# Earnings Call - 2018 Q2 (8/1/2018)



## MelindaV (Apr 2, 2016)

call to begin at 230p (pacific) and can be accessed at: http://ir.tesla.com/


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## Bokonon (Apr 13, 2017)

Q2 Letter is out... Model 3 margins are already positive! ("But...but...but.. they lose money on every car!") :tearsofjoy:

Q2 Automotive gross margin increased to 20.6% GAAP and 21.0% non-GAAP
Model 3 gross margin turned slightly positive in Q2, expecting roughly 15% in Q3
Expecting to produce 50-55k Model 3s in Q3; deliveries should exceed that
Major cost restructuring executed in Q2
$2.2B of cash and cash equivalents at Q2-end, expected to grow in Q3 and Q4
Capex projection in 2018 adjusted to <$2.5B


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## PNWmisty (Aug 19, 2017)

Bokonon said:


> Q2 Letter is out... Model 3 margins are already positive! ("But...but...but.. they lose money on every car!") :tearsofjoy:
> 
> Q2 Automotive gross margin increased to 20.6% GAAP and 21.0% non-GAAP
> Model 3 gross margin turned slightly positive in Q2, expecting roughly 15% in Q3
> ...


I most impressed with cash and cash equivalents remaining at end of the quarter! But I imagine a good chunk of that was unsold M3's? I imagine they could count the undelivered product as long as they had purchase commitments.

It looks like the buying opportunity was before the earnings release, not after! As I suspected. But who knows what the following weeks hold in store?


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## MelindaV (Apr 2, 2016)

Bokonon said:


> Thread title should reflect Q2 rather than Q1.
> 
> Also: Q2 Shareholder Update Letter


fixed it - funny, because I started w it correct, but in a different order, and mucked it up when i "fixed" it.


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## Bokonon (Apr 13, 2017)

PNWmisty said:


> It looks like the buying opportunity was before the earnings release, not after! As I suspected. But who knows what the following weeks hold in store?


Yeah, for the moment it looks like a surprise to the upside, with the stock is currently up 5%. But we've seen in the past that TSLA can pop with anticipation before the call and then drop afterward, so I'd agree that it's a bit early to draw conclusions about where the stock will be even a week from now.

That said, assuming the major indices are flat tomorrow, I'd say tomorrow's closing should provide a pretty good indicator of near-term trend. If TSLA pops and fades significantly, or just drops at the open and keeps running down all day, that buying opportunity may still present itself... But let's be clear, I'll be completely fine if it doesn't.


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## slacker775 (May 30, 2018)

Here's an interesting bit from the letter:

Customer deposits decreased slightly compared to Q1 to $942 million. This does not reflect the incremental deposits
we received
once we opened the Model 3 configurator for orders in early Q3 2018. Deposits impact the P&L only once the vehicle gets
delivered to a customer.

That addresses some of the speculation that was going on a few weeks back during all the short battles.


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## PNWmisty (Aug 19, 2017)

The conclusion is my favorite part:



> It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable. In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive. None of this would be possible without the incredible efforts of our employees and the support of our customers, suppliers and investors. We thank you for your unwavering support and we have never been more excited on what the next few years will produce.


I know, it's just "feel good" talk but it's history in the making. Or perhaps re-making (since electric cars outsold ICE cars unitl around 1910).


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## JWardell (May 9, 2016)

Bokonon said:


> Also: Q2 Shareholder Update Letter


This seems like all good news to me! Any other interpretations?


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## britjames (May 15, 2018)

Revenue grew 43% to $4 billion
Adjusted net loss of $520.2 million or $3.06 per share
Operating cash flow remained in the negative territory at $129.6 billion
Total vehicle production rose 55% sequentially to 53,339 units in Q2, while shipments jumped 80% to 40,740 units
Expects to produce 50,000 to 55,000 Model 3 vehicles in Q3, by producing 6,000 Model 3 vehicles per week by late August, and also to increase production over the next few quarters beyond 6,000 per week.

[mod edit - removed link to FUD heavy website]


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## PNWmisty (Aug 19, 2017)

JWardell said:


> This seems like all good news to me! Any other interpretations?


I hope that's not a serious question. Because we know the shorts will have some very sinister and bearish interpretations! 

It looks like a little better than what was expected, and a lot better when you consider all the sales pushed into the 3rd quarter by the tax credit accounting. I feel especially good learning that general assembly only comprises about 3% of the expense to produce a Model 3. Because I was concerned the problems with automation might be more significant in terms of ability to produce profitably.

Going forward, it's all about continuing to execute. Many risks and only a narrow pathway to continue the amazing momentum that has been building.


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## JWardell (May 9, 2016)

PNWmisty said:


> I hope that's not a serious question. Because we know the shorts will have some very sinister and bearish interpretations!


I'm not asking the shorts, I'm asking the wonderful folks in the this forum!


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## Gavyne (Jul 7, 2018)

JWardell said:


> This seems like all good news to me! Any other interpretations?


It's pretty much looking better than expected, which is why you see positive market response. I would imagine the shorts/anti-Tesla folks will try to hit on the demand, claiming there won't be such high demand later on. Because frankly they are running out of things to say with so many positive things going on.


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## PNWmisty (Aug 19, 2017)

Gavyne said:


> Because frankly they are running out of things to say with so many positive things going on.


I can't recall a period in Tesla's history when that stopped them from finding something new to harp on. Going forward, they will probably continue their attempts to reduce demand by misrepresenting the build quality, reliability and long-term durability of Tesla's specifically and electric cars in general.

This is actually effective too because there are a lot of gullible people out there and a lot of potential customers/fence straddlers already have a lot of misconceptions about electric cars.


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## Gavyne (Jul 7, 2018)

Top 5 vehicles traded in for Model 3 owners:

-Toyota Prius
-BMW 3 Series
-Honda Accord
-Honda Civic
-Leaf

This is important because it debunks the theory that Model 3 is only for the rich, and that people won't pony up the money to buy it. Yet from the trade-in's, you can see people are making giant leaps to upgrade to the Model 3. You don't have to be rich, just need to be financially responsible and save up enough money for something you want. This also shows that there won't be a demand issue like some have suggested (like running out of rich people buying $50k Model 3's).

I drove my Civic for 12 years and saved up for Model 3.


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## garsh (Apr 4, 2016)

Love this chart.


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## PNWmisty (Aug 19, 2017)

Beautifully executed answer by Musk when asked if there were orders from SEC or other regulators prohibiting TSLA from raising cash in the capital markets. This question was based on a favorite theory of the shorts who were confounded by the fact that Tesla maintained they didn't need to raise additional capital and were sure it wasn't that they didn't need the money but was because they were prohibited. He answered the question in an indirect way and then made him ask it again and he answered it directly and without ambiguity in a way that must have made the a-hole feel like a birther.


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## PNWmisty (Aug 19, 2017)

Musk has taken on a much more accommodating tone in his answer to "bone-headed questions". I think he's actually starting to enjoy taking the high road.


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## Dr. J (Sep 1, 2017)

Adam Jonas asked the dumbest questions I've ever heard on a conference call. Sounded to me like he was trolling Elon. Questions involved the potential weaponization of autopilot (edit: in China), which would potentially bring a response from the US government.


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## Brokedoc (May 28, 2017)

TSLA up 10% in aftermarket. He should compliment and apologize to analysts more often.


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## Dr. J (Sep 1, 2017)

PNWmisty said:


> Musk has taken on a much more accommodating tone in his answer to "bone-headed questions". I think he's actually starting to enjoy taking the high road.


I'm liking the new tone.


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## Dr. J (Sep 1, 2017)

Brokedoc said:


> TSLA up 10% in aftermarket. He should compliment and apologize to analysts more often.


That has been the tradition on Wall Street.


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## Brokedoc (May 28, 2017)

Q: "Is the GA4 tent permanent?"
A: "It's permanent for now"...until it gets replaced....

Yogi Berra lives....


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## Brokedoc (May 28, 2017)

It sounds like HW3 is right around the corner. If Elon is speculating U.I. 9.0 next month, I don't think it's a stretch to believe that HW3 will be released by the end of the year. It sounds like turning on all of the cameras and the algos for full on ramp/off ramp EAP was almost too much for the current HW2.5 processor and definitely too much for HW2.0 processor.

I wonder if the computer upgrade is free ....


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## Dr. J (Sep 1, 2017)

Q: Where are you going to build 500K to 1,000,000 vehicles in calendar 2020?
A: In a place called Shanghai.


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## garsh (Apr 4, 2016)

Brokedoc said:


> I wonder if the computer upgrade is free ....


I expect any required upgrade to be free for people who ordered FSD (or EAP, if that requires better hardware). But if you haven't ordered the feature that requires the hardware upgrade, it may not be a free upgrade.


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## garsh (Apr 4, 2016)

I like this chart, but it *is* deceiving.

The Y-axis is "percent of the mid-size premium sedan market". So "everyone else" will start at 100%, and Model 3 starts at 0. The curve makes you believe that sales of "everyone else" dropped, but that's not necessarily the case. It could simply be that their sales stayed the same, while Model 3 ramped a lot. I would have rather seen actual monthly sales on the Y axis.



garsh said:


> Love this chart.


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## Dr. J (Sep 1, 2017)

Short term bottleneck: Model 3 body production, expected to be resolved soon.
Longer term: battery production is the critical item.


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## Bokonon (Apr 13, 2017)

Brokedoc said:


> I wonder if the computer upgrade is free ....


I was wondering the same thing. I would be absolutely shocked if it weren't free for those who had already purchased FSD. And if the upgraded unit only costs the same as the existing one (which I believe I heard him mention over my 4-year-old repeatedly asking what kind of music I was listening to), it's possible it could be offered for free (or at a discount) for owners with EAP as well. Ditto if there is an additional benefit for Tesla to have more vehicles with HW3 collecting data and/or running in shadow mode versus HW2.5.


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## PNWmisty (Aug 19, 2017)

Musk said the energy business is growing faster than the auto business and that long-term he expects the energy business to catch up and pass the auto business in size.


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## SoFlaModel3 (Apr 15, 2017)

I wish I would have bought more shares this morning!


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## NOGA$4ME (Sep 30, 2016)

Gavyne said:


> It's pretty much looking better than expected, which is why you see positive market response. I would imagine the shorts/anti-Tesla folks will try to hit on the demand, claiming there won't be such high demand later on. Because frankly they are running out of things to say with so many positive things going on.


They'll find them. But yes, with GPM of Model 3 joining S & X by turning positive, one of the main pillars of the short thesis (that they lose money on every car they sell) should now be history.

Yes, demand (or lack thereof) seems to be their hot button at the moment, particularly with respect to the fact that "everyone" was waiting for the $35K vehicle and now they will get $3750 less in tax credit for it, and the fact that US demand has dried up and they have been able to work through 100% of their LR RWD backlog. For some reason, they seem to be completely forgetting the fact that about 60,000 LR RWD vehicles have been shipped to US customers, probably far more than anyone would have expected--I'm sure that some of those $35K orders got "upsold" to $49K orders. They keep forgetting that there is significant AWD and Performance demand which is now playing out. They forget that orders have not even opened up for non-North American customers. They don't consider the effect that we saw with the LEAF when it first came out that once someone shows up at home or at work with the car, pretty soon neighbors and co-workers are buying the cars. That's a lot of things to sweep under the rug, but it certainly won't keep the shorts from trying.


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## John Slaby (Mar 31, 2017)

Brokedoc said:


> It sounds like HW3 is right around the corner. If Elon is speculating U.I. 9.0 next month, I don't think it's a stretch to believe that HW3 will be released by the end of the year. It sounds like turning on all of the cameras and the algos for full on ramp/off ramp EAP was almost too much for the current HW2.5 processor and definitely too much for HW2.0 processor.
> 
> I wonder if the computer upgrade is free ....


I'm guessing if you already ordered FSD, it will be free. They probably raised the price of after-delivery FSD to account for the H/W upgrade. Those in the middle (who got cars without FSD before the after-delivery price increase) will get it for the $1000 extra cost and that will cover at least some of the additional H/W upgrade cost. Overall, a fair deal.


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## PNWmisty (Aug 19, 2017)

Most of the Tesla "news" articles today focus on the bright spot with Tesla (Musk apology). That should have been merely a footnote of the conference call. Instead, they treat it like the most significant part of the call and attribute the stock soaring to Musk's apology. 

The (few) articles that focussed on Musk projecting profitability each quarter forward and/or their relatively secure cash position are the only ones who identified the primary reason(s) for the share price rise. Not Musk's apology.


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## Dr. J (Sep 1, 2017)

PNWmisty said:


> Most of the Tesla "news" articles today focus on the bright spot with Tesla (Musk apology). That should have been merely a footnote of the conference call. Instead, they treat it like the most significant part of the call and attribute the stock soaring to Musk's apology.
> 
> The (few) articles that focussed on Musk projecting profitability each quarter forward and/or their relatively secure cash position are the only ones who identified the primary reason(s) for the share price rise. Not Musk's apology.


I think it's because the apologies were meaningful to the analysts, as it represents a righting of the order of the world where stock analysts' opinions mean something (vs. the real world, where those of us who lived through the growth stock/tech/internet bubble and the housing bubble, know better).  The real news was positive cash flow and GAAP earnings going forward--end of story.


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## GDN (Oct 30, 2017)

I can't imagine that the old hardware isn't good enough for EAP, what at 200 frames per second, but of course I would like to be able to upgrade to the newer board for a very small amount or free. FSD I can see them wanting the new hardware and yes I think those that paid for it up front will get it free, that increased $1000 seems very steep. I'd say he has a lot sunk into development and it's not like this board is going to be made millions of times, only enough for the cars they produce, but he did say that the cost was equivalent to what they were paying NVidia, so I can't believe this thing is worth $1000 (increased cost of after sale FSD add on). I'm thinking more like $300, maybe $400 installed.

The stock is still rocking.


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## Love (Sep 13, 2017)

Not selling at all (holding for a long time, I'd imagine)...so nothing realized, but still... there is just something so delicious about watching that stock go UP UP UP. 

Such a beautiful thing. I have that same expression on my face like Musk does on his Twitter pic where he's watching a rocket ship soaring into space!


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## JWardell (May 9, 2016)

I'm kind of sad the call wasn't nearly as fun as last time. But there was no need to light fires when the news was so incredibly positive.



Gavyne said:


> Top 5 vehicles traded in for Model 3 owners:
> 
> -Toyota Prius
> -BMW 3 Series
> ...


And more significantly, this is based on a $50,000 model 3. The trades are going to really hit every corner once this baby hits 35G


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## 2170pwr (May 1, 2017)

Reaction of Tesla short seller:


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## NOGA$4ME (Sep 30, 2016)

2170pwr said:


> Reaction of Tesla short seller:


PERFECT! Those never get old!


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## PNWmisty (Aug 19, 2017)

JWardell said:


> And more significantly, this is based on a $50,000 model 3. The trades are going to really hit every corner once this baby hits 35G


I would only count on $35K cars being a catalyst for a higher share price if production capacity is reliably up to at least 9,000/wk, perhaps more. And you may be underestimating the demand for $50K cars. Personally, I think they can sell Model 3's at $50K and above at 7,000/week all through next year. Because even a mid-spec Toyota Camry costs $30K (and requires thousands more in fuel, oil, etc. over the next 5 years and beyond). And it has zero points for style, cool factor, greenness, quietness under acceleration, etc. I'm not saying they won't take care of early reservationists who want a $35K car, but I don't see how that's a catalyst for higher valuations. Because the margins will be considerably lower on the relatively small number of low spec Model 3's they will sell. Most people want some goodies and are willing to pay for them. And manufacturers typical make the "stripper" model in short supply.

I love the short-seller Hitler video! It's a classic.

What we are seeing now is a classic short-squeeze. Tesla is in no better position than a normally informed person would have assumed before the numbers were released. The fact that there was no significant bad news and things are going more or less according to recent plans is what's behind this short-squeeze.


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## Zach Shahan (Sep 14, 2017)

Dr. J said:


> Adam Jonas asked the dumbest questions I've ever heard on a conference call. Sounded to me like he was trolling Elon. Questions involved the potential weaponization of autopilot (edit: in China), which would potentially bring a response from the US government.


I was hoping that my question would come right after his because I was laughing so hard. That was one of my favorite moments in Tesla conference call history. So epic. And Elon's response was simply beautiful.


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## Zach Shahan (Sep 14, 2017)

garsh said:


> I like this chart, but it *is* deceiving.
> 
> The Y-axis is "percent of the mid-size premium sedan market". So "everyone else" will start at 100%, and Model 3 starts at 0. The curve makes you believe that sales of "everyone else" dropped, but that's not necessarily the case. It could simply be that their sales stayed the same, while Model 3 ramped a lot. I would have rather seen actual monthly sales on the Y axis.


It's also not the entire class. It's just a handful of cars in the class. Not my favorite graph.

I will update these charts this weekend (he gave a Twitter heart to one of them last week) and also aim to publish some with a longer timeframe for comparison of trends - https://cleantechnica.com/2018/07/2...sales-usa-tesla-now-crushing-the-competition/

But, of course, the big comparison is now with ALL cars - https://cleantechnica.com/2018/08/0...est-selling-car-in-usa-in-a-class-of-its-own/


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