'llbediscussingourbusinessoutlookandmakingotherforward-lookingstatementswhicharebasedonourpredictionsandexpectationsasoftoday.Actualeventsorresultscoulddiffermateriallyduetoanumberofrisksanduncertainties,includingthosementionedinourmostrecentform10-KfiledwiththeSEC.Now,Hughie,ifwecouldpleasehavethefirstquestion.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)DOurfirstphonequestionwillcomefromthelineofDanGalveswithCreditSuisse.
DanGalves (Analyst-CreditSuisse):
IfweassumeModelSvolumeof50,000in2015,deliveriesneedtoaverageover14,000perquarterinQ3andQ4.What'sthebiggestchallengetogetthere,anddoyouhaveorderratestodaythatsupportthatlevelofvolumeinthebackhalf?
ElonMusk(Chairman&CEO):
Yes,that'saboutright.Actually,withModelXproductionrampingupquiteheavilyinQ4,dependinguponhowthatrampgoes,andobviouslyit'sdifficulttopredictthatwithperfectclarity,butourvolumeessentiallydoublesinQ4.Dependinguponhowtherampgoes,Iwanttoemphasize,sometimespeopledon'ttotallyappreciateisthatthereareseveralthousanduniquepartsinacar.Andifevenoneofthosepartsisnotavailableforanyreason,thenyoucannotship--youcannotscaleproduction.
Essentiallytheproductionrampgoesaccordingtotheunluckiestandworst-performingsupplierorpartofTesla.Thatsaid,wedoexpecttoseeasignificantrampinQ4fortheX.Andhavesomethingthatismaybeasmuchas2timesofthequartersinQ4.
Asfarasdemandforthat,wedonotseethatbeingaproblem.TherearehugeadvanceordersfortheX,andweseeasteadyclimbindemandfortheS.
DanGalves (Analyst-CreditSuisse):
Okay.Gotit.Justafollow-up.You'veimprovedtheModelSawholelotinthelastcoupleofyears.DoesthatmakeiteasiertolaunchModelXatahighqualitylevel?DoesitallowyoutomoveengineeringanddesignresourcestowardModel3fasterthanyoumovedresourcestoModelX?
ElonMusk(Chairman&CEO):
Yes.InthecaseoftheX,iftheXendedupbeingalotmoredifferentthantheSthanweoriginallyanticipated,sothatthehedevelopmenttookalotlongerandweweredistractedsolvingallsortsofissueswiththeSduringthattime,whichmadeitdifficultforustoallocateengineeringresourcestotheXwhentherewereissuestobesolvedwiththeS.Ithinkwe'lldoalotbetterwiththeX.
WearepayingcloseattentiontosomeofthethingsthataredifferentabouttheXtomakesurethattheyarenotanissue,particularlybucklingdoorandthesecondrowseats.I'mfeelingprettygoodaboutthings.
Becausethatproductionrampscalesexponentially,dependinguponwherethatexponentialcurvefalls
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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acrossaquarterlyboundarycanactuallymakequiteasignificanteffectontheproductionanddeliveriesinthatquarter.That'swhyit'saloteasiertopredictthecontinuousthanifit'sdiscreetwitharbitraryquarterlycutoffs.
IreallythinktheXisgoingtobe--it'sreallygoingtogoingtobeagreatcar.Ijustdrewupthelatestprototypetoday.Anditwaslike,wow,thisisbyfarthebestSUV.
DanGalves (Analyst-CreditSuisse):
Soundsgood.Thankyou.
Jef f Evanson (VPofGlobalIR):
Goahead,Hughie.Nextquestion,please.
Operator :
NextquestioncomesfromthelineofJohnLovallowithBankofAmericaMerrillLynch.
JohnLovallo (Analyst-BofAMerrillLynch):
Thefirstquestionis,doyouguysearn4or9ZEVcreditspervehicle,andhowmanyvehiclesareparticipatinginyourbatteryswapbetaprogram?
DeepakAhuja(CFO):
Theamountofcredits,ZEVcredits,weearndependsonthesizeofthepack.Differentforwhatwearedoingforthe60versus85,andnowthenewoneisat70.
Thathasbeenvaryingovertime,theamountofZEVcreditsweearn.I'llneedtoconfirmthatbeforeIgivetheofficialnumberhere.
ElonMusk(Chairman&CEO):
TheZEVcreditsthing,itsortofmovesthingsbylike2%.It'snotsuper-material.I'mnotsurewhatthepointofyourquestionis.
JohnLovallo (Analyst-BofAMerrillLynch):
Here'sthepointofthequestion,isthatassumingthatyouguyssell10,000vehiclesinZEVstatesthisyear,thatwouldmeanthatyouwouldneed400program--sorry,400vehiclesinvolvedinthisbatteryswapprogram,ifyouassumethateachofthemswap25timeseach.Aminimumof400vehicles.I'mjustcuriousifthereare400vehiclesinvolvedinthebatteryswapprogram.
ElonMusk(Chairman&CEO):
YoudorealizethatZEVcreditsdon'tsellfor100centsforthedollar.Theysellforlike$0.50,orsometimesless.TherearenotalwayscustomersfortheZEVcredits.
JohnLovallo (Analyst-BofAMerrillLynch):
I'mjustaskingaboutintermsofwhatyouguysareactuallyearningpervehicle.Okay.AndIguessthenextquestion--
ElonMusk(Chairman&CEO):
How'dIdo?Yes.Andasmoreofourproductiongoesoverseas,obviouslytherearenoZEVstates
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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overseas.AsoursalesincreaseoutsideofCalifornia,also--orCanada,thosearenotZEVstates.Sothisislike--ZEVstuffisanincreasinglysmallpartofthepictureovertime.
JohnLovallo (Analyst-BofAMerrillLynch):
Okay.That'sfair.Goahead.
Jef f reyBrianStraubel(CTO):
Wedohavehundredsofvehiclesinthebatteryswappilotprogram.It'snotlike10orsomethinglikethat.It'shundredsofvehicles.
ElonMusk(Chairman&CEO):
Yes.We'resteadilyincreasedtheinvitationlist.Wefoundthatthereisnotalotofinterestinpeopledoingpackswap.Wemaketheinvitationsandwegotaverysmallpercentagethatactuallytakeusupontheinvitation.
JohnLovallo (Analyst-BofAMerrillLynch):
Right.No,theonlypointisthatithasadifferenceoffiveZEVcreditspervehicle.Thatwastheonlypoint.
Secondquestionwouldbe,andfinalquestion.ThereissomenewsreportsayingthatSolarCityhassaidtheyarenotgoingtousethe7-kilowatthourbattery.Infact,Ithinktherewasaquotefromaspokesman,whetherit'strueornotwedon'tknow,sayingthatitdoesn'tmakeeconomicsense.Canyouguyscommentonthat,please?
ElonMusk(Chairman&CEO):
LetmejusttalkmorebroadlyabouttheresponsetothePowerwallandPowerpackbecauseIthinkthat'sreallythequestionsyoushouldbeasking.Theresponsehasbeenoverwhelming,like,crazy.
Inthecourseoflessthanaweek,we'vehad38,000reservationsforthePowerwall,2500reservationsforthePowerpack.ThePowerpack,itshouldbenoted,typicallythisisbroughtbyutilitiesorlargeindustrialcompanies,forheavyindustrialwork.
Typically,Powerpack,it'satleast10Powerpacksperinstallation.Soifthere's2500reservations,actually25,000Powerpacks.
Powerwallalsois,wesuspect,isprobablyanaverageofthenumberofPowerpacksisprobably1.5to2perinstallation.38.000reservationismorelike50,000or60,000actualPowerwalls.
Sothereisnowaythatwecouldpossiblysatisfythisdemandthisyear.Wearebasicallysoldoutthroughthemiddleofnextyearinthefirstweek.Itwasjustcrazy.
Wehad2500requestsfromcompaniesthatwanttodistributeandinstallPowerwallandPowerpack.Wecan'tevenrespondtothem.Wehaveto,like,triageourresponsetothosewhowanttobeadistributor.
It'scrazyoffthehook.Itseemstohavegonesuper-viral.
ForthespecificcaseofSolarCity,whattheyarereferringtoisthatthereistwoversionsofthePowerwall.There'sthedailycyclingversionandthereisthepowerback-upversion.
Oneisenergyoptimizedinoneisdailycyclingoptimized.Forthedailycyclingoptimizedone,theeconomics,itistrueintheUS,withrareexceptions,aremoreexpensivethenutility.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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Ifsomebodywantstodoadailycycling,basics,theygooff-grid.It'sgoingtobemoreexpensivethanbeingon-grid.
Thisdoesn'tmeanthatpeoplewon'tbuyit,becauseTherearepeoplewhowanttogooffgridonprincipleortheyjustwanttobeindependent.That'swhattheSolarCitycommentisabout.
Jef f reyBrianStraubel(CTO):
ItmightalsobeworthnotingthatSolarCitydoesn'tyetoperateinEurope.Andthemaintargetapplicationforthedailycyclingbatterypackwasactually--wereseveralmarketsnotinthecontinentalUS,andparticularlyGermanyandAustraliaareverystrongmarketswhereitdoesmakeeconomicsensetoday,basedonthefeed-intariffandtheelectricityratestructuresinthosecountries.SolarCity'scomments,Ithink,needtobeputintheregionalcontext.
ElonMusk(Chairman&CEO):
SolarCity'sonlyoperatingintheUS.ThePowerwall--itwillbeavailablefromSolarCityandfromotherinstallersinbothconfigurations.Butifsomeoneisdoingadailycyclingapplication,theyaredoingitbecausetheyspecificallywantgridindependence.There'ssomenumberofpeoplewhowillwanttodothat,andthat'sgood.
It'salsoimportanttoappreciatefor,eventosaythepowerbackupsystemssothatyoualwayshavepowerintheeventofpoweroutage.Let'ssaythatappealsto2%ofhouseholdsintheUS,or1%.Thatis1millionhouseholds.Like,isthere1personin100careabouthavingbatterybackupintheeventofutilityoutage?Probably.
Wecouldn'tevensupportasmallfractionofthatRightnow.Soitskindofamootpoint.
Jef f Evanson (VPofGlobalIR):
Okay.John,Ihopethatanswersyourquestions.Hugh,Iguesswe'rereadyforthenextquestion,then.
Operator :
OurnextquestioncomesfromAndreaJameswithDoughertyandCompany.
AndreaJames (Analyst-Dougherty&Company):
JusttobuildontheTeslaenergyconversation.Whatareyourrevenueandgrossmargintargetsonthatbusiness?Howdowelookatthe2015ramp?
ElonMusk(Chairman&CEO):
Thegrossmarginrevenueobviouslyisgoingtochangewithtime.Whenit'slowvolume,madeinthreemonths,itwillberelativelylowmargin.
OncewegettoGigafactoryupandrunningandhigh-volume,gettheeconomiesofscaleworking,thisisjustaguessrightnow,butmaybeit'ssomewherearound20%.Thisisnotlike--it'slikewedon'thaveenoughinformationtosayexactlywhatthatwouldbe,butprobably20%isareasonableguess.
Intermsofvolume,wearegoingtotrytoscaleitasfastaswecan--astheslowestmanufacturingconstraint.It'seasiertosaywhat'sthelongtermwithoutsayingexactlywhichquarterisitgoingtobein?Idon'tknow.
Ithinkwe'llseedemandforstationarystorage,asmeasuredinmegawatthoursorgigawatthours,tobeapproximatelydoublethatofthecar.That'sourbestguessforlong-termdemand.Yes.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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AndreaJames (Analyst-Dougherty&Company):
Howdowethinkaboutyourcapacity,orevenyourcostperkilowatthour,becauseit'sdifferentthanacar,right?Thedutyloadiswaydifferentforastationarystorageapplication.Couldyoujusteducateusalittlebitonhowwelookatanalyzingthatbusinessandthedifferencebetweenthatandtheenergyneedsofthecarbusinessperpack?
ElonMusk(Chairman&CEO):
Thereistwoapplicationswhicharequitedifferent.Oneisbackuppower,orpeak-up--theequivalent,onautilityscaleoflikeapeakerplant,whichisahigh-energyapplication.Andthereisthedailycyclerapplication.Therearedifferentchemistries,dependinguponwhatyouhave.
Thebackuppowerchemistryisquitesimilartothecar,whichisanickelcobaltaluminumoracathode.Thedailycyclingcontrolconstituentisnickelmanganesecobalt.It'squitealotofmanganeseinthere.
Oneismeantfor,callitmaybe60or70cyclesperyear.Andtheotheroneismeantfordailycycling--dailydeepcycling,soit's365cyclesayear.
Thedailycyclerone,weexpectedtobeabletodailycycleforsomethingontheorderof15years.Obviouslywarrantyperiodwouldbealittlebitlessthanthat.Weexpectedtobesomethingthat'sinthe5000-cyclerangecapability.
Whereasthehigh-energypackismorelikearoundthemaybe,dependingonhowit'sused,anywherefrom1000to1500cycles.That's--theyhavecomparabletocalendarlives.
Nowforthehigh-energyone,it'simportanttoappreciatethatthisisactually--hasalotofinterestfromutilitiesbecauseutilitieshavetomaintainthesethingscalledpeakerplants,andwhenthereisasharpincreaseinusage.YoucanimaginethehighestenergydayinCaliforniaonahotsummerdaywherethere'saheatwave,theenergyconsumptionthereisveryhighcomparedtoapleasantspringnightwherenobody'sair-conditioningorheatingison,orforverylittleandcommerceisnothappeningandpeopleareasleepandlightsareoff.
Thatcanbeahugedelta.Dependinguponthesituation,itcanbeanywherefroma5to10timesdifference.Havingabatterypackthatcantakeoutthoseveryweirdsharppeaks,liketheheatwaveday.Youcaneitherhaveabatterypack,whichrequiresbasicallynomaintenanceanddoesn'trequirefuel,andit'sgoingtopeakshavethosetroublesomedays.Oryoucanhaveapowerplantthatrequiresfuelandmaintenanceandit'salwaysgottobemaintainedandgets--ittakestime.Youcan'tjuststartitupinthreeseconds;you'vegottoletithaveabitofnotice.
Thehigh-energypackisactuallyveryeconomicallycompetitiveinthosesortsofsituations.Thehighcyclingpackisreallygreatforifyou'vegotsomesortofwindorsolarsituation,that'swherethehighcyclingoneisreallygreatontheutilityscale.
Ishouldsayweexpectmostofourstationarystoragesalestobeattheutilityorheavyindustrialscale.It'sprobably,againjustaguessbecauseearlydays,5to10timesmoremegawatthourswillbedeployedattheutilityandheavyindustrialscalethenattheconsumerscale.
So,thePowerpackwouldbetheonethatistheheavyduty,thebigproductionsalesone,notsomuchthePowerwall.Powerwallisgreat,butit's,likeIsaid,it'sprobablyonly10%or20%thesizeofthePowerpackdemand.
Jef f reyBrianStraubel(CTO):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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Maybeonepointonthecoststructure.There'sdefinitelyalotofcommonalityinthesupplychain,andeventhemanufacturingbaseonhowwedothemodulesthemselves,fortheTeslaEnergyproductsalongwiththevehicleproducts.
AswerampupproductionontheTeslaEnergyproducts,theredefinitelyarebenefitstothevehiclecostsofenergystorage,fromscaleandfromgenerallymovingmorematerialandkilowatthoursthroughthatwholechain.Bothbusinessbenefitseachother.
ElonMusk(Chairman&CEO):
ClearlygiventheveryhighdemandthatweareseeingforTeslaEnergyproducts,we'reactuallytryingtofigureoutifwecangofromourcurrentproductiontargetof35-megawatthoursatthecellleveland50atthepacklevelinourNevadaplanttomaybe50%morethanthat,orevenhigher.Becausejustthesheervolumeofdemandhereisjuststaggering.WecouldeasilyhavetheentireGigafactoryjustdostationarystorage.
AndreaJames (Analyst-Dougherty&Company):
Right.Soyouhavesomecapacity.Ithinkyousaidmaybe15%ofyourcapacitymightbereservedforstationarystorage.MaybeIreadthatinanarticlesomewhere,I'mnotsure.
ElonMusk(Chairman&CEO):
15gigawatthours,orone-thirdofthe50gigawatthoursthattargetedatthepacklevel.15%is15gigawatthours,orroughly30%.
AndreaJames (Analyst-Dougherty&Company):
Okay.Youmightadd,now,you'relookingatdoinganother50%,andgrowingthecapacity50%.Youhavethespace,Iguess,thereinNevadatodothat?
ElonMusk(Chairman&CEO):
Wedo.Idon'twanttomakethataprediction.Thatseemslikethethingweshoulddo,sowe'reinvestigatingthat.Itseemslikethelogicalthingtodo.Sowearegoingtotrytodothat.
We'refairlyconfidentatthispoint,likeIsaid,thattheentireGigafactoryoutputcouldjustdostationarystorage.Thenit'slike,wowokay.Butweneedtomakecars,too.Wejusttrytomakethefactorybigger.
That'sthetotallogic.It'snotmorecomplicatedthanthat.
AndreaJames (Analyst-Dougherty&Company):
Butgiventhechoicebetweenmaking--sorry,andthenI'llgetoff.Thankyousomuchforyourtime.Butgiventhechoicebetweenmakingapackforacarandmakingapackforastationarystorageapplication,howdoyoupickwhichonegetsthepriority?
ElonMusk(Chairman&CEO):
Well,Iguesswe'dpickcars,becausewe'vegotthiswholeotherplanthereinFremontmakingcars.Carswouldgetthepriority.
Yes,thatwouldbethelogicalpriority.Itreallyfeelslike,man,thestationarystoragedemandisjustnuttyworldwide,it'sjustcrazy.
AndreaJames (Analyst-Dougherty&Company):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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Great.Thankyou.
Jef f Evanson (VPofGlobalIR):
Hughie,weactuallyhaveaquestione-mailedinfromoneoftheanalyststhatisoutofthecountry.Iwillreadthosenext.We'llstartwiththeenergystoragequestions.
Guys,doouryearsinR&DworkinvehiclebatteriescontributebenefitsintothisTeslaEnergybusiness?Whereaswe'vedrawnsomelearningsfromthevehiclebusinessforTeslaEnergy?
ElonMusk(Chairman&CEO):
Welearnedalotaboutbatterypacks,obviously,andhowtomakethemandhavethemlastforalongtimeandworkinhightemperaturerangesandthatkindofthing.IthinkthereareafewpointsofclarificationthatshouldbemaderegardingthePowerwall,Becausealotofpeopleconfusedaboutthewholeinverterissue.
ThePowerwalldoesincludeaDC-to-DCinputterthatcaninterfacedirectlywithasolarpanelinstallation.Ifsomebodyhasasolarpanelinstallation,theyalreadywillhaveaDC-to-ACconverterforthesolarpanelsystem.NoincrementalDC-to-ACinverterisneeded.
Insomeoftheanalyseswe'veseenonline,bypeoplewhothinkthey'reexperts,theydon'tseemtorealizethatthereisaDC/DCinverter.Wehaven'tbeen,Iguess,quiteclearaboutthat,whichweneedtobe.
Ifyoualreadyhaveasolarinstallationoryou'regoingtogetone,theACinverterisalreadythere.That'sanimportantpointinconsideringthecostofthesystem.
Thentheoperatingtemperature,it'sactuallycapableofoperatingatamuchwiderbandoftemperature.We'vegottofixthatspecificationthat'sstatedonthewebsite.
Jef f reyBrianStraubel(CTO):
Ingeneral,mostofthelearningsfromthecarR&Dandengineeringcarryover.It'spartofwhywecandothissoquickly.
ElonMusk(Chairman&CEO):
Weknewwherethecarworks,thepackwouldwork.Thecarworksprettymucheverywhere.
Infact,itdoesworkeverywhere.Thepackwillworkeverywhere,obviously.
Jef f reyBrianStraubel(CTO):
Ifanything,it'squiteover-engineeredforabatterypackthatdoesn'thavetomoveandgetsmountedonyourwall.Ithinkthat'sgoingtobeagreatbenefitforreliabilityandlongevityofthepack.
Jef f Evanson (VPofGlobalIR):
ThenoneforDeepak.Wouldyoubewillingtoprovideanybreakdownofthecapital--theCapExspendinginQ1?
DeepakAhuja(CFO):
TheCapExspendingwasprimarilydrivenbythecapacityexpansionthatwe'redoingforModelX,includingthetoolingspend.Thenofcourseweareputtinginthenewpaintshop,whichisavery
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significantinvestment.ThatwillbereadyinQ3.
ThenwehavealsohadinvestmentsintheGigafactoryandoursalesandservicenetwork.That'sprobablytheorderinwhichwe'vebeenspending.
Jef f Evanson (VPofGlobalIR):
Great.Thankyou.Okay,Hughie,let'sgobacktothequeue,please
Operator :
NextquestioncomesfromColinLanganwithUBS.
ColinLang (Analyst-UBS):
Myfirstquestion,stayingonthestationarystoragetopic.Howdoyouviewthe--youmentionthereistwodifferentchemistries.HowdoesthatworkwiththeGigafactory?
Doesthatrequireallseparatelines?Isthereanymorecomplexity?Isitallwithinthesamefacility?Howdoyouviewyourchemistriesversusothercompetitiveoptionsoutthere,thereareotherpeoplewhoarebullishonthingslikezinc,othermorebasicchemistry?
Jef f reyBrianStraubel(CTO):
TheycouldstillbothbebuiltintheGigafactory.WehavemultiplelinesoperatingintheGigafactory.Ifonelineisbuildingnickelcobaltaluminumchemistryandanotherisbuildingnickelmanganesecobalt,thatstillworksjustfine.Alotofthecellassemblyandthentheprocessesthathappenafterthatarealmostidentical.
ElonMusk(Chairman&CEO):
Theylookthesameatthemoduleimpactlevel.Youcan'treallytelljustbylookingatthem.It'stheinternalchemicalconstituents.
Ifyouthinkofthe--rightdownthepalm,thecellisachemicalengineeringproblem.It'slikealittlecanofchemicals.Andthenthemoduleandpackproblemismechanicalengineering,electricalengineeringandsoftwareengineeringproblem.
Ifyouhaveasmallnumberofcells,thenasanoverallengineeringproblem,it'smostlyaboutthecell.Onceyouhavealotofcells,thantheintellectualpropertychallenge--theintellectualchallengebecomesmoreatthemechanical,electricalandsoftwarelevel,whichiswhereTesladoesquitewell.
That'swaydon'treallysee--nobodyelsehasapacklikeours.Thecellsarerelativelygeneric.Themoduleandpackisnot.
Jef f reyBrianStraubel(CTO):
We'velookedatprettymucheverychemistrycouplethatcouldpossiblyberelevantforthisandareconfidentthatwhatweareusingisgoingtobethebest.Ifthere'ssomethingbetter,wecanalsoadjustandchangeovertime.There'salotofflexibility.
ElonMusk(Chairman&CEO):
I'mnotsureiftheexact,therightanalogywouldbe,ifyoulookatalaptop,andyoucansay,alaptop'sreallyjustlikeaIntelCPUandsomemicroandDRAMchips.Bigdeal.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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Whatisanycomputercompanyactuallydoing?Theyaredoingalot.
ColinLang (Analyst-UBS):
Whatdoyouviewasyourcompetitiveedge?Itsoundslikeyouthinkitisthesoftwareandelectronicintegration,thecompetitiveadvantage.Inyourpresentationyouactuallymentionyouencourageothercompaniesthatbuild--tothemarket,aswell.
ElonMusk(Chairman&CEO):
Ithinkintermsoftheelectricalengineering,themechanical,thesoftwareandtheoverallaesthetics,andhavingsomethingthatreallyjustworksandiseasyforconsumersandutilitiesandlargeindustrialapplicationstojustorderanditjustworks,andit'sjustisthereasafullyintegratedsystem.That'sthevaluethatTesla'sadding.
Jef f reyBrianStraubel(CTO):
Ithinkthere'salsosubstantialbenefittothetrackrecordoftheautomotivefleet.That'ssomethingthatalotofthenewerstart-upcompaniesordifferenttechnologiesinthisspacereallystrugglewith,especiallyintheutilityapplicationwhereyouneedtobesureit'sgoingtoworkfor15-plusyears.Wehaveasenseofscaleandagreattrackrecordonthevehiclefleetthatyoucanreallypullfromdataandpulldatafrom,andunderstandhowit'sgoingtowork.
ElonMusk(Chairman&CEO):
Ishouldn'tsaylikeweareweddedtoaparticularchemistryoranythinglikethat.Wejustwanttousethebestchemistry.Whateverlittlecanthatcontainsthecathodeandanodeandseparatorandelectrolyte,whateverthebestconstituentsofthatcanare,that'swhatwe'llwanttouse.
We'dloveitifsomeonecouldcomeupwithabetterinternalchemistryforthecell.It'sworthnoting,like,nobodyhassentusanything,asamplecellthat'sbetterthanthecellwe'reproducing,orsomethingthatwewillproduceintheGigafactory.
We'dloveitifsomebodywoulddothat.Theyjusthaven't.Sothere'salthesethingswhicharebigonpromiseandshortondeliverywhenitcomestobatterychemistry.
It'sjustarealhardproblem.Hardlyaweekgoesbythatthere'snotsomeallegedbreakthroughinbatteries.Whatthey'lldoisthey'llcitethepowerbutnottheenergy,orthey'llforgettomentionthatitonlylastsfor50cycles,orusesanincrediblyexoticrawmaterials.
Jef f reyBrianStraubel(CTO):
Oronecomponentoutofthebatterypulledseparately.
ElonMusk(Chairman&CEO):
Yes,exactly.It'snotlikethefullpicture.It'snotlikewedon'twantabetterchemistrytoexistthanwhatwe'reusing.Wewouldloveitiftherewassuchathing,andI'msuretherewillbeimprovementsovertime.We'llimplementthemassoonastheyareremotelyproduction-ready.
ColinLang (Analyst-UBS):
Thanksforthecolor.Justonelastfinalquestion.Anycoloron--afinancialquestion--otherexpensesisupquiteabit.Itwas$22.3million.Whatwasreallyjustdrivingthatinthequarter?
DeepakAhuja(CFO):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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Thatwasessentially,revaluationofprimarilyourforeigncurrenciesthatwehadattheendofthequarter.Thedollarwasprettyclearlystrongagainstforeigncurrenciesthere.
It'salso,inmostcases,unrealizedlosses.AsthecurrencymovesinQ2indifferentdirections,thatcouldhaveanimpact,aswell.Apositiveimpact,iswhatI'm--
ColinLang (Analyst-UBS):
Okay.Soweshouldconsidermostofthoseone-timeinnature,becauseofFX,balancesheetFX?
DeepakAhuja(CFO):
Yes.Theyarenotrelateddirectlytoouroperations.It'ssimplytherevaluationofourcurrenciesintoCompanyitems.
ColinLang (Analyst-UBS):
Okay.Thankyouverymuch.
Operator :
NextquestioncomesfromthelineofRodLachewithDeutscheBank.
RodLache (Analyst-DeutscheBank):
Coupleofquestionsonstationarystoragefirst.Oneisitseemslikeutilitiesmovequiteabitslowerthanothermarkets.Iwaswonderingwhenyouarethinkingabouttheexpectationsforthetrajectoryofgrowth,ifyouhadthecapacitytoday,howlongdoyouthinkitwouldtakeforyoutogettothat15-gigawatthours?
Alsorelatedtothisbusiness,itseemslikeyou'reusingthird-partiesformostofthedistributioninstallation.Ifyouachievedmaybea20%grossmargin,canyoupassalonganythoughtsonhowweshouldbethinkingintermsofSG&Aisallocated?
ElonMusk(Chairman&CEO):
Ithinkit'sprettyearlydays.Wearebeingsuperspeculativeatthispoint.
Jef f reyBrianStraubel(CTO):
Maybeonepointonthedistributorsiswe'reonlyfocusingonthatapproachforPowerwall,inmostcases.Sowithutilities,wearebuildingthoserelationshipsdirectly.
It'snotsomethingthatisreallyeffectivetogothroughadistributionchannel,andit'ssomethingwe'vealsobeendoingforanumberofyears.Itdidn'tjuststartlastThursday.
We'vebuilttheserelationshipspartiallythroughvehicleinfrastructureandchargingquestionsandbackandforth,super-chargingaswell.There'sactuallyquitealotoftrustbuiltbetweenTeslaandmanyoftheutilitycompanies,whichisveryhelpfultogrowthatbusinessfaster.
RodLache (Analyst-DeutscheBank):
Thanks.AclarificationonthecommentaboutthefactthataDC/ACinverterisalreadythereforsolar.Doesthefactthatitneedstobebidirectionalchangethenatureofthecost,ornotreally?
Jef f reyBrianStraubel(CTO):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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No,notinmostcases.Becauseifyoualreadyhavesolar,typicallytheenergytochargethebatterycancomefromthesolarpanel.Ithinkmaybeonewaytothinkofitisifthebatterypack,thePowerwallwithit'sinternalDC-to-DCconverter,itcanactmuchlikeasolarpanel.
Itcanmatchvoltagewiththesolarpanelarray,anditcanfeedpowerbackintothat.Theexistinginverterdoesn'tparticularlyseeabigchange.
RodLache (Analyst-DeutscheBank):
Okay.Gotit.Ontheautobusiness,doyouhaveanypreliminaryexpectationsonthemixofthe70Dversus85?Anythoughtsonhowthataffectsmargins?
Lastly,aquestionforDeepak.Inthepastwewereabletolookatyoursupplementalinformationonleasingwhereyoudisclosethevalueoftheleasesdeliveredandthevaluethatyouarebookingthisatonthebalancesheet,whichispresumablyyourcost.Anditsortofapproximatedyourgrossmargins,butthisquarterwhenyoudothemath,theimpliedmarginsweresomethinglike44%,notlike29%,30%.Istheresomethingunusualthere?
DeepakAhuja(CFO):
Iwillanswerthesecondone.No,there'snothingunusualinthosenumbers.Astheoverall--whatyou'reseeinginthesupplementaryinformationisthenewcarswe'vedelivered.
What'scomingthroughultimatelyisthecumulativeimpactofalloftheleasingsthatwehavedone.Buttomyknowledge,there'snothingelseunusual.
RodLache (Analyst-DeutscheBank):
Okay.Itseemslikeaprettyhighmargin,though,whenyoulookatitthatway.Anythingonthemix,70Dversus85?
ElonMusk(Chairman&CEO):
It'sstillprettyearlytobepredictingmixbecauseyouhavetodistinguishbetweenwhatinitialdemandversussustaineddemand.Itlooksliketheremaybegoingtobecomparablenumberof70sversus85s.Butthisisdifficultto--thisisextrapolatingonverylittleinformation.
IthinkakeypointIshouldmakebeforethiscallendsiswereallyoptimizing--atthispoint,goingforward,wearetobeoptimizingfortheoperationalefficiencyoftheCompanyasopposedtospecificquarters.Thisis--Ifeellikewhatwe'vedoneinthepastwherewe'vereallyhadtoscrambleattheendofquarters,andsometimeshavenotagreatcustomerexperienceattheendofquarters,it'snotreallytherightthingfortheCompany.
Sowearegoingtobeoperatingmoreforsteady-stateefficiency.Andthatmeansthequarterlyfluctuationscouldbealittlehigher.Butinthelong-term,itwillbebetter.That'sanimportantconsideration.
Alsounlikeothercarcompanies,Tesla'ssalesareonlyrecognizedwhentheyarriveattheendcustomerandwe'vereceivedpaymentandalltheregulatorydocshavebeenprocessedandallthat.Oursalesarealwaystruesales.They'renotsalestothechannel.
Inotherwords,othercarcompaniesare--theirsalestothechannel.Soit'spossibleforthemtomakenumbersworkwherethey'resellingtotheirchannelasopposedtoendcustomers.Inourcase,it'salwaysendcustomers.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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AsweareshippingtoAsiaandEuropeandacrosstheUS,it'sfairlyeasyfortheretobeaplus/minus5%differenceindeliveries,justduetologisticsissues.It'snotahugevariation,plus/minus5%.That'skindoflike--ifashipislateorearly,itcanaffect--itcouldbe500carsthatareaffected.That's5%,whichwe'veseeninthepast.
That'sanimportantthingtobearinmind.Thenumberthat'smuchcontrollableforusistheproductionnumber.
Ourproductionpredictionsare--forthevehiclesare,atleastfortheModelS,notsomuchforanewvehiclebutforexistingvehicle,ourproductionpredictionsarealotmorecontrollable.Andaspeopleatthispointrealize,thedemandisdifferentfromproduction.Ourcarsarealmostallorderedinadvance.
Wereallydon'tseeanydemandissue.Youcanseethatbydeliverytimesofthecarsonourwebsite.Someofthesepeoplewillinterpretaquarterlydeliverynumberassomehowbeingrelatedtodemand.Thisisnotthecase.
It'susuallyrelatedto,weproducedacertainnumberandthenwewereabletodeliveracertainnumberinthequarter,andthere'sawholebunchofcarsonshipsorontrainsorontrucks.Andthat's--butbecauseTeslaisdifferentfromothercarcompanies,applyingtheothercarcompanies'templatecanleadtoincorrectconclusionsaboutTesla.
Isthismakingsense?ShouldIelaboratefurther?
RodLache (Analyst-DeutscheBank):
Itmakesense.
DeepakAhuja(CFO):
ToaddtowhatElonsaid,tobemoreefficientoperationally,weareshippingmorebytrainratherthantrucks.It'smorecost-efficientandcreateslessdamagetothecar,givesabettercustomerexperience.Wearetakingalltheseactions.
RodLache (Analyst-DeutscheBank):
IguessmyquestionismoregearedtotryingtoassesstheeffectonASPsandmarginsasyouarechangingthemixalittlebit.Iappreciatethat.
ElonMusk(Chairman&CEO):
Yes.Toansweryourquestiononmargins,Ithinkthere'stwothingsthatarehaving--theaveragesalespriceisgoingtodeclinealittlebit,butourcostsareimprovingaswell.Weseethatmoreorlessnettingout.Sothattheefficiencyimprovementsoffsetapproximatelyanyaveragesellingpricechange.
RodLache (Analyst-DeutscheBank):
Gotit.
DeepakAhuja(CFO):
AndifIntheprocesswe'regrowingthemarket,whichwetrulyarebyhittingtherightsweetspot,thenwe'redoingtherightthingwiththe70D.The70Dhasahighergrossmarginthanthe60,forexample,and60wasjustnothittingthemarket,justdidn'thavetherightattributesthatourcustomerliked.
Itwasalowtakerate.Webroughtaproductwhichisfarmorecompellingandmuchmorecompetitivewithothercars.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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RodLache (Analyst-DeutscheBank):
Great.Thankyou.
Operator :
OurnextphonequestionwillcomefromthelineofColinRuschwithNorthlandCapitalMarkets.
ColinRusch (Analyst-NorthlandCapitalMarkets):
Asyoulookatthegrowthoftheorganization,theentiretyor--ofthecultureandtheworkforce,Iknowthatyouremployeesareextremelymotivated.Couldyoutalkabouthow,asyougrow,howthat'sgrownandchangingandwhatyou'redoingtomaintainthatintegrityasyougoforward?
ElonMusk(Chairman&CEO):
Itistrickyascompaniesgrowtomaintainaconsistentculture.Ithinkwe'redoingokayasmeasuredrelativetomostcompanies.
Wedoneedtogetpeopletothinkdifferentlyandhaveanexpectationofinnovation.Ithinkwearedoingokayonthatfront.
Jef f reyBrianStraubel(CTO):
IthinkhavingageneralmixofpeoplethathavebeenhereforaverylongtimeandhaveseenmultipleprogramsandseentheCompanywhenitwasevenmuchsmallerthantodayandmorescrappyandhadtogothrougheventighterfinancialdifficultlaunches,thingslikethat,reallyhelpsmaintainthatculture.Andwetryandpairdifferentmanagersupwithnewgroupssothatthatculturesortofinfusesthroughout.
ElonMusk(Chairman&CEO):
Yes.Ourgrowthrate--likethisyear,personnel-wise,it's,let'ssay,leveledoff.It'sstillfairlysignificant,butit'slike--ouretpersonnelgrowththisyearwillprobablybe20%to30%,whichis,Ithink,amanageablenumberforintegratingwithpeoplethatalreadyhavetheTeslaculture.
It'salreadyaprettybigimprovementinproductivity,becausewe'relookingat,let'scallitattheupperendofthat30%personnelincrease,but100%increaseinvehiclevolume.Ithinkthat'saprettygoodindicatorofproductivityimprovement,justlikehowmanypeopledowehaveandhowmanycarsarewemaking?
ColinRusch (Analyst-NorthlandCapitalMarkets):
Thesecondquestionisreallyaroundsomeofthechoicesthatyoumadewiththebatteryproductandwhychoosing10-KWandthesize,and220poundsisactuallyprettyheftyforagaragewall.ThenalsothebatterymanagementsystemIthinkthere'salotofconfusionaroundwhereit'slocatedandwhattherealfunctionalityis,asyoulookoutatinterfacingwithutilitiesandthesignalsthatyougetfromthemarketintermsoflookingatdemandcharge-offset,demandresponseandsomeoftheotheradvancedfunctionalitythataregoingtobeabletobemonetizedinbusinessmodelswiththeproduct.
CanyouclarifywherethatBMSsystemiswhereitresidesandwhoownsthattechnology?Andwhyyouguysmadethosechoices,alongwiththeweightandsizechoices?
Jef f reyBrianStraubel(CTO):
SomeofthedifferentrevenuestreamsyouaretalkingaboutourmixedbetweenPowerpackand
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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Powerwall.TheBMSsystemlivesinsidethebatterypackinbothcases.
ButwiththePowerpackandthemoreutility-sizedinstallations,thereweoftenwillhaveasitemastercomputerormastercontrollerthatcontrolsmultiplePowerpacks.Thatsitecontrolleriswhattheninterfacestotheutility,ormaybeacommercialcustomer,toruntheschedulechargeanddischargethatwouldbeappropriateforagivenapplication.
OnthePowerwall,it'sabitofadifferentsituation.StilltheBMSlivesinsidethebatterypack,butinsomecasestheinverter,maybethesystemthat'sdecidinghowtomanageenergyandtheoverallhouse.Thatcandependonwhichtypeofinverterwe'reusingonhowthatworks.
Intermsofthesize,wereally,forPowerwallagain,weoptimizedthesizearoundwhatwasthemostcommonphotovoltaicsizeandalsowhatwefeltwaskindofthesmallestmodularincrementforbackup.It'sprettykeytonoteherethatyoucaninstallmultiplePowerwallstogether.Having10kilowatthoursdoesn'tmeanthatyoucan'tveryeasilyputin20or30or40.
Inmanycases,Ithinkpeoplewilltohavethebackupmatchingthattheywanttosee.Wefelt10kilowatthourswasthelowestcommonelements.Ifyougosmallerthanthat,youstarttorunintoworseeconomiesofscaleandmoreofthesystemthat'snotrelatedtostorage.
ColinRusch (Analyst-NorthlandCapitalMarkets):
Great.Iwillhavesomefollow-upoffline.Thankssomuch,guys.
Jef f Evanson (VPofGlobalIR):
Hughie,beforewegotothenextquestion,Ijustwanttogiveeverybodyastatusupdatehere.Alotofimportantthingstotalkaboutonthiscall,butweare50minutesintothecallandwestillhavesevencallersinqueue.Justletyouguysthinkabouthowwemanagetimehere.Hughie,let'sgotothenextquestion,please?
Operator :
OurnextphonequestionwillcomefromAdamJonaswithMorganStanley.
AdamJonas (Analyst-MorganStanley):
Evening,everybody.FirstquestionontheModelSandthereleasecandidates.Howmanyreleasecandidateshaveyouproduced?
Whathavebeensomeoftheissueswiththerecentproduction?Andwhytheslight--amIseeingaslightfurtherdelaybyreleasinglate3QfromwhatIthoughtwasmoreofanAugusttimehorizonforinitialdeliveries?Anythingthatmightbebehindthatthatyouwouldhighlight?
ElonMusk(Chairman&CEO):
Ithinkwe'llpassonansweringsuper-detailedquestionsabouttheXramp.ThethingthatreallymattersisnotlikewhenthefirstdeliveriesoftheXoccur,butratherwhendosignificantdeliveriesoftheXoccur.
FortheSwehadquitealongrampfrom--wehadlikesixmonthsfromtheveryfirstdeliveriestosignificantvolume.We'retryingtocompressthattomaybetwomonthsorthreemonthsatmost,cutthatinhalformorefortheX.
Wewanttomakesurewe'rereallydeliveringaproductthathasbeenthoroughlyvalidatedinhotandcoldweatherandthroughmillionsofmilesoftravelandeverything.Itwouldbeeasyforustodosome
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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initialdeliveriesinAugust.Thatwouldbeprettyeasy.
Butwe'donlyhave--wehavedoorhandleissues,likepeopleareawareofthatwiththeS.Wedon'twanttohavefalcon-wingdoorissueswiththeX.Wewanttoironeverythingironedoutandmakesureit'sgood,andthendeliverathighvolume.
Effectively,wewouldcreatelikeacaptivefleet,andironouttheissueswiththecaptivefleet'squitebig,severalhundredvehicles,basically.Maybethataddressesyourreleasecandidatequestion.
Justmakesurethatthoseseveralhundredvehiclesreallyworkwellinallcircumstancesbeforewestartdeliveringcarsenmasse.We'regoingtogofromjustoneofourcarstoathousandaweekprettyfast.
AdamJonas (Analyst-MorganStanley):
Asecondquestion,intheinterestoftime,andthenafinalquestion.Applehasstill,unofficiallyperhaps,beenmakinginroadsinthebuildingofitsvehicleengineeringandtransportationcapabilities,accordingtoalotofsources,andmakinginvestments,bothinphysicalandhumancapital.AreyoustartingtofeelagreatersenseofcompetitionwithSiliconValleypartiesversusyourabilitytoattractandretainkeysoftwareandautomotiveengineeringtalent?IfAppleweretogetintotheelectriccarbusiness,wouldyouseethisasapositiveforbroaderconsumeracceptanceofelectricvehicles?
ElonMusk(Chairman&CEO):
IcertainlyhopeApplegetsintothecarbusiness.Thatwouldbegreat.Butno,wearenotreallyseeingsignificantattritionofengineerstoAppleforanything,carorotherwise.
Actually,anyonecanfigurethisoutbygoingonLinkedIn.LinkedIncanproducestatisticsonwhattherelativeflowofpeopleisfromonecompanytoanother.
Ithinkit'slikesomethinglike--ifyoulookatthetrailing12months,Intelhasrecruited5timesasmanyaspeopleasAppleasApplehasrecruitedfromTesla.It'slikesomefairlyhighnumber.
AdamJonas (Analyst-MorganStanley):
Thanksverymuch.
Operator :
OurnextphonequestionwillcomefromBrianJohnsonwithBarclays.
BrianJohnson (Analyst-BarclaysCapital):
Justreallywanttoaskaboutthebalancebetweenstationaryandautomotive.It'snotunusualforgrowthcompaniestochangetheirfocusastheyevolve.AtleastoneofthestoriesaroundPayPal,itwasgoingtobeacryptographicPDA-focusedcompanyuntilitrefocused,perhapsthroughyourhelp,Elon,onweb-basedpayments.
I'mhearingyoutalkaboutstationarystorageasbeingabletorampfaster,perhaps,althoughyoudidn'tanswerthis,maybewithalowerCapExandOpExratiothantheautobusiness.Yetatthesametime,autotakesalotofcapital,takesalotofOpEx.
SergioMarchionnepointedoutthereisalotofvalue-destroyingcapitalspentinthelegacyindustry.Isitconceivablethatinsteadofsavingssix70-30autobatteries,itcouldgotheotherway?
ElonMusk(Chairman&CEO):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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It'spossible.Wearereallysuperinguessworkterritoryhere.Allweknowrightnowiswehavedemandwellinexcessofourproductionramp.
Weknowrightnow,thethingweshouldworkonistryingtoincreaseourproductionramp,nottryingtoincreasedemand.Sothat'skindofliketheonlythingweknowforsurerightnow.
Ifyoulookreallylongterm,youcouldsay,what'sthetotalenergy--howmany--what'sthetotalterawatthoursofinstallation,offactoryinstallationthat'sneededtogotoafullyrenewableglobaleconomy,takingintoaccounttransportation,currentelectricalneeds,fullelectrificationoftransport,electrificationofallheatingandcoolingandthenthecurrentindustrialusesandcommercialusesofelectricity.Togofullyelectric,thetransportisabout0.5thesizeofeverythingelse.Thatwasourglobalmacrocalculations.
Ultimately,wethinkthingswillgetthere,couldtakealongtime.Butthat'swherewethinkthingswillendup,andthat'swherewegettothekindof2billionPowerpacknumber.Whetherit'smadebyTeslaorothercompaniesorsomecombination,that'sthenumberyouneedtogetto,togofullyelectric.Buthowthingstrackbetweennowandthen,it'sdifficulttopredict.
BrianJohnson (Analyst-BarclaysCapital):
IntermsoftheROIC,wouldyoubethinkingthatstationarycouldbeabetterROIC(inaudible)than,say,thenmassmarketormassaffluentautomotive?
ElonMusk(Chairman&CEO):
Itmight.Itwouldbenicetogetmaybeacoupleofquartersofexperienceaftermakingthebigannouncementtoreally--beforewe--ourdegreeofuncertaintywilldiminishquitesubstantiallywitheachpassingmonth.Certainlyayearfromnow,we'dhavebrokenupareallygoodideaofit.
It'ssuperspeculativeatthispoint.Wejustknowthatlike,man,therejustnowaywecanmeetthedemandthatweareseeingrightnow.We'vegottoscalestationarystorageasfastaspossible.
BrianJohnson (Analyst-BarclaysCapital):
YoumentionedlasttimethatsomeCapExwasgoingtoproductdevelopmentintheshareholdersletterforModel3,ifModel3wasn'tinthis.DoesthatmeanyoumightbedelayingsomeModel3investments,orjusttheotherthingskindofswampit?
ElonMusk(Chairman&CEO):
Theotherthingskindofswampit.Weneedtomakesure--we'redoingquiteabitofadvanceworkonModel3.Thisdoesn'tcomeouttoalotofCapEx.
DeepakAhuja(CFO):
Justtoclarify,Model3spendintheinitialstagesismoreengineeringspend.
ElonMusk(Chairman&CEO):
It'sbasicallydesignstudio.
DeepakAhuja(CFO):
Exactly.
ElonMusk(Chairman&CEO):
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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It'sveryearlyengineeringprototypes.It'sjustnotverycashintensive.
DeepakAhuja(CFO):
CapExcomesatalaterstagewhenyouhaveallthedesignsfinalized,youarekickingofftooling.Weareintheearlystages,astobeexpectedatthispointintime.
BrianJohnson (Analyst-BarclaysCapital):
Okay.Thanks.
Jef f Evanson (VPofGlobalIR):
Brian,youmightwanttoaskafollow-up.DoesthisimpactourModel3timing?Iwillthrowthatout.
BrianJohnson (Analyst-BarclaysCapital):
Well,goahead.
ElonMusk(Chairman&CEO):
WearehavingtoshowofftheModel3inapproximatelyMarchofnextyear.Again,don'tsuperholdmetothatmonth.
That'souraspiration.ThenbeinproductionwiththeModel3inthe--I'dliketosaymid-,butprobablyclosertolate2017timeframe.Late2017isprobablymorerealistic.
BrianJohnson (Analyst-BarclaysCapital):
Inthemeantime,theGigafactorysoundslikeit'smayberampingupfaster,butperhapsthosebatteriescouldgonotjusttoFremontcarsbuttoFremontstationarystorage?Ortostationarystorage,notnecessarilytouchingFremont?
ElonMusk(Chairman&CEO):
Yes,itwouldjustbe--actually,justrightthere,notevengotoFremont,really.ItwouldjustbebuiltattheRenofactoryorSparks,[technically]atSparks.ThentotheNevadafactory.Andgofrom--shipfromtheretocustomers.
Jef f reyBrianStraubel(CTO):
StartingQ1nextyear,that'sourplanforallthestationary--alltheTeslaEnergyproducts.
BrianJohnson (Analyst-BarclaysCapital):
Okay.Thankyou.
Operator :
OurnextquestionwillcomefromRyanBrinkmanwithJPMorgan.
RyanBrinkman (Analyst-JPMorgan):
Ihaveatwo-partquestiononcash.Firstly,onthelastcallyoumentionedreachingfreecashflowpositivein4Qthisyear.I'mjustwonderingwith1Qbehindyouhowyouthinkyouaretrackingrelativetothatgoal?Secondly,ifyoucouldperhapscommentonyourcapitalizationandliquidityoverall,andthepotentialfor,ordesirabilityofraisinganyadditionalcapital?Thanks.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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DeepakAhuja(CFO):
WedoexpecttobefreecashflowpositiveinQ4.Thatdoesn'tchange.
Aswegoalong,clearlyweareoptimizingforefficiencywhichresultsinincreasedofourfinishedgoodsinventory.Itmakessenseforustothenestablishsomeassetpipelinesofcredit,whichisbackedbyourfinishedgoodsinventoryorrawmaterials.We'lltakethoseactionstomakesurewehaveasolidbalancesheet.
ElonMusk(Chairman&CEO):
Yes.Ithinkit's--IthinkthingsarelookingprettygoodforQ4.It'shardtopredictfullquarterexactlybecausethat'sthewholequarterlyboundary,andwheredoestheexponentialrampofproductionfallexactlyonthatstartofQ4boundary?But,Ithinkit'sextremelylikelythatcashflowisreallygoodattheendofQ4.
RyanBrinkman (Analyst-JPMorgan):
Okay.That'sgreattohear.
ElonMusk(Chairman&CEO):
Yes.
RyanBrinkman (Analyst-JPMorgan):
Thankyou.
Operator :
OurnextphonequestionwillcomefromthelineofTripChowdrywithGlobalEquitiesResearch.
T ripChowdhry(Analyst-GlobalEquityResearch):
Aquickquestion,twoquickquestions.FirstisregardingtheresidenceswhichmaynothavethesolarpanelsandsaythatresidencegoesandbuystwoPowerwalls.Doesthatcustomerhavetobuytwoinverters,oroneinverterissufficientforasmanyPowerwallsthecustomerbuys?
ElonMusk(Chairman&CEO):
It'sbasicallywhateverthecapabilitythatinverteris.Sotypicallytheinverterwouldbecapableofhandling--oneinverterisprobablycapableofhandling,dependingonthesituation,uptomaybefourorfivePowerwalls.
T ripChowdhry(Analyst-GlobalEquityResearch):
ThesecondquestionIhadwasregardingthedouble-backtouryouhadin10cities.Andthatwas(inaudible)indicativeofverysuccessfullywentwiththereservationsinautosreallyskyrocketing.
IthinkitwasonlyCanadaandUSA.Wonderingifyoucouldexpandthattourtoothercontinents?
ElonMusk(Chairman&CEO):
Yes,absolutely.WejustdidabigthinginEuropethroughGermany.Therewasactually--Ithinkthere'squiteabigtourhappeningfromSlovenia,Ithink,throughmostofEurope.There'sactuallyquitealot--ourthesalesinEuropelatelyhavebeenprettygreat,reallystrong.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
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DeepakAhuja(CFO):
TheydidthetourinGermany,too--andEurope,too.Sorry.
ElonMusk(Chairman&CEO):
ItinfactisbeenabighitinEurope.
T ripChowdhry(Analyst-GlobalEquityResearch):
IfIcanaskonelastquestion.IwasatyourLathropfactorytheotherday.Andtherewassomeinterestingconstructionhappeningbehinditwithhugemetallicframesbeinginstalled.Whatkindofproductioncouldbehappeningthere?
Itseemslikethefactorysizehasincreasedbyalmost40%.Whatishappeningthere?
Anypartsyoucansharewithus?That'sallforme.
Jef f reyBrianStraubel(CTO):
We'reestablishingabigcastingfoundryandmachiningfacilitythere.That'sintendedtosupportactivityinFremont.That'swhat'shappeninginLathrop,primarily.
Operator :
OurnextphonequestionwillcomefromthelineofPatrickArchambaultwithGoldmanSachs.
PatrickArchambault (Analyst-GoldmanSachs):
Thanksforsqueezingmein.I'llbequick.Justwantedtobuildon,IthinkRonBrinkman'squestion,onthefourthquartercashflowguidance.Doesthatincludeincomefromthosewarehousefacilitiestooffsetleasedvehicles,oristhatexclusiveofthat?
DeepakAhuja(CFO):
Inourprojection,asElonsaid,wastheendofthequarteraswerampupproduction,weshouldbefreecashflowpositiveonapuresense.Frankly,ouroperationsshouldbelookedatwithouttheimpactofleasing.Andthat'sapurermeasureofoperations,whichisalowerthreshold,Igetit.Butthat'sauniqueoradistinctdecisionwe'vemadetobeinthatbusiness.
Jef f Evanson (VPofGlobalIR):
(Multiplespeakers)Holdonasecond,Pat.Deepak,dowanttoexplainabouttheclassificationofcashinflowswithinthestatementofcashflows?
DeepakAhuja(CFO):
IfyoulookatourQ1cashflows,forexample,wereceived$155millionfromeitherthewarehouselineorbankingpartnersrelatedtoourleasingbusiness.Thatcashflowdoesnotshowupasanoffsetinourcashflowfromoperations.Itshowsupinourfinancingactivities.
Ourcashflowfromoperationsshowsup$131millionnegative.Butifyouoffsetthatagainstthe$155millionthatwereceivedintheleasingbusiness,wewereslightlybetterthanbreakeven,purelyonanoperationsbasis.SoourrealcashflowinQ1wasdrivenbythestrongCapExspendaheadoftheModelXlaunchesthewaywetendtolookatthebusinessinternally.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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PatrickArchambault (Analyst-GoldmanSachs):
Okay.Gotit.Appreciatetheclarification.
TheotherquickquestionIhadisjustIwasalittlesurprisedbythe--Ithinkyouguyshadobviouslyverygoodgrossmarginsthisquarterrelativetosomeoftheheadwindsthatyouwerefacing.IguessIwassurprisedtoseethatex-ZEVtheygofrom26%to25%.
WithsomeoftheincreasesinpricingthatyouareputtingthroughandsomeofthecomponentsthatyouarebuyingoutsideoftheUSwithastrongerdollarnow,whichwheretherewasalittlebitofalag,Iunderstand,thatseemedabitconservative.Idon'tknow,maybeittiesbackintoRob'searlierpointaboutmix.ButIguessthatwasoneareathatIwasalittlesurprised.
DeepakAhuja(CFO):
Justtoclarifythepriceincrease,thatwe'veannounced,it'snotgoingtohelpusinQ2,givenourbookofbusiness.It'sgoingtoprimarilyaffectusinQ3.AlsoinApril,formostofApril,thedollarwasprettystrong.
Isjuststrengthenedinthelastweekor10daysorso,andwewerecontinuingtodelivercars.ThatstrongdollarimpactdoesrolloversequentiallyintoQ2forus,despitethelageffectofgoodnewsfromastrongdollar.
Aswesaidintheletter,wefullyexpectthemiximpacttobeoffsetbycostreductionsthatwewillachieve.It'sreallyrelatedtoFXthatweseethesequentialdrop.
ElonMusk(Chairman&CEO):
TheFXwasreally--thatwasareallytrickythingtodealwith.WehadquitestrongEuropeansales.
ThentheFXimpactwasquitesignificant.Soobviously,ifyou'vegotacarthatis,likelet'ssay,25%grossmarginandyouseea20%changeincurrency,it'slike,wow,okay.That'snotsupereasytomakeupthatdifference.
DeepakAhuja(CFO):
Toyourpoint,andmaybethisisabroadercommenttomake,thataswelookatourQ1non-GAAPlossthatwehaveof$45million,abigchunk,ormostofit,couldbeattributedtothedollar'sstrengththathashappenedoverthelastsixmonths.Aswe'veindicated,ourQ1toplinecamedownbyaboutthreepercentagepoints,andthenwehadthe$22millionunrealizedlossesfromcurrency.
Youcombinethosetwoandthere'sanoffsetingrossmarginduetolowercostofpartswebuyinforeigncurrencies.Youconsiderthiswholemix,andyoucanseetheforeigncurrencychangeoverthelastsixmonthscanexplainmostofthelosseswehadinQ1.
PatrickArchambault (Analyst-GoldmanSachs):
Maybejustlikethatlastpieceiskindofinteresting.Howmuchareyouabletotakeadvantageofthatnaturalhedgeyoujustdescribed,right?Youarebuyingcomponentsincurrenciesthathavealsodepreciated,right?Batteriesareoneobviousthing.I'msureyouaresourcingalotofstuffinMexico.Areyoucloselyoptimizingthat?Oristhatsomethingthatcanbeexercisedmore?
ElonMusk(Chairman&CEO):
Forbetterorworse,onecanlookatitasaprooracon,dependingonthesituation,basicallyabout60%ofthecar,maybealittlemorethan60%,isUSandCanada.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
©2014TheStreet,Inc.Al l R ightsReserved Page22of25
Wemayhave--wecertainlyhavelotsof,say,Europeancompaniesthatsupplyus,buttheywillsupplyusfromplantsintheUSorCanadaorsometimesMexico.Sothat's--thisreallyisn'taNorthAmerican-builtcar,atleastnotforreal.
So,it'slike,asDeepak'ssaying,it'sslightlyhelpfulifthedollarstrengthensrelativetotheyen.ButthensincewehavequitestrongEuropeansales,thisis--Ithinkit'slike5%ofourpartsorsomethingcomefromEurope.It'sprettylow.
DeepakAhuja(CFO):
Right.
ElonMusk(Chairman&CEO):
Ifoursalesare30%inEurope,thenobviouslyit'snotasmuchofanoffsetasonewouldlike.Iactuallythoughtitwouldbehigherthanthat,butit'slike--becauseI'mlookingatthenamesofthesuppliers,butnot--whatmattersiswhere--notthenameofthesupplier,iftheirheadquarter'sinGermany,butwhereistheplant?
PatrickArchambault (Analyst-GoldmanSachs):
Gotyou.Okay.Thankyouforthehelpfulcolorthere.
ElonMusk(Chairman&CEO):
Allright.I'vegottoruntoanothermeeting.
Jef f Evanson (VPofGlobalIR):
Wehavetwomorequestion-askers.Ifwecanquicklygo.Hughie?
Operator :
OurnextquestionwillcomefromthelineofBradEricksonwithPacificCrestSecurities.
BradErickson (Analyst-PacificCrestSecurities):
Thanksfortakingmyquestion.Justaquickfollow-upfromthelastoneontheautomotivegrossmargins.Iguessex-currency,canyouquicklytalk,maybeacoupleexampleswhereyouarelookingtoremovemorecostfromthecarsitself?
Ithinkwecanallappreciatethere'scontinuedscaleadvantagesovertime.IfyoucouldtalkbutothercostsavingopportunitiesweshouldbethinkingaboutwithboththeSandtheX,andwhatinningwearein,intermsofachievingthosesavings?Thankyou.
ElonMusk(Chairman&CEO):
Abigfactorislaborhourspervehicle.Thathassteadilyimproved.ItwasquitebadinQ4,particularlywiththeP85Dramp.We'vemadegoodprogressinQ1.We'llcontinuetomakegoodprogressonthatthroughtherestoftheyear.Soit'slaboranddirectoverheadinthefactory.
DeepakAhuja(CFO):
We'refocusedacrosseverylineitemofourCOGS.Somaterialcostreductions,freightbothinbound.Wespokealittlebitaboutoutboundfreightefficiencies.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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ElonMusk(Chairman&CEO):
Wehadalotofexpediting.
DeepakAhuja(CFO):
Yes.
ElonMusk(Chairman&CEO):
Thatbigportstrikewassuperunhelpful.Thatalsohurtprettybadly.
Itwaslikethe,Ithink,theworstportstrikeofthe21stcentury.Wealsoaresoldieringthroughthat.Wehadtoairfreightatonofstuffwhileeveryoneelsewassimultaneouslytryingtoairfreightabunchofstuff.
DeepakAhuja(CFO):
Itcostusseveralmilliondollars.
ElonMusk(Chairman&CEO):
Justtoairfreight,yes.Cuttingbackonairfreightisreallyhelpful.Youhaddirectlaborhours.
DeepakAhuja(CFO):
Wecontinuewithseveralengineeringandcommercialactionsonmaterialcosts.It'salonglist,notappropriatetogothrough.AsaCompany,wearefocusedonModelX,butSisalsocertainlypullinggrossmarginthereaspartofourpriorities.
ElonMusk(Chairman&CEO):
Yes.
BradErickson (Analyst-PacificCrestSecurities):
Gotit.That'sgreat.Thankyou.
Operator :
AndourfinalquestioninthephonequeuewillcomefromthelineofTylerFrankwithRobertW.Baird.
Unidentif iedPart icipant :
Thisis[Ben].Hey,guys.Veryquickly,youmentionedtheGigafactory,andthenalotoftalkaboutstationarystorageandincreasingoftheGigafactory.Doesthatchangeinanywayyouarelookingatpartnerships,greenpartnerships?Andthenmaybeanupdateontimingthere.
AndthenElon,youtalkedabouthavingafleetofacoupleofhundredXtogetoutontest.AndyoumentionedModel3,showingitnextMarch.Whenshouldweseeit,theModelXinitsfinalversion?Thanks,guys.
Jef f reyBrianStraubel(CTO):
Well,noparticularchangetothepartnershipmodelfortheGigafactory.Ithink,asElonsaid,it'searlydaysontryingtomakesomeofthosechangesindirection.Largely,it'sjustabiggerscopeofopportunityforalotofthepeoplewearealreadyworkingwith.
CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
©2014TheStreet,Inc.Al l R ightsReserved Page24of25
Itiscontinuingtogowell.WeareactuallybeginningtohireoperationalpeopleattheGigafactory,andbeginningtostepuponthataheadofstartingtotrainandthenrampupproductionofthestationaryproductsearlynextyear.
Jef f Evanson (VPofGlobalIR):
Anythingelse,Ben?
Unidentif iedPart icipant :
JustontheModelX,whenwecanseethat?
Jef f Evanson (VPofGlobalIR):
Elon,youwanttotalkaboutModelX?Havehadanumberofquestionsfrominvestors,andBen'squestionhere,aboutwhenyouwillbeabletoconfigureModelXonline,whenwe'llshowthattothepublic,howthatactuallydeploy?
ElonMusk(Chairman&CEO):
Yes.Probablythreemonthsfromnow--no,actually,I'msorry.We'reinMay.Soit's--thisis--probablyJulyiswhenwillaskpeopletodotheconfiguration.ItwillbeverysimilartotheS.It'snotgoingtobesuper--nobigsurprisesthere.VerysimilartotheS.Wecertainlyhavealotofcustomerswho'vebeenwaitingalongtime.Sotherewillbequitetheneedtogetthecar.
Unidentif iedPart icipant :
Welookforwardtothat.
ElonMusk(Chairman&CEO):
Thisisreallyagreatcar.Becauseithasalowcenterofmass,ithandleslikeasportscareventhoughit'sanSUV,withbatterypacksintheoilpan.It'sgotincredibleaccelerationbecausethereisbasicallyaperformanceversionofit,likethereisfortheP85D.Theperformanceissurreal.It'slikenothingelseiscomparable.
Jef f Evanson (VPofGlobalIR):
Great.Thankyou,everyone,forjoiningusthisafternoon.Everybodyhaveagreatnight.Hughie,thanksforyourhelp,andwetalktoyouallnextquarter.Bye-bye.
Operator :
Pleasure,sir.Ladiesandgentlemen,thiswillconcludetoday'sconference.Thankyouforyourparticipationandhaveawonderfulday.
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CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12015EarningsCallMarketCapasofEventDate:29.44BPriceasofEventDate:230.43
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