# Earnings Call - 2018 Q1 (5/2/2018)



## Bokonon (Apr 13, 2017)

Q1 2018 Shareholder Letter

Highlights:

Model 3 production hit 2,270/week in April for the 3rd straight week over 2,000
Q1 Auto GAAP gross margin up sequentially by 80 bp and non-GAAP by 500 bp
Cash balance of $2.7 billion at the end of Q1
2018 Capex projection reduced from >$3.4 billion to <$3 billion
Expecting positive GAAP net income and positive cash flow in Q3 and Q4 2018
We made significant progress on the Model 3 ramp in the second half of Q1, and the momentum continued into early Q2. Prior to a planned shutdown in mid-April to further increase production, we produced more than 2,000 Model 3 vehicles for three straight weeks, and we hit 2,270 in the last of those weeks. Even at this stage of the ramp, Model 3 is already on the cusp of becoming the best-selling mid-sized premium sedan in the US, and our deliveries continue to increase. Consumers have clearly shown that electric vehicles are simply more desirable when priced on par with their internal combustion engine competitors while offering better technology, performance and user experience.

If we execute according to our plans, we will at least achieve positive net income excluding non-cash stock based compensation in Q3 and Q4 and we expect to also achieve full GAAP profitability in each of these quarters. This is primarily based on our ability to reach Model 3 production volume of 5,000 units per week and to grow Model 3 gross margin from slightly negative in Q1 2018 to close to breakeven in Q2 and then to highly positive in Q3 and Q4. Ultimately, the growth of Model 3 and the profit associated with it will help us accelerate the transition to sustainable energy even faster.

*ADVANCING SUSTAINABLE TRANSPORT*
As with all manufacturing, Model 3 production can only go as fast as the slowest part of the entire supply chain and production process. For months, the battery module line was our main production bottleneck. After deploying multiple semi-automated lines and improving our original lines, we have largely overcome this bottleneck. Consequently, we now expect to reach a module production rate of 5,000 car sets per week even before we install the new automated line designed and built by Tesla in Germany. Still, once installed, this new automated module line should significantly lower manufacturing costs. Our automation team in Germany is currently focusing on further capacity expansion where needed.

We continue to target Model 3 production of approximately 5,000 per week in about two months, although our prior experience has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time because of the exponential nature of the ramp. In order to achieve this production rate, we plan to take additional days of downtime during Q2, just like we did in Q1. We have already done this several times during the Model 3 ramp, including once in the third week of April to fix several small, known constraints, enabling higher levels of output. Just before taking this latest downtime, we produced 2,270 Model 3 and 2,024 Model S and Model X vehicles in the prior seven days, which was a new record for us. Furthermore, in the just over two weeks between the beginning of April and the planned downtime, we had produced 4,750 Model 3 vehicles, which was already about half the production of the entire prior quarter. After achieving a production rate of 5,000 per week, we will begin offering new options such as all-wheel-drive and the base model with a standard-sized battery pack.

Once we hit the 5,000 per week milestone, we intend to incorporate our learnings to continue to increase output on our existing manufacturing lines beyond 5,000 units per week, and then in a capital efficient manner to add incremental capacity to ultimately get to a 10,000 unit weekly rate.

We've spoken at great length about the "machine that builds the machine" and why it is so important to Tesla's long-term success. Fundamentally, we believe that thinking about a factory in the same way that people think about the product itself creates the potential for a step change in manufacturing that will create enormous benefits for quality, cost, efficiency and employee safety. It is human nature to take the best of what the automotive industry currently has to offer and assume that is the best that can be done. But we believe in first principles thinking. In the end, this is all about having factories that are producing the world's highest quality cars as quickly and as cost-effectively as possible, and with as close to zero injuries as we can possibly get. Our automation strategy is key to this and we are as committed to it as ever.

We are already seeing many benefits from heavily increasing automation as part of the Model 3 production process. Through the vast majority of Model 3 production, including in body welding, general assembly, inverter and drive unit production, our automation effort has been very successful. Based on every measurable metric, Model 3 is already the highest quality vehicle we have ever produced, and this is unquestionably due in large part to automation. Additionally, we've been able to create significant safety benefits in the factory. For example, many steps in the assembly process, including "marriage" of the battery pack and drive unit with the body, and installation of the instrument panel, seats, and wheels, are ergonomically challenging for our employees, but by automating these processes, we have been able to solve this and significantly improve safety for our team.

That said, a step change in manufacturing doesn't come without its challenges, particularly early in the process, and we made a mistake by adding too much automation too quickly. In those select areas where we have had challenges ramping fully automated processes, such as portions of the battery module line, part of the material flow system, and two steps of general assembly, we have temporarily dialed back automation and introduced certain semi-automated or manual processes while we work to eventually have full automation take back over. This flexibility has enabled us to continue to ramp Model 3 to new levels.

Automation is only half the story. Higher levels of automation have been enabled by a dramatic simplification of product design. Our Model 3 general assembly line consists of fewer than 50 steps, which is about 70% less than conventional assembly lines. All Model 3 vehicles use only one standard body frame, down from more than 80 for Model S, a wiring harness that has 50% less mass than average vehicles, and a fraction of the number of controllers, connectors and CPUs. All these elements are rooted in design and critical not only to our ability to reach higher levels of output in a smaller amount of factory space but also to achieve lower levels of cost.

The Model 3 battery has sophisticated power electronics, cooling systems and structure that enables high level of safety, sports-car like acceleration, Supercharging, a 120,000 mile warranty and low cost. Cells used in Model 3 are the highest energy density cells used in any electric vehicle. We have achieved this by significantly reducing cobalt content per battery pack while increasing nickel content and still maintaining superior thermal stability. The cobalt content of our Nickel-Cobalt-Aluminum cathode chemistry is already lower than next-generation cathodes that will be made by other cell producers with a Nickel-Manganese-Cobalt ratio of 8:1:1. As a result, even with its battery, the gross weight of Model 3 is on par with its gasoline-powered counterparts.

Demand for our flagship Model S and Model X vehicles remains very strong. After all-time record orders in Q3 and Q4 2017, we had our highest ever Q1 for orders. With demand exceeding supply, we are making considerable progress with margin improvement. In Q1, we produced 24,728 Model S and X and 9,766 Model 3 vehicles, and delivered 21,815 Model S and Model X vehicles and 8,182 Model 3 vehicles, totaling 29,997 deliveries. Short-term operational and logistical issues led to an increase in the number of Model S and Model X vehicles in transit to customers at the end of Q1. Model 3 net reservations, including configured orders that had not yet been delivered, continued to exceed 450,000 at the end of Q1 even though fewer than 20 stores worldwide had Model 3 on display. We are planning to deploy significantly more Model 3 vehicles in our stores in Q2 this year.

On March 15, we released a significant Autopilot update, which has been well received by our customers. Also, our mapping architecture has been upgraded and establishes a key platform to enable safer driving and the transition towards full autonomy. The latest mapping software in our cars is dramatically simpler and faster, providing a better user experience and superior performance.

During Q1, we opened nine new store and service locations, resulting in 339 locations worldwide at the end of the quarter. We continue to expand our service capacity mainly through growth of our electrified Mobile Service fleet. Such service capacity is quicker to deploy, incurs lower upfront and operating costs and has continued to generate significantly higher customer satisfaction rate at an average of 98%. There are about 300 mobile service vehicles in operation today, which is an equivalent of approximately 60 service locations. At the end of Q1, 25% of all service carried out in North America was done without customers having to visit a physical service center.

Last quarter, we opened 77 new Supercharger locations for a total of 1,205 Supercharger stations and more than 9,300 stalls worldwide. Most of the growth is currently focused on North America to support the initial Model 3 rollout. Nevertheless, in Europe, we already operate about 400 Supercharger stations. We continue to build Supercharger stations in locations with the highest demand and the most reservation holders. As a result, we are able to open new stations in specific locations even before fleet expansion takes place.

*ADVANCING SUSTAINABLE ENERGY* 
While Model 3 is clearly in the spotlight both externally and internally, 2018 should be a very important year for our energy storage business. We continue to aim for a three-fold increase in MWh deployed for our energy storage products this year.

In Q1, energy storage deployments grew 161% from Q4 2017 to 373 MWh, which includes the 129 MWh South Australia project that was installed last year with final commercial transfer occurring in Q1. Electric utilities and power producers around the globe are increasingly appreciating the value proposition of our Powerpack storage systems based not only on economic benefits but also on the operational benefits of faster response time and greater reliability of the electric grid. In addition, we deployed a record number of residential Powerwall systems in Q1. In spite of the significant growth of Powerwall deliveries, our backlog in Q1 continued to grow.

We also deployed 76 MW of solar energy generation systems in Q1. Cash and loan system sales made up 66% of residential deployments in the quarter, up from 31% in Q1 2017 and 9% in Q1 2016. Due to higher upfront cash sales, lower emphasis on less profitable commercial projects and consolidation of our sales channels, our solar business had slightly positive cash flow throughout 2017. We are expecting cash flow from our solar business to remain at this level in the first half of 2018 and then improve significantly thereafter.

Solar deployments have declined over the last few quarters due in large part to our strategic decision to shutter certain sales channels and market segments. These decisions had a negative impact on our deployments but created a positive impact on our cash generation. Furthermore, a significant part of our customer base is waiting for a Powerwall before getting their solar panels installed. We continue to prioritize Powerwall deliveries when they are sold together with our retrofit solar panels, and this should have a positive impact on our solar deployments in upcoming quarters.

Our Solar Roof facility in Buffalo continued to ramp in Q1. We are working to enhance the product design and manufacturing process in order to improve the customer experience while reducing manufacturing cost and achieving high levels of quality. Production of Solar Roofs should accelerate significantly in the second half of this year.

Over the past couple of quarters, we have increased efforts to sell energy generation and storage systems in Tesla stores. We are seeing clear signs of a pickup in order rates for retrofit solar installations through Tesla stores. These are now being offered in over 90 Tesla stores in the US, and we continue to expand the offering to the rest of our stores across the US.

*OUTLOOK*

During Q2, we expect to shut down production for about 10 days, which includes the shutdown we took in April, to address bottlenecks across the lines and increase production to new levels. Our goal is to produce approximately 5,000 Model 3 vehicles per week in about two months.

We are in the process of changing the quarterly production pattern of Model S and X vehicles for the various worldwide regions to ensure a more linear flow of deliveries through the quarter. We believe this will provide a better customer experience and reduce the stress on our delivery system. Consequently, Model S and X deliveries in Q2 will likely be similar to Q1 but should pick up considerably in Q3 to achieve our goal of 100,000 deliveries for the full year.

Our long-term gross margin target of 25% for Model 3 has not changed. In the medium term, we expect to achieve slightly lower margin due to higher labor content in certain areas of manufacturing where we have temporarily dialed back automation, as well as higher material costs from recently imposed tariffs, commodity price increases and a weaker US dollar. On the other hand, our average selling price is significantly higher than prior projections, so we expect to achieve higher gross profit per vehicle than we previously estimated.

With increasing capacity for Powerwall and Powerpack products at Gigafactory 1, energy generation and storage revenues should continue to grow significantly throughout the year. Energy storage gross margins should therefore become positive in the second half of 2018. Our solar business is likely to experience mild growth for another quarter or two before our revised sales strategy starts to show its full impact in final deployments.

Quarterly non-GAAP operating expenses should grow sequentially at approximately the same rate as in the past four quarters, with our gross profit expected to grow much faster than our operating expenses. Thus, provided that we hit the 5,000 unit milestone in our projected timeframe and execute to the rest of our plan, we will at least be profitable in Q3 and Q4 excluding non-cash stock based compensation and we expect to achieve full GAAP profitability in each of those quarters as well. Also, considering our capex targets, we expect to generate positive cash in Q3 and Q4, including the inflow of cash that we receive in the normal course of our business from financing activities on leased vehicle and solar products.

We have significantly cut back our capex projections by focusing on the critical near-term needs that benefit us primarily in the next couple of years. At this stage, we are expecting total 2018 capex to be slightly below $3 billion, which is below the total 2017 level of $3.4 billion. Ultimately, our capex guidance will develop in line with Model 3 production and profitability. We will be able to adjust our capital expenditures significantly depending on our operating cash generation.

Interest expenses in Q2 should amount to roughly $160 million and losses attributable to non-controlling interest should remain in line with the last quarter.

We have good visibility of our path to fully ramp and stabilize Model 3 production this year. Model 3 is already the best-selling electric vehicle and, more importantly, on the cusp of becoming the best-selling premium sedan in the US. The path to an electrified revolution is not easy, but what we're trying to achieve is worth fighting for. Thanks for your continued support.


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## KarenRei (Jul 27, 2017)

Whisper number was $3.60 per share. Actual, $3,35. Nice


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## KarenRei (Jul 27, 2017)

Highlights:

1) Get ready for new options



> "After achieving a production rate of 5,000 per week, we will begin offering new options such as *all-wheel-drive *and the base model with a *standard-sized battery pack*. "


2) Concerning the FUD that Tesla is "giving up" on factory automation just because Musk ripped out a conveyor system that wasn't working and praised human productivity:



> But we believe in first principles thinking. In the end, this is all about having factories that are producing the world's highest quality cars as quickly and as cost-effectively as possible, and with as close to zero injuries as we can possibly get.* Our automation strategy is key to this and we are as committed to it as ever*. ... we have *temporarily* dialed back automation and introduced certain semi-automated or manual processes while we work to *eventually have full automation take back over*


3) Tesla's cells are NCA and are running at _less_ than 10% cobalt. Wow!



> The cobalt content of our Nickel-Cobalt-Aluminum cathode chemistry is already *lower than
> next-generation cathodes* that will be made by other cell producers with a Nickel-Manganese-Cobalt ratio of *8:1:1*.


4) Can you say "test drives"? 



> We are planning to deploy *significantly more Model 3 vehicles in our stores* in Q2 this
> year.


5) GAAP automotive gross margins en route back up 25% after being dragged down by the 3 - now up to 19,7%. S and X gross margins *over* 25%. But Model 3 margins still negative in Q1.



> Non-GAAP Automotive gross margin improved significantly to 18.8% in Q1 as compared to the prior quarter. Gross margins of Model S and Model X have increased to *slightly above 25%* due to better cost reductions, mix management, FX gains and pricing actions compared to Q4. GAAP Automotive gross margin improved to *19.7%*.
> 
> Model 3 gross margin *remained negative* in Q1 due to temporary underutilization of our manufacturing capacity, which was in line with our expectations.


6) As expected, Bosch is on the hook for the S recall:



> The recent voluntary recall of 125,000 Model S vehicles related to steering bolt corrosion was not material to our warranty reserves and is *expected to be covered by the indemnification obligations of the supplier*.


7) Tesla burned only 26% of their cash remaining, 3,37B to 2,66B - despite having an unusually high amount of inventory in transit at the end of the quarter and accounts receiveable hurt by the rapid end-of-quarter scaleup, costing them 289M more than the equivalent situation at the end of Q4. They would have been at nearly 3B with that money (which was instead rolled into April)



> Cash outflow from operating activities in Q1 2018 was $398 million primarily due to an increase in inventory and accounts receivable balances as a result of the timing of deliveries. Higher number of Model S and Model X vehicles in transit at the end of Q1 2018 compared to Q4 2017 had a negative impact of about *$120 million* on our working capital. Additionally, due to a substantial increase in our deliveries in the last few days of the quarter, our accounts receivables negatively impacted our
> operating cash flow by *$169 million* in Q1. Both of these factors provided cash inflows during April.


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## Michael Russo (Oct 15, 2016)

Also, these few sections caught my attention:

_Consequently, we now expect to reach a module production rate of 5,000 car sets per week even before we install the new automated line designed and built by Tesla in Germany. Still, once installed, this new automated module line should significantlylower manufacturing costs. Our automationteam in Germany is currently focusing onfurther capacity expansion where needed. _

Plus
_Once we hit the 5,000 per week milestone, we intend to incorporate our learnings to continue to increase output on our existing manufacturing lines beyond 5,000 units per week, and then in a capital efficient manner to add incremental capacityto ultimately get to a 10,000 unit weekly rate. _

And, finally, first time a number on res is made public in 2 years...!:
_Model 3 net reservations, including configured orders that had not yet been delivered, continued to exceed 450,000 at the end of Q1 even though fewer than 20 stores worldwide had Model 3 on display._


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## KarenRei (Jul 27, 2017)

Conference call highlights (capturing all I have time to type!):



> Most excited about is the rapid increase in output. We've got just in the last 24 hours at Gigafactory managed to achieve a sustained rate of just over 3000 packs per week, and actually reached a peak hour that extrapolated outward would equal over 5000 cars per week. Now, you can't just take a peak hour .... (snip) ... You can achieve that sustained rate with more refinement. ... AT least in the case of pack production, we were able to do this with minimal capex. ... We're seeing ways to achieve dramatically improved volumes with minimal capex.





> There are some things that are very well suited to manual operation, and some very well suited to automated operation, and the two should not be confused. I should be clear that the vast majority of the process is automated. But as I mentioned in a tweet a few weeks ago, we did go too far and automate a few really silly things. ... example ... fiberglass mats on the top of the battery pack. Basically fluff. We tried to automate the placement and bonding of fluff to the battery pack .... fluffer bot.... which is an incredibly hard thing to make work. Robots are not good at picking up fluff! Human hands are way better at that. We had a computer vision system involved in picking up fluff.... (( restraining laughter )) ... line kept breaking down because fluffer bot would just fail to pick up the fluff, or just put it in a random location (( can't contain laughter )) That was just a really silly thing





> The result is we've had a radical improvement in battery production ... went from 7 hours per pack three weeks ago, to under 17 minutes now. So a really radical improvement. Also saw a radical improvement in zone 4 of module production .. .fully automated zone ... And we're also able to achieve a sustained rate of 3000 vehicles per week . So we're actually ahead of battery and pack production of where was expected, and with some work in the Fremont pack, particularly in the general assembly area, I'm sure we'll be able to achieve the 3000 mark. We're already there in the body shop... already capable of over 3000 cars. And general assembly, with some improvements, which will include some reduction ... I should say temporary reduction in automation .. should be there.





> Worth noting a chart in Model 3 vs. competitors in midsize sedans... we're almost the best selling sedan in the United States in this category, as of April. And we'll certainly be there in May. And we'll really be there later this year. In the third quarter, there's a good chance that Model 3 gets close to a majority of midsize sedans. ... maybe 40% .... and maybe a majority of market share.





> As the letter says, I'm feeling quite confident about achieving GAAP-positive cash flow in Q3. This is not a certainty, but it does appear quite likely in my view. We are going to conduct a reorganization and restructuring of the company this month and make sure we're well set up to achieve that goal. In particular, the number of 3rd party contracting companies we've been using has really gotten out of control. And we're going to be scrubbing barnacles. There's barnacles upon barnacles, now...





> Q: If we talk about the 3000, 5000 per week run rate, is that assuming 7/24, or at what rate do you think you get to 5 day, 2 shift operation?
> 
> A: ... I think a 2-shift operation is a ridiculous way to run, as it would be a poor use of capex. Nor is it the way we've usually run at Tesla. ... ? and battery production has always operated at a 24/7 basis. Except general assembly, which has generally been on a 2 shift ... and paint, which has operated on a 6 day basis ... but the majority of Tesla's production has operated on a 24-hour basis since we started production. ... we're using the chip-fab approach to capital efficiency ... Alternate work week ... 3 long days, four long days alternately ... it's not like 1 person working 24 hours a day 7 days a week, there's like 4 or 5 shifts





> I do believe that the path to manufacturing eficiency is velocity. Velocity and density. And that is absolutely what we're working on, rather than just trying to spend billions of dollars trying to duplicate a factory. If two companies are competing, and one has to double the factory to double production, and the other can just speed the line up....





> Q: So, to the extent that you're adding humans in certain automated processes, can you just help us interpret the way that this effects the economics ... how do you stack up in comparison to other OEMS in terms of labour hours ...
> 
> A: So, the thing that's that I've noticed is that if you have a really complicated machine, like the fluff bot that I was talking about earlier, in order to keep it operating you have to have a ton of maintenance engineering... expensive maintenance engineers to maintain the thing and fix it, 24 hours a day, 7 days a week ... not incorporated directly into the module, but nonetheless a labour cost compared to just placing the fluff directly on the battery pack. I do not see this having a mature long-term impact on cost, and most likely our cost will decrease, fully considered cost, by getting rid of production stations that are really poorly suited to robotics because of the very expensive cost of robot technicians





> If we look at our depreciation cost at a per-unit basis at a steady run rate of 5000 cars per week, we are in my mind well below our competitors, 2000 dollars per unit depreciation. Overall, clearly there is some impact in the letter from the additional labour we've added.... it's temporary, and our expectation is a lot of this labour will come out when we find smart ways of automating where it makes sense





> Q: (about batteries)
> 
> A: We're the best in class. ... different commodities and the trends we're pursuing in batteries. Being on the path to reduce cobalt ... something we've been pursuing for years, and this has been very important in reducing the cost per kilowatt hour, particularly relative to current market movement.
> 
> Musk: I think we can get the cobalt to almost nothing.





> Q: About raising capital, that it can be good to do when not needed, just in case. Do you want to?
> 
> Q: No. I specifically don't want to.





> Asked about SpaceX broadband in cars. Elon responds 3 years.





> Q: Downtime on the model 3... one later in the quarter... what specifically have you addressed in Fremont so far, and what are you planning to address later?
> 
> A: The Tesla production system at this point is vast, so... we literally have the two biggest factory on Earth, between the Gigafactory and Fremont. Giga is still slightly smaller than Fremont, but it'll soon be bigger than Fremont, and Fremont is the second-biggest footprint of any kind ... I feel very confident about our ability to get to 5k very soon sustained rate at Giga, essentially getting to 5000 battery packs and moters and inverters and chargers by the end of next month, and battery production, no problem. General assembly is probably our biggest risk, and I'm really focusing on that a lot in the coming month. And then the paint shop is maybe the second biggest risk after general assembly. These are all quite manageable. It's not like huge brain surgery to get these right; it's a lot of work. A lot of time and hard workj. But very doable. Really quite straightforward, not a fundamental impediment. ... a really great production system is primarily a software problem, and there's noone in the auto industry that's remotely as good at software as Tesla. Tesla is way better at software than any other car company. And where the biggest challenge is software, we're in a good position





> Q: Model Y
> 
> A: Capex will only start to become significant in 2019. ... It's not zero right now, but it's not a big number, relative to .. Although it is remarkable the amount of money spent at the beginning is quite low, decisions made at the beginning have massive implications on future capex ... no question we could have made the Model 3 easier to produce... but I think the Model Y will be a revolution from a manufacturing perspective. It will be incredible. Because we do not want to go through this pain again





> Q: clarify the gross margins concerning Model 3... you said over the medium term, Model 3 gros smargins would be below the target of 25%... you said in Q3 and Q4 those margins would be highly positive... could we get close to 20%.
> 
> A: What I'd say is that progressively each quarter we will be getting better, and ... yes, the answer is yes. It'll come down to whatever other economics come into play, from currencies to commodities, so I don't want to give you a specific number, but... we'll be close to it. Close to 20%, slightly lower or slightly above. Going a bit further forward from Q4, next year, 25% is definitely what we're expecting.Q4 is where we expect to be on or about 20%. But by the middle of next year, 25% gross margin should be where we are. And we'll try to get to the high 20s by the end of next year





> Q: Jim Keller's departure
> 
> A: Jim's a great guy, and ... super-long time, to kind of redesign how the architecture works... something I find very interesting, but it's been a sort of personal dream of Jim's to do.. The Tesla, the design of the Tesla hardware is primarily by Pete Bannon, the lead designer who is still with Tesla. And of course Andre is head of our AI team. We don't plan to hire a replacement for Jim's position





> Q: Gross margins: 5000 units ... said gross margin of 25% last year ... seems like a delay ... trying to understand what the key drivers are ... so perhaps you can help us understand what has changed in terms of the gross margin ramp
> 
> A: Along the lines of what we said in the letter ... tarrifs... duties ... commodity pricing plus the weaker dollar, that is adding significant costs. And temporarily we're using more labour. So combining those two... certainly the labour cost we'll address. ... And I'm talking about a 3-5% difference, it's not a huge number...





> Q: What are you taking out in terms of your lower capex projection this year, where does that take you in terms of both battery and production capacity for the Model 3?
> 
> A: So, we just have been being much smarter in many cases. We're not just spending money on automation, we're simplifying it, and that's helping reduce our capital on Model 3. And we're also being critical with how we spend our money on infrastructure. And there's room for us to reduce it if we wish to. And so we're leaving ourselfves discretion





> Q: Model 3 reservations... gave a gauge of the impact that the news that have, of the reservations made open to configure, what percent taken steps to configure?
> 
> A: We're going to YouTube. These questions are so dry, they're killing me





> Q: Thanks for the call to represent retail investors. Q about Waymo compared to FSD?
> 
> A: Sure. Thanks for an interesting question. The logical... a shared electric autonomy model. So, in order for this whole system to work, you need all the pieces in place, you have full autonomy, level 4 or 5 whatever you want to call it, a lot of cars on the road, and both the software infrastructure behind that to enable people to share their cars as effectively a kind of Robo-Lyft or Robo-Uber... Uber-Lyft and AirB&B thing, where you can have 100% usage, recall it at will, restrict usage to friends and family... this is the obvious thing that's going to happen. In order to ... FSD. Making good progress. Believe that the vehicles w're currently producing are capable of full autonomy, with the only thing that might be needed , maybe, is a computer upgrade, to have more processing power for the vision neural net. But that's a plugin replacement that can be done very easy. ... toward having millions, probably tens of millions of shared autonomous vehicles. Or you can not share if you don't want to.
> 
> ...





> Q: Semi "breaks the laws of physics" (daimler)
> 
> A: Elon: (( Cracking up majorly )) I'd be glad to engage in a physics discussion with them! (more laughs)
> 
> ...





> Q: Superchargers. Open to other automakers?
> 
> A: We've always said that this is not intended to be a walled garden, will support other automakers. They just need to pay their share of the costs and be able to accept our connector, or at least an adapter to our connector. But so far none of the other carmakers have wanted to do it. But it's not opposition from us.
> 
> ...





> Q:Megacharger fixed price for trucks?
> 
> A: Haven't finalized any of that. We want to make sure there's a very seamless and easy way to operate trucks everywhere, some may elect whole system or parts of the system, many ways to solve.... Economics are fundamental to that situation. They're not making decisions based on aesthetics or consumer-related things. Try to make semi cool and sexy, because we think it's good to do, but doesn't effect customers. Laughable lawsuit recently from a laughable company called Nikola (laughter) love the irony. About the way the trucks look, which is absurd. Nobody's buying trucks based on the way they look. The economics are incredibly important. So we have to make sure the megachargers are set up in a way that you can have very low cost electricity.
> 
> ...


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## KarenRei (Jul 27, 2017)

> Q: Solar energy... how are you prioritizing... changing perception of what batteries can do?
> 
> A: South Australia took a chance on the world's biggest battery and it's worked out far beyond their expectations, able to respond at the millisecond level, far faster than any hydrocarbon plant. It's value in grid stabilization is much greater than even a gas turbine plant. So it's kind of like getting a tesla, that instant acceleration, like a mind meld with the car. That same rapid response is true of the abttery pack. So the utilities that we've worked with so far really love the battery pack, and I feel confident that we'll be able to announce a deal at the GW scale within a matter of months. So a 1000 GW, .Sorry, 1000 MWh.
> 
> Absolutely accurate that there's more than enough demand, still building out of our demand backlog, increasing it slightly... trying to do our best to prioritze... customers between residential, powerwall, utility, commercial.... longer-term stragey catch up on our powerwall demand, catch up on the backlog, people waiting too long. Generally the direction we're trying to take that. Model 3 has take a lot of focus, but that trend will be reversing in the second half of the year





> Q: Semi reservation count and devel status?
> 
> A: Don't know. About 2000? Haven't really tried to sell semi, no ongoing sales effort. Orders are opportunistic. Not something we think about much, our focus is on the Model 3. Need to get 5k/wk, become profitable. A good criticism that's been leveled at Tesla, it's high time to be profitable. So that's our focus right now. Then the Semi, we have an awesome product roadmap, the Semi is one of those things, I think we have a good idea... the Model Y is going to be amazing, I'm really exciited about that. Tesla pickup is going to be great. So the product roadmap... we have way more cool things than we know what to do. Just need to stay focused and not divide our attention on too many products at one time.
> 
> ...





> Q: If I can be brief... given the coverage that you've received regarded to high profile accidents.. .one of the things we like is you have most miles tested, from an AP perspective. Cna you give us any colour from your data regarding the confidence consumers have in the technology... used more or less in lieu of the accidents... trying to get a sense of consumer likelihood of adoption over time.
> 
> A: See a substantial increase in miles driven with autopilot. See a steady increase... something on the order of a third of highway miles, maybe closer, maybe a half in some cases, some regions on autopilot. But when there's negative things in the press that dips. Which makes it dangerous for our customers, which is not cool, and that's why I get upset. And then I get accsused of blaming the victim. We're not blaming the victim here, but it's important that people not get the wrong imprssion, there's no question it improves safety. Will be publishing our safety statistics on a quarterly basis so people know exactly what AP safety is, is it getting better, getting worse.... common misimpressions when there's a serious accient on autopilot, people think it's because the driver thought the car was fully autonomous, that we mislead them into thinking it was autonomous. It's the opposite. Almost always an experienced user. It's an issue of complacency, they get too used to it. Not a lack of understand of what it can do, it's thinking they know more about AP than they do.
> 
> ...





> Q: Can you update us on that 3k number, 4k number per week? Volatility makes it hard to own the stock, need updates.
> 
> A: Actually, what's... Tesla is such a leaky sieve of information, I think the news will leak pretty quickly. Also people track registrations pretty closely. At most whatever we provide will become public info a week or two in advance of it becoming public knowledge. People get too focused on what' happening in the space of a few weeks or months. Old maxim of investing, you should not be focused on short-term things. We have no interest in satisfying the interests of day traders. No interest. Please sell our stock and don't buy it. .. I think people are concerned about volatility they should not buy our stock. Do not buy our stock if volatility is scary.





> Q: Model 3 vs. 3 series and others... what do you think Mode 3 is changing the denominator, changing the class vs. what it used to be?
> 
> A: Will probably increase the total number of sedans... yeah, I do think so.
> 
> ...





> Q: You said Model Y "true production revolution". What would you change about Model 3 if you could go back?
> 
> A: Save that for another time. Talk about that when we unveil the Model Y. Going to be dramatically better. The design and production system I think will truly be next level.


Call done.


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## JWardell (May 9, 2016)

Well, I have never repeatedly laughed out loud on a financial call before! Elon cutting off the "boring" questions and "let
s go to Youtube" was incredible, only to then to ignore the two-question rule and encourage Gali to keep asking the great questions. And Gali did a great job, asking real questions that we all want to know, and Elon giving us a ton of great new info. And to cap it all off the CEO telling folks not to buy their stock...on the finance call!


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## M3OC Rules (Nov 18, 2016)

JWardell said:


> Well, I have never repeatedly laughed out loud on a financial call before! Elon cutting off the "boring" questions and "lets go to Youtube" was incredible, only to then to ignore the two-question rule and encourage Gali to keep asking the great questions. And Gali did a great job, asking real questions that we all want to know, and Elon giving us a ton of great new info. And to cap it all off the CEO telling folks not to buy their stock...on the finance call!


That was hilarious. I thought I lost my connection to the call that silence was so long after the model 3 configuration percentage question. He really put the smack down on them and deservedly so. There are always a bunch of dumb questions on these calls. Gali was a breath of fresh air. Poor Adam Jonas, who generally speaks really highly of Tesla, really struck out with his whole SpaceX tie in with the internet service question. Hopefully next call they will have better questions.


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## AugustaDriver (Jul 21, 2017)

Hopefully someone will now name their Model 3, Fluffer Bot, Fluffy, ect.. great inside joke, it may be tough to explain to someone riding in the car though.


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## Quicksilver (Dec 29, 2016)

Some very interesting items from Q1 2018 Earnings Call...(from Teslarati). I find that going from 7hrs to 17 minutes is incredible! Just wow! Some great stuff in excerpts below...

_"This still remains to be fixed, but in any case, overgeneralizing the design. For example, the *current battery pack has a port for front drive units*, which we then put a steel blanking plate on. So essentially, we punched a hole in it and put a blanking plate at the hole. And (we had to) do that for all rear drive unit cars, which is kinda crazy._​_"It would have added cost, it would have added a manufacturing step, it would have added a failure mode; and four ports was unnecessary… That's changed. So, the result was we had a rapid improvement in battery pack production,* from taking 7 hrs to make a pack 3 weeks ago to under 17 minutes now*. We're able to also achieve a sustained rate of 3,000 vehicles a week, so we're actually slightly ahead in battery module and pack production than expected."_​_"One of the things we've found is that there are some things that are very well suited to manual operations, and there are some things are very well suited to automated operations. The two should not be confused. We did go too far in the automation front, and automated some pretty silly things._​_"One example would be, we have these* fiberglass mats on top of the battery pack*. They're basically fluff. We tried to automate the placement and bonding of fluff to the top of the battery pack, which was ridiculous. *'Flufferbot,' *which was really an incredibly difficult machine to make work. Machines are not good at picking up pieces of fluff. Hands are way better at doing that._​_"So we had this super-complicated machine, using a vision system to try and put a piece of fluff on a battery pack. The line kept breaking down because Flufferbot would frequently fail to pick up the fluff, or put it in a random location. So, that was one of the silliest things we've found."_​_"That's definitely sort of the power level that we've discussed and explored. Some of it also comes down to an optimization around utility versus cost, and tradeoffs in the car itself. There is a tradeoff, fundamentally, between charge speed and essentially range, and cost of the battery. We look at that pretty carefully. We understand the tradeoff. We could design cells and a pack that could charge at, you know, *faster than 300-400 kW, but it's not a very useful tradeoff to the customer.*"_​_As a result of the Model 3's simplified design and highly-automated production line, Tesla expects the vehicle to carry a *25% gross margin*, much higher than its peers._​


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## Blee (Apr 27, 2018)

I’d like to see him respond to questions, bad or not, as a mature business person. I’m a long-term investor,supporter and now customer. If investors/analysts and lenders see Tesla as a risk it hurts us all. I’d like to see this company succeed and be around to service and update my model 3. Tesla’s value is based on potential not current performance. Like most of us I see a lot of good news in this call, but it never benefits anyone to dismiss or marginalize analysts who can affect your potential to succeed. He came across to me as a spoiled rich kid.


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## Dan Detweiler (Apr 8, 2016)

Blee said:


> I'd like to see him respond to questions, bad or not, as a mature business person. I'm a long-term investor,supporter and now customer. If investors/analysts and lenders see Tesla as a risk it hurts us all. I'd like to see this company succeed and be around to service and update my model 3. Tesla's value is based on potential not current performance. Like most of us I see a lot of good news in this call, but it never benefits anyone to dismiss or marginalize analysts who can affect your potential to succeed. He came across to me as a spoiled rich kid.


Interesting, I didn't get that impression at all. I look at it as a CEO that has the responsibility to defend his company. He had addressed the financials through the letter and the opening comments. His company has seen repeated and relentless attacks from analysts and speculators that seek to benefit from its demise. Regardless of how many shares these analysts represent they are looking for ammunition that they can further use to undermine the efforts of his company and himself.

I understand that the "traditional protocol" is to placate to these types of people. Elon has never been one for tradition or "this is how its always been done" mentality. He chose to spend his time answering the questions from a person that represented the investors that believe in him and his company and what they stand for. Loyalty begets loyalty and I, for one, applaud his actions. Will the stock take a hit? Yup, it showed yesterday. It also rebounded. It will probably go down some more over the next couple of days as the leeches get the word out about how irrational, immature, and unprofessional Elon was. Then the investors that are in it for the long haul, that believe in what Tesla is trying (and succeeding) in doing, will simply take advantage of the opportunity to strengthen their positions, will come in and show their appreciation and support with further investment in the company.

Some may say that Elon should have a thicker skin when it comes to criticism of his company. All he has done is to continue to progress, innovate and produce with increasingly positive numbers. He has a vision, his company has a vision, and they have a pathway to achieving success of that vision. You either buy into that vision or you don't. As the old saying goes, "**** or get off the pot." Buy our stock or get out. Perhaps it is high time the short sellers and day traders developed the thicker skin. They finally got a CEO that isn't afraid to call BS on their underhanded tactics, incendiary articles and misleading representations. He's not going to change their way of doing business so he doesn't need to placate to their agenda.

Just my humble $.02 from a committed investor and believer. Can't wait for my 3!

Dan


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## garsh (Apr 4, 2016)

Blee said:


> If investors/analysts and lenders see Tesla as a risk it hurts us all.


As Musk explained this morning:

__ https://twitter.com/i/web/status/992367087761817600


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## LUXMAN (Apr 4, 2016)

Some more explaining from ELON highlighted here...

https://www.teslarati.com/elon-musk-tesla-q1-2018-earnings-call/










So this will hopefully placate some of the press. But I still LOVE Cramer's Defense of Elon!


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## KarenRei (Jul 27, 2017)

Okay, I bit the bullet... people freaking out about Musk not wanting to answer stupid questions on a phone call was just too much for me. It dips into my cash on hand more than I'd like, but.... { adds $5k of TSLA }


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## Dan Detweiler (Apr 8, 2016)

KarenRei said:


> Okay, I bit the bullet... people freaking out about Musk not wanting to answer stupid questions on a phone call was just too much for me. It dips into my cash on hand more than I'd like, but.... { adds $5k of TSLA }


Mommy, can I have 5K to buy more TSLA?

...PWEEEEEZE!


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## KarenRei (Jul 27, 2017)

Dan Detweiler said:


> Mommy, can I have 5K to buy more TSLA?
> 
> ...PWEEEEEZE!


Lol, you joke, but my parents actually have a large chunk of money earmarked for me (both gifts, and things I've paid for to be reimbursed), and it's awfully tempting to ask for it


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## Dan Detweiler (Apr 8, 2016)

KarenRei said:


> Lol, you joke, but my parents actually have a large chunk of money earmarked for me (both gifts, and things I've paid for to be reimbursed), and it's awfully tempting to ask for it


Ahhhh...I get it. You're getting your money the old fashioned way huh? You're inheriting it!

Dan


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## KarenRei (Jul 27, 2017)

Dan Detweiler said:


> Ahhhh...I get it. You're getting your money the old fashioned way huh? You're inheriting it!
> 
> Dan


I'm a computer programmer, I pay my own way, and always have. But yes, my parents did well for themselves, and earmarked some money for their children. I'm the only one who hasn't taken it yet, mainly due to multi-year delays in my house construction that I was going to put it towards. Who would have thought that the hard part of building an underground cave house would be getting your architect to stop procrastinating? :Þ Not wasting billed time, just... hardly doing anything billable without a reminder every few weeks.


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## Dan Detweiler (Apr 8, 2016)

I would say it's rebounding nicely.


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## GDN (Oct 30, 2017)

I didn't have any free cash either right now, but likely should have sold something else to move over here. Missing some nice bounce back.


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## Gorillapaws (Jul 30, 2017)

M3OC Rules said:


> Poor Adam Jonas, who generally speaks really highly of Tesla, really struck out with his whole SpaceX tie in with the internet service question.


What surprised me about the negative press was the youtuber got trashed for asking bad questions (though he asked good questions about location and timeline of future expansions), and yet "real analysts" like Jonas had dumb questions like this one about future space internet stuff that would have had pretty minuscule effect on Tesla's financial picture. The question I would want to know is color on the warranty costs from Model 3 thus far. If we assume that they are the highest per vehicle per month, now, then we can forecast a more conservative trend for those numbers in the future (at least I would hope).

If:
1. Tesla can maintain sufficient working capital
2. Tesla can hit Model 3 production goals in a reasonable timeframe
3. The market doesn't take a major dip
4. The warranty costs don't destroy profit margin
5. No truly game-ending news gets released

I think Tesla's stock has a very good chance of having fantastic returns.


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## KarenRei (Jul 27, 2017)

Lol, I wish this stock was harder to predict, this takes all the fun out of it.


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## MelindaV (Apr 2, 2016)

Gorillapaws said:


> What surprised me about the negative press was the youtuber got trashed for asking bad questions (though he asked good questions about location and timeline of future expansions), and yet "real analysts" like Jonas had dumb questions like this one about future space internet stuff that would have had pretty minuscule effect on Tesla's financial picture


the Tesla Daily Podcast (Rob) did a really great job last night breaking down the difference between the "analysts" overly redundant questions compared to the "youtubers" thoughtful questions that hadn't already been addressed or asked (show: 05.03.18 Q1 2018 Earnings Part 2). worth a listen for anyone who keeps up on all of this


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## Bokonon (Apr 13, 2017)

The brief Barrons article that Elon tweeted out earlier today highlights some of the structural issues with the TSLA short trade.


__ https://twitter.com/i/web/status/992556974263947264
Looks less like the makings of a "short burn" than a bonfire...


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## KarenRei (Jul 27, 2017)

Bokonon said:


> The brief Barrons article that Elon tweeted out earlier today highlights some of the structural issues with the TSLA short trade.
> 
> 
> __ https://twitter.com/i/web/status/992556974263947264
> Looks less like the makings of a "short burn" than a bonfire...


Looks like our annual _brennur_ will be coming early this year


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## Bokonon (Apr 13, 2017)

KarenRei said:


> Looks like our annual _brennur_ will be coming early this year


That seems about the right scale. 

It's also worth noting that the Jewish holiday of Lag B'Omer (typically celebrated with a large bonfire) fell on May 3rd this year. Coincidence?


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## Dan Detweiler (Apr 8, 2016)

So do we know the nature of this burn yet? Model 3 production? Chinese factory? Other?

Dan


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## KarenRei (Jul 27, 2017)

Dan Detweiler said:


> So do we know the nature of this burn yet? Model 3 production? Chinese factory? Other?
> 
> Dan


Concerning the shorts, they'll try to pivot to profitability when Tesla hits 5k, but the Q2 report will very obviously show continuing improvement in the margins (just like happened this month, though they tried to gloss over that fact... more vehicles with the same hardware and a well-less-than-linear increase in personnel costs very obviously means improved margins). They'll keep up the outward bluster, but inside that's going to make them nervous. I think it's Q3 that the short squeeze will really begin.


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## Grashelm (Aug 4, 2017)

Dan Detweiler said:


> So do we know the nature of this burn yet? Model 3 production? Chinese factory? Other?
> 
> Dan


https://www.barrons.com/articles/te...25467892?mod=yahoobarrons&ru=yahoo&yptr=yahoo


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## MelindaV (Apr 2, 2016)

Grashelm said:


> https://www.barrons.com/articles/te...25467892?mod=yahoobarrons&ru=yahoo&yptr=yahoo


behind a pay wall...


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## victor (Jun 24, 2016)

MelindaV said:


> behind a pay wall...


I don't see a paywall from Canada.

Here is a link to a Web Archive copy of the article:
https://web.archive.org/web/2018050...ost-out-of-stock-for-short-sellers-1525467892


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## KarenRei (Jul 27, 2017)

The short of it: shorts have been keeping the price of TSLA down by doubling down, continually upping their short positions. This counters what you'd expect to be a big boost to TSLA from its production rates shooting up and margins rising. This stock value suppression is good for them, because if TSLA goes up too much, a short squeeze will materialize, wherein some shorts being contractually forced to cover their position (aka, by buying an equivalent number of shares of TSLA) puts more pressure on other shorts, causing them to have to cover, and so forth in a cascade. The problem for them is that there's hardly any stock left for them to short, so they can't keep increasing their short positions to drive the stock down.

You can imagine what effect it would have on TSLA's price if contractual obligations forced the shorts to purchase literally a third of all Tesla's stock in a short period of time, _at whatever price it happened to be at the time_. They're going to lose their bloody shirts.


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## Michael Russo (Oct 15, 2016)

KarenRei said:


> (..)
> You can imagine what effect it would have on TSLA's price if contractual obligations forced the shorts to purchase literally a third of all Tesla's stock in a short period of time, _at whatever price it happened to be at the time_. They're going to lose their bloody shirts.


Well said, Karen. In essence, the same point made by this Dutch guy in the article I posted earlier tonight in the Mixed Bag... thread! Kudo to you.


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## Dan Detweiler (Apr 8, 2016)

So, please educate the ignorant. When they short a stock do they have a specific pre-arranged amount of time to cover their shares regardless of price?

Dan


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## garsh (Apr 4, 2016)

Dan Detweiler said:


> So, please educate the ignorant. When they short a stock do they have a specific pre-arranged amount of time to cover their shares regardless of price?


Yes.

This seems like a pretty good summary of the process:
http://www.dummies.com/personal-finance/investing/online-investing/how-to-sell-stock-short-2/


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## Bokonon (Apr 13, 2017)

Dan Detweiler said:


> So, please educate the ignorant. When they short a stock do they have a specific pre-arranged amount of time to cover their shares regardless of price?


Short-sellers pay a borrowing fee (interest) on the shares that they've sold until they buy them back to close the trade. According to the Barrons article, the current borrowing fee for Tesla shares is 3.69% (and likely rising due to demand). This means that for every $1M in Tesla stock that you short, you are paying about $100 per day in interest just for the privilege of holding that position (and experiencing a tsunami of hurt, short burn of the century, etc.  )

The longer the short position remains open, the more interest you pay, and therefore the more you need the stock to drop in order to make a profit. So in order to successfully short a stock, not only do you need to be right, you need to be right *right now* (or at least fairly soon ).


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## Dan Detweiler (Apr 8, 2016)

Bokonon said:


> Short-sellers pay a borrowing fee (interest) on the shares that they've sold until they buy them back to close the trade. According to the Barrons article, the current borrowing fee for Tesla shares is 3.69% (and likely rising due to demand). This means that for every $1M in Tesla stock that you short, you are paying about $100 per day in interest just for the privilege of holding that position (and experiencing a tsunami of hurt, short burn of the century, etc.  )
> 
> The longer the short position remains open, the more interest you pay, and therefore the more you need the stock to drop in order to make a profit. So in order to successfully short a stock, not only do you need to be right, you need to be right *right now* (or at least fairly soon ).


Dying to know what brought on the "short burn of the century" quote from Elon. Something's up.

Dan


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## Grashelm (Aug 4, 2017)

Dan Detweiler said:


> Dying to know what brought on the "short burn of the century" quote from Elon. Something's up.
> 
> Dan


His follow up twitter post to the short burn post specifically linked to the Barrons article referencing the number of shares available for buy/short.


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## KarenRei (Jul 27, 2017)

There's also the fact that both production and margins are on a fast upward pace. Giga is already bursting to 5k, and capable of 3k sustained. All but 2 parts of Fremont were, at the time of the earnings call, able to handle 3k. A report over on TMC late last week was that they were doing (at least on that particular day) 400 vehicles per day (extrapolates to 2800/wk). They've gone up very fast from 2k, and look to be right en route to 5k.

Despite the (silly) short-seller hypothesis that Tesla scaling up production just means more losses, their non-GAAP automotive margin (aka, without ZEV credits and the like) increased 5% quarter-over-quarter. During a time where Tesla was focused solely on production, not margins. But now with 5k en route, Tesla is shifting more to margins. See the (long hinted at, now in progress) contractor purge as an example. Q3 and Q4 will be almost entirely focused on margins on the 3; the more the capital they accrue late this year and early next, the more they'll have to spend from Q2 onwards next year when Model Y capital expenses start shooting up.

And the reason I write "silly" next to the short-seller hypothesis is that it's based on the notion that margins are independent of production rate - as though using a relatively fixed amount of labour, plus hardware with a fixed depreciation rate, yields margins that are identical whether revenue is from 5k vehicles per week or 1k. As if getting 5 times more vehicles off the same line and marginally increased labour somehow means 5x COGS. As if 100% of the cost of a vehicle is supplier parts and raw materials, with production hardware and labour contributing 0% to the price. I have trouble understanding how they can advocate this hypothesis with a straight face.


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## Bokonon (Apr 13, 2017)

KarenRei said:


> And the reason I write "silly" next to the short-seller hypothesis is that it's based on the notion that margins are independent of production rate - as though using a relatively fixed amount of labour, plus hardware with a fixed depreciation rate, yields margins that are identical whether revenue is from 5k vehicles per week or 1k. As if getting 5 times more vehicles off the same line and marginally increased labour somehow means 5x COGS. As if 100% of the cost of a vehicle is supplier parts and raw materials, with production hardware and labour contributing 0% to the price. I have trouble understanding how they can advocate this hypothesis with a straight face.


I'd like to believe that most professional investors (including those who may soon bemoan their lack of flame-retardant attire :volcano::volcano understand the various ways in which economies of scale can be beneficial... but I've often been accused of being overly optimistic. 

My sense is that those on the short side of the trade don't think the benefits of scaling production will matter, for one or more (typically fallacy-ridden) reasons. I'll pick my top four:

*1. Current demand for Model 3 is weak.* Model 3 reservations aren't converting to orders at a high enough rate for the program to be profitable (i.e. the premise of the RBC question that Elon cut off). Insert some statistically-bankrupt "take rate" figure here that completely ignores deferrals and assumes a non-order for First Production is equivalent to a cancellation. Conclude that if Tesla can't sell Model 3 to the "true believers" who camped out in line two years ago, they won't be able to sell it to anyone in the future.... even as they sell every one they build as it rolls off the line.

*2. Future demand / market for Model 3 is limited.* Model 3 is actually a $50K / $55K / $60K car, not a $35K car, and as such, is more of a niche mid-level luxury car than the "mass-market" vehicle that Elon claimed it would be. Nevermind the fact that the same thing was said about the Model S back in 2012, and demand for that vehicle has only grown in the six years since, despite the introduction of Model X and Model 3, and despite spending exactly zero dollars on advertising. And nevermind the fact that Tesla has consistently shown acuity in targeting incentive-rich markets and using those incentives as a tool to drive demand among customers who would have never considered spending as much money on another car as they did on their Tesla... a strategy which continues to be in play (and prove effective) with Model 3. Look no further than the TOO "Ordering / Reserving" forum for evidence.

*3. Model 3 build quality is subpar.* With thousands of vehicles being delivered with obvious defects, Tesla's few service centers will quickly get bogged down, and Tesla will eat the cost of all that shop time. Unlike first-model-year vehicles from every other manufacturer, which are always impeccably flawless, and incur no unpaid shop time as a result. Insert anecdotal tale here of a Tesla owner whose Model 3 had a missing / defective / misaligned / combustible [something]. Ignore equally valid anecdotal evidence from a certain 2015 e-Golf lessee in Massachusetts, whose car was delivered with a partially-detached overhead sunglasses compartment and whose radio still (2.5 years later!) spontaneously tunes itself to 87.7 FM every third or fourth time the car is powered on. (Oh, and since there's no over-the-air software update to correct this obvious and easily-reproducible bug, the only solution is to schedule a service appointment so a technician can spend an afternoon manually diagnosing, patching, and verifying the car's firmware.)

*4. Tesla will run out of cash if they do not raise more capital.* I... can't even pretend to flesh this one out. Even at the current 2.5K-ish/week production rate and a *unrealistically conservative* average selling price of $50K (i.e. First Production with no options other than color), Model 3 generates $1.6B in revenue per quarter. At 5K/week and an average selling price of $55K (which I still think is on the conservative side, given that Q3-Q4 will include a copious number of AWD deliveries), quarterly revenue is $3.6B. Either production would have to grind to a halt, or margins would have to be utterly atrocious, for cash on hand to become an issue.

If I'm Elon, the only one of these items I'm even remotely concerned about is #3... so I camp out on the Gigafactory floor for a month to ensure that both quality and production rate improve en route to 5K. Because once I've achieved 5K, we're adding dual motors and the white interior to the mix, which means higher margins, as well as an even higher order-conversion rate for Q3 and Q4... and, oh yeah, profitability. And what happened to TSLA the last time the company reported a profit? Oh right...










:volcano::volcano::volcano::volcano::volcano::volcano::volcano::volcano::volcano::volcano::volcano::volcano:


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## LUXMAN (Apr 4, 2016)

Bokonon said:


> *2. Future demand / market for Model 3 is limited.* Model 3 is actually a $50K / $55K / $60K car, not a $35K car, and as such, is more of a niche mid-level luxury car than the "mass-market" vehicle that Elon claimed it would be.
> 
> *3. Model 3 build quality is subpar.* With thousands of vehicles being delivered with obvious defects,


You make great points.

To #2 tho, I would say that the Model 3 will also be a BIG $40k / $45k car. Going back to your #1, most of those people that dont convert are waiting for the SR battery. When that comes available, people will be pressing ORDER so fast it will make the shorts head spin. Of course the $9k lost on that is a big hit to the margins,so they have to get those up before introducing the SP battery. But there will be a big take rate on the premium interior, and dual motor and maybe AutoPilot. 
An example of this is my buddy who ordered on 1April (and still doesn't have an invite). He is like I want BASE BASE BASE....then he rode in mine. Now he says he will have to have the Premium package with Sport Wheels but still SR Battery. 
So Tesla will make up some of the lose on the SR battery (or lack of upgrade money vs "lose")
But depending on how they roll out the SR battery, there will be allot of sad people who wont be getting the full tax credit (however they are still saving 5800 by going SR at 1/2 credit vs LR with full credit so that is something.)

I however just worry about the take rate when the credit disappears. Once the True Believers have theirs and there is no "FREE" money on the table. AHHHHHH, this is where the $35 version comes in. By then these people have seen the upscale versions and maybe even ridden in one and test drives may be available (mid 19), then they will pay the $35k for the base (+$4k for the @20" wheel package unless offered as a say $2.5k factory option, cuz you gotta have the wheels) just to get in on the fun.

Plus maybe some Fleet cars

So demand will stay strong for several years and then you add the Model Y and *BOOM! *
The shorts are not burning but exploding. But probably by then them have moved on to someone else.

To your point #3. They take this based on anadotal eveidence. I have never in my life seen a car picked apart in press like this! The GM guy, Motor Trend and others. It. Is unbelievable. Then you have news of new owner problems. Some of that may be our fault in discussing issues that are minor (and something you may never bring up with another new car). That will taper off as more people get their car that aren't quite as obsessed as we are and as minor issues are fixed at the factory level. So I do hope that does drop off because in public view it does look bad. But the Tesla Brand Mystic that has been built covers allot of that


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## Bokonon (Apr 13, 2017)

LUXMAN said:


> To #2 tho, I would say that the Model 3 will also be a BIG $40k / $45k car.


Agreed -- I didn't mean to gloss over the impact of optioned-up $35K cars on Tesla's bottom line, I was focusing on Q3 and Q4, during which the vast majority of sales will be First Production and AWD. I think the $35K car will be much more than the loss-leader than most are expecting it to be, because.....



LUXMAN said:


> Going back to your #1, most of those people that dont convert are waiting for the SR battery. When that comes available, people will be pressing ORDER so fast it will make the shorts head spin. Of course the $9k lost on that is a big hit to the margins,so they have to get those up before introducing the SP battery. But there will be a big take rate on the premium interior, and dual motor and maybe AutoPilot.
> An example of this is my buddy who ordered on 1April (and still doesn't have an invite). He is like I want BASE BASE BASE....then he rode in mine.
> Now he says he will have to have the Premium package with Sport Wheels but still SR Battery.
> So Tesla will make up some of the lose on the SR battery (or lack of upgrade money vs "lose")


...of THIS! Fantastic example of the Tesla Financial Reality Distortion Field™ at work. It's a shame you can't get referral credit for an upsell like this. 



LUXMAN said:


> But depending on how they roll out the SR battery, there will be allot of sad people who wont be getting the full tax credit (however they are still saving 5800 by going SR at 1/2 credit vs LR with full credit so that is something.)


Feeling like you've "missed out" on something is never pleasant, but I think that will be a fleeting sentiment for the reason you've outlined: $3750 to get you into a Tesla is better than nothing.



LUXMAN said:


> I however just worry about the take rate when the credit disappears. Once the True Believers have theirs and there is no "FREE" money on the table. AHHHHHH, this is where the $35 version comes in. By then these people have seen the upscale versions and maybe even ridden in one and test drives may be available (mid 19), then they will pay the $35k for the base (+$4k for the @20" wheel package unless offered as a say $2.5k factory option, cuz you gotta have the wheels) just to get in on the fun.
> Plus maybe some Fleet cars
> So demand will stay strong for several years and then you add the Model Y and *BOOM!*


I am also slightly concerned about what happens post-credit (assuming the credit is still available to other automakers), because the credit will disappear just around the same time that most other major automakers will be introducing long-range EVs of their own. That said, I think one of Tesla's great strengths as a company is managing demand for the long-term, knowing which levers to pull and when. Adding Model Y to the mix will help bring more folks off the sidelines, sure, but they could also, say, add Model 3 to the referral program to vastly increase the target market for their now-hundreds-of-thousands of owners (a.k.a. the Unofficial Tesla Sales Force), while simultaneously offering a post-sale incentive like $1K in supercharger credit to the buyer.

Meanwhile, as competitors kick off the first model year of their long-range EVs (without the economic benefits of a fully-operational Gigafactory, BTW), Model 3 will be approaching its third year of production, and there's virtually zero chance that the available options will be the same as they were at the end of 2018. Tesla will still be able to command a premium for their vehicles versus their competitors, while at the same time achieving better margins at the lower end of the market due to economies of scale, both of which will reduce any disadvantage they face due to a discrepancy in applicable incentives.



LUXMAN said:


> To your point #3. They take this based on anadotal eveidence. I have never in my life seen a car picked apart in press like this! The GM guy, Motor Trend and others. It. Is unbelievable. Then you have news of new owner problems. Some of that may be our fault in discussing issues that are minor (and something you may never bring up with another new car). That will taper off as more people get their car that aren't quite as obsessed as we are and as minor issues are fixed at the factory level. So I do hope that does drop off because in public view it does look bad. But the Tesla Brand Mystic that has been built covers allot of that


Agreed -- the coverage right now is a bit unreal. Stories that fit into the theme of our impending self-imposed technological dystopia tend to get a lot of eyeballs and clicks, whether the subject matter is exploding phones, killer autonomous vehicles, or AI's inevitable evolution into SkyNet... so I wouldn't expect the sensational coverage of Autopilot, the Model 3, or Tesla as a company to subside until they are as commonplace as a Toyota Corolla with a backup camera (which, oh BTW, is now standard).


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## LUXMAN (Apr 4, 2016)

Bokonon said:


> Meanwhile, as competitors kick off the first model year of their long-range EVs (without the economic benefits of a fully-operational Gigafactory, BTW), Model 3 will be approaching its third year of production, and there's virtually zero chance that the available options will be the same as they were at the end of 2018. Tesla will still be able to command a premium for their vehicles versus their competitors, while at the same time achieving better margins at the lower end of the market due to economies of scale, both of which will reduce any disadvantage they face due to a discrepancy in applicable incentives.


Agreed! And on the point about the Gigafactory, Tesla seems to be the only one really all in on this. VW just announced more "contracts" for batteries. Hyundai is currently have supply problems for batteries in the Ioniq, and didn't Mercedes back off not the plans to build battery plants?

So all theses cars and SUVs that are coming in 2020....I will believe it when I see it. They will be crying how only Tesla has enough batteries and crying foul. Boo Hoo! HAHAHAHA


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## KarenRei (Jul 27, 2017)

If VW actually follows through with their plans, they'll be a big player.... several years down the road. But spending money on R&D and infrastructure takes years to pay off. As Tesla well knows.


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