tesla motors (tsla) earnings report: q1 2016 conference ...welcome to the tesla motors first quarter...

CompanyName:T eslaMotorsIncCompanyTicker:T SLASector:ConsumerGoodsIndustry:Automotive

EventDescription:Q12016EarningsCallMarketCapasofEventDate:30.68BPriceasofEventDate:222.56

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

TeslaMotors(TSLA)EarningsReport:Q12016ConferenceCallTranscriptThefollowingTeslaMotorsconferencecalltookplaceonMay4,2016,05:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JeffEvanson;TeslaMotorsInc;InvestorRelationsJonMcNeill;TeslaMotorsInc;PresidentofGlobalSales&ServiceElonMusk;TeslaMotorsInc;Chairman,ProductArchitect&CEOJBStraubel;TeslaMotorsInc;CTOJasonWheeler;TeslaMotorsInc;CFO

OtherPart icipants

JamesAlbertine;StifelNicolaus;AnalystColinLincoln;UBS;AnalystColinRusch;Oppenheimer&Co;AnalystPatArchembault;GoldmanSachs;AnalystBrianJohnson;BarclaysCapital;AnalystAdamJonas;MorganStanley;AnalystJoeStack;RBCCapitalMarkets;AnalystRyanBrinkman;JPMorgan;AnalystJohnMurphy;BankofAmerica;AnalystRodLache;DeutscheBank;AnalystCharlieAnderson;Dougherty&Company;AnalystEmmanuelRosner;CLSA;AnalystBenCallow;RobertW.Baird&Co;AnalystDanaHall;BloombergNews;AnalystPhilLeBeau;CNBC;AnalystAlexSage;Reuters;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheTeslaMotorsfirstquarter2016financialresultsQ&Aconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecorded.

Iwouldnowliketoturntheconferenceovertoyourhost,Mr.JeffEvanson.Mr.Evanson,youmaybegin.

Jef f Evanson (InvestorRelations):

Thankyou,Operator.Goodafternoon,everyone.WelcometoTesla'sfirstquarter2016Q&Awebcast.

I'mjoinedtodaybyElonMusk,TeslaChairmanandCEO;JBStraubel,ourCTO;CFOJasonWheeler;andJonMcNeil,PresidentofGlobalSales,Service,andDelivery.




OurQ1resultsannouncedintheupdateletteratthesamelinkasthiswebcast.Asisusual,thisletterincludesGAAPandnon-GAAPfinancialinformation,andreconciliationsbetweenthetwo.

Duringourcallwewilldiscussourbusinessoutlookandmakeforward-lookingstatements.Thesearebasedonourpredictionsandexpectationsasoftoday.Actualeventsorresultscoulddiffermateriallyduetoanumberofrisksanduncertainties,includingthosementionedinourmostrecentlyfiledForm10K,nowattheSECwebsite.

We'regoingtostarttoday'scallwithsomecommentsbyElon,followedbythequestionandanswerperiod,andduringtheQ&Atime,pleasetryandlimityourselvestoonequestionandonefollow-upsowecangiveeveryoneachancetoaskaquestion.

SowhileElonismakinghisremarks,ifyouhaven'tdonesopleasepressstaronenowtogetintothequeuetoaskaquestion.

Elon,I'llturnitovertoyou.

ElonMusk(Chairman,ProductArchitect&CEO):

Thankyou.

Ithinkthemostimportantpointherethatwewanttomakeisthatwe'readvancingtheModel3buildplansubstantially,andjusttheoverallvolumeplan,withTeslaaimingtogettothehalfmillionunitperyearrunratein2018insteadof2020.

AndthisisbasedoffthetremendousdemandreceivedfortheModel3whichIthinkisactuallyafractionoftheultimatedemand,whenpeoplefullyunderstandwhatthecar'scapableofandareabletodoatestdrive.Sothisisprobablythebiggestchangestrategically.

Also,Teslaisgoingtobehell-bentonbecomingthebestmanufactureronearth.Thusfar,Ithinkwe'vedoneagoodjobondesignandtechnologyofourproducts.

TheModelSandXaregenerallyguardedbycriticaljudgesastechnologicallythemostadvancedcarsintheworld.We'vedonewellinthatrespect.

Thekeythingweneedtoachieveinthefutureistoalsobetheleaderinmanufacturing.WetakemanufacturingveryseriouslyatTesla.It'sthethingweneedtoobviouslysolveifwearegoingtoscaleandscalerapidlyandmakethecarsmoreaffordable.

Ireallywanttosendthemessageouttheretothebestmanufacturingpeopleintheworld.Wewantyoutocomejoinourcompany.

AndthatisgoingtobetheprimaryfocusofTesla,howdowegetsupergoodatmakinglargecomplexobjects?That'sthemostsalientpoint.

It'seithergetwrappedupinabunchofshort-termissues,butIthinkintermsofwhatmattersinthefuture,Ithinkthat'sthemostsignificantthing.

Overallontheshort-termstuff,ourquarteroverquarterstuffIthinkhasimprovedquitesignificantly.

ObviouslyModelXproductionincreasedbyafactoroffivefromQ4toQ1,andwecontinuetomakehugestridesinvolumeandqualityofthevehicle,andI'mpersonallyspendinganenormousamountoftimeontheproductionline.

Mydeskisattheendoftheproductionline.Ihaveasleepingbaginaconferenceroomadjacenttothe




productionlinewhichIusequitefrequently.

Thewholeteamissuperfocusedonachievingrateandqualityatthetargetcost.Ifeelveryconfidentinusachievingthatgoal.

Withtheincreaseinramp,wedofeelcomfortableassumingthe80,000to90,000deliveriesthisyear.Therateofimprovementwitheachpassingdayisverysignificant.

Finally,I'dliketothankGregReichowwhowasourheadofproductionfortremendouscontributionoverthelastfiveyears.Contrarytoreports,GregisstillatTesla,he'sstillwiththecompany,andhe'shelpingwiththetransitiontosomenewleadership.

WehavesomeIthinkexcitingannouncementscominginpossiblythenextfewweeks,inadditiontotheTeslamanagementteamontheproductionside.Ifeelreally,reallyexcitedaboutwherethingsareheadedinthatdirection.

Withthat,let'sgotoquestions.

QUESTIONS&ANSWERS

Operator :

JamesAlbertine,Stifel.

JamesAlbert ine (Analyst-StifelNicolaus):

Great,thankyousomuch.Elon,thankyouforthatintroduction.There'snodoubtyouhaveanincredibleundertakinginfrontofyou.CanyouhelpusunderstandsomeofthekeyobstaclesandhowweshouldconsiderthoseobstaclesbetweennowandyouranticipatedlaunchoftheModel3inlate2017?Whetherit'saP&Ladjustmentthatweneedtomakealongtheway,butcanyouhelpuschoreographhowthat'sgoingtotakeplace?


Sure.WiththeModel3asImentionedonthelastcall,we'rereallytryingtotakealotoflessonslearnedfromModelX.WhereModelX,weputalotofbellsandwhistlesonModelXandalotofadvancedtechnologiesthatweren'tnecessaryforversiononeofthevehicle.

WithModel3we'rebeingincrediblyrigorousaboutensuringthatwedon'thaveanythingthatisn'treallynecessarytomakeaverycompellingversiononeofthecar.

Wealsohaveamuchtighterfeedbackloopbetweendesignengineering,manufacturingengineering,andproduction.AndsoanewelementofModel3can'tbeapprovedunlessmanufacturinghassaidthatthisiseasytomanufactureandthattheriskassociatedwithmanufacturingislow.

Therearemanywaystoskinacat,andit'sremarkablehowyoucanachievethesameobjectivewithahugelyvaryingdegreeofdifficulty.Youcantakeananalogyandsay,ifyouwantedtokillafly,youcankillaflywithathermonuclearweapon,withaMOAB,withacruisemissile,withamachinegun,oraflyswatter.

Theendresultisthesame,butthedifficultyisconsiderablymoresignificantfromonetotheother,andthecollateraldamageisconsiderablymoresignificant.

SohavingproductionbereallyfundamentaltothedesignoftheModel3Ithinkisveryimportant,andthenmakingsurewe'renotaddingextraneousfeaturestothe3,thatareunnecessarytoachievethe




productionvolume,isalsoextremelyimportant.

Attheriskofthisbeingmisinterpreted,andprobablytherewillbesome[indiscernible]articlesthatdo,Ithinkitisworthexplaininghowmanufacturingacomplexobjectwithseveralthousanduniquecomponentsactuallyworks,andwhatdatesarerelevant.

Inordertoachievevolumeproductionofacar,anewcarwithseveralthousanduniqueitems,youactuallyhavetosetatargetdateinternallyandwithsuppliersthatisquiteaggressive.Andthatisthedatethathastobetakenseriously.

Thedate,I'msurethiswillleak,it'shardtokeepasecretreally,thedatewearesettingwithsupplierstogettovolumeproductioncapabilitywiththeModel3isJuly1nextyear.

Now,willweactuallybeabletoachievevolumeproductiononJuly1nextyear?Ofcoursenot.

Thereasonisthatevenif99%oftheinternallyproduceditemsandsupplieritemsareavailableonJuly1,westillcannotproducethecarbecauseyoucannotproduceacarthatismissing1%ofitscomponents.

Nonetheless,weneedto,bothinternallyandwithsuppliers,takethatdateseriously,andthereneedtobesomepenaltiesforanyone,internallyorexternally,whodoesnotmeetthattimeframe.

Thishastobethecasebecausethere'sjustnowaythatyouhaveseveralthousandcomponents,allofwhommakeitonaparticulardate.

Therealityisthatthevolumeproductionwillthenbesomenumberofmonthslater,aswesolvethesupplychainandinternalproductionissues.

Butitisabitofaconfusingthing,anditdoescreatesomechurnbecausepeoplearelike,wellwhat'stherealdate?

YouhavetotaketheJuly1dateseriouslyinorderforsomedateafewmonthslaterorseveralmonthslatertoactuallybetherealdate.That'sactuallyhowithastowork.

SoinorderforustobeconfidentofachievingvolumeproductionofModel3bylate2017,weactuallyhavetosetadateofmid-2017andreallyholdpeople'sfeettothefireinternallyandexternallytoachieveanactualvolumeproductiondateoflate2017.

Soasaroughguess,Iwouldsaywewouldaimtoproduce100,000to200,000Model3sinthesecondhalfofnextyear.That'smyexpectationrightnow.

WhatIwouldsaytoanyonethatisthinkingaboutorderingaModel3,nowisagoodtimetoactuallyplaceyourreservationorplaceyourorder,becauseyoudon'thavetoworryaboutplacingyourorderandreceivingitfiveyearsfromnow.

Ifyouplaceyourordernowthere'sahighprobabilityyouwillactuallyreceiveyourcarin2018.SoI'dreallyrecommendthatanyonewhowantstoreceivetheircarin2018placetheirorderverysoon.


Elon,thankyou.AndifImayasafollow-up,canyougiveussomereferenceasto,again,mostgenerouslyyouwouldthinkifyousaidtheendfourthquarter,orsorry,yousaidfourthquarterof2017,sothesixmonths,atitsmostgenerouscalculation,howdoesthatcomparewiththevolumeproductionagreeddatefortheModelX,justasanexample?

Andthenhowdoesthisflowwithyourcashneeds?Asyou'vearticulated,itseemsyou'vewalkedbacka




littlebitfromthepriorquarter'sdiscussionaroundcashflowpositiveandnoneedforcapitalmarketsraise.Itseemsliketheremaybeaneedhere,ifyoucouldjustarticulatehowthetwofittogether,that'dbehelpful.Thanks.


It'salwaystemptingforpeopletoreasonbyanalogyinsteadoffirstprinciples.AndthatwouldbethemistakeofassumingthatanythingtodowiththeXproductionhasbearingontheModel3.

Theyareverydifferentprogramswithcompletelydifferentapproaches.SoIwouldnottrytoextrapolatefromthat,anymorethanitwould'vemadesensetoextrapolatefromtheRoadsterwhenweweremaking600carsayear,to20,000carsayearwiththeModelS.

Sointheroadstercasewewentfrommaking600carsayearin2010,whereLotusmadethebodyandchassis,wemadethepowertrain,andwedidfinalassembly.ItwasafarsimplercarthantheModelS.

Wetoldpeoplewe'regoingtogettoarunrateof20,000carsayearwiththeModelS,despiteitbeingavastlymorecomplicatedcarandacarwherewemadethewholecar,notjustthepowertrain.

IfyouweretoextrapolatefromtheRoadsterexperience,youwouldbecompletelywrongabouttheModelSoutcome,andmanypeoplewere.That'swhyIwouldsayXisnotrelevant.

Asfarastheincreasedcapitalrates,wellobviouslyifyoudoubleyourplannedvolume,youcan'texpectthecapitaltostaythesame.Ithinkourcapitalefficiencywillactuallyimproveonapercarbasis,butobviouslyitcan'tstaythesame.


Thankyousomuch.

Operator :

ColinLincoln.

ColinLincoln (Analyst-UBS):

Thanksfortakingmyquestions.Justtofollow-up,you'vehadissueswiththe[act],there'smanagementchanges.Whatgivesyoutheconfidencethatthe500,000,that'saprettyamazingjumpintonextyear,whatgivesthatconvictionthatthat'sgoingtobepossibleby2020?


Youmeanby2018.


Yes,2018,yes.


Firstofall,Ithinkwe'vegotanexcellentteamatTeslainproduction,andwe'readdingworld-class[aces]inproductionwitheachpassingweek.

Itisahugeadvantagetohave,it'sfairtosayit'sprobablythemostcompellingproductprogramintheworldwiththeModel3.I'mnotsurewhatwouldbemorecompelling.Ithinkthere'sagoodargumentthatModel3isthemostcompellingprogramonearthfromamanufacturingstandpoint.




Soourabilitytorecruittopmanufacturingtalenttothemostcompellingproductonearthisverystrong.Wefindtheresponsetobeextremelygoodwhenwecallpeopleup.

Sobasedontherateatwhichwe'readdingworld-classmanufacturingexpertise,andsomeofthethingsthatIknowwe'regoingtoannounceinthefuture,IfeelhighlyconfidenttheModel3isgoingtobewellexecutedasaprogram.

Yes,that'sit.Youwanttoaddsomething,JB?

JBStraubel(CTO):

Yes,ifImightjustadd,youmentionedthisbrieflybefore,butthedesignofthevehiclelendsitselftohigh-volumeproductionveryefficiently.AndIthinkthat's--


--designedformanufacturing.

JBStraubel(CTO):

Absolutely.Andthat'ssomethingwe'redoingeventoday.Thosedesignsarefirmingup,sothisissomethinghappeningfar,faraheadoftime.

Andthesecondpointwouldbethequalityandthemotivationofthesuppliersinvolvedintheprogram--


Yes.That'smassivelyincreased.

JBStraubel(CTO):

Everysupplierwantstobeinthisprogram.


Gotit.AndifIcouldaskafollow-up,obviouslycostisgoingtobeanimportantfactorwhen3launches.Ithinkyou'veindicatedthatyourbatterycostwith(Packer)now,under$190perkilowatthour.Howdoyouthinkthatcomparestotheindustry,wheredoyouthinkit'llbebythetimetheModel3islaunching?


We'retryingtocommentonindividualcomponentcosts,andthat'sfairlyproprietary,it'slikegivingawayourplaybook.

ButIthinkit'sprettyobviousthatwewillexceedanyoneelseintheworldinscaleeconomieswiththeGigafactory,andwe'reveryconfident[indiscernible]toexecuteonthatfront.

Ijustdon'tknowanyonewhointermsofintrinsiccostsisgoingtobeclosetowhattheGigafactorycanproduceonacostperkilowatthourbasis.


Anycoloronwhenwethinkthe190howmuch[indiscernible;yearof]declineandtheGigafactory[AudioCuttingIn/Out]30%?





Nextquestion.


Thankyouverymuch.

Operator :

ColinRusch,Oppenheimer.

ColinRusch (Analyst-Oppenheimer&Co):

Thankssomuch.Asyoulookatthisacceleratedplanforproduction,whatcanweexpectonOpExspendingtosupportallofthosecarscomingoutalotfasterthanyoupreviouslyexpected?

JasonWheeler (CFO):

ThisisJason.WeupdatedourguidanceonOpExfortheyearalittlebitintheletter.Wetalkedabout20%lastyearandmovingthatrangeto20%to25%for2016.Sothere'sobviouslygoingtoneedtobemoreOpEx.

However,atthesametime,youseehowweimprovedquarteroverquarterintermsofOpEx.Weweredown$12millionfromQ4,down3%.Sothere'sarenewedfocusinthehallshereatTeslaonmakingsurethatwearemanagingcostsextremelyeffectively,andallofouremployeesgetthatandarecontributingtothat


Yes.Andouroperatingleveragemeansfixedcostrelativetothevariablecostisgoingtoimprovedramatically.

JasonWheeler (CFO):

Yes,absolutely.Wetalkedalittlebitaboutthisonthecalllastquarter.Thepotentialforoperatingleverageismassivewithproductionscaling.

ColinRusch (Analyst-Oppenheimer&Co):

Great.AndthenElon,whatdoyouneedtoseetomoveyourdeskoutofthefactory,it'sadramaticthingtotalkabouthavingyourfactoryandyoursleepingbagthere.Soobviouslythereweresomethingsyouwereconcernedabout.Butwhatareyougoingtowanttoseetogobacktoadifferentlocation?


Mydeskhasfrequentlybeeninthefactory,sothisisnotsomenewthing.OntheModelSrampmydeskwasalsointhemiddleofthefactoryatthesideofthebodylineforayear.

SoImovemydeskaroundtowhereverthemostimportantplaceisforthecompany,andthenIsortofmaintainadeskthereovertimetocomeandcheckinonthings.ButIsuspectprobablybytheendofthisquartermostofmytimewillnotbespentonthefactoryfloor.

Operator :

PatArchembault.

PatArchembault (Analyst-GoldmanSachs):




Thankyou,goodafternoon.GettingbacktothecapitalrequirementfortheexpandedModel3production,appreciatetheguidancethatyou'veprovidedforthisyearfromaCapExperspective,that'shelpful,butmaybethisisaquestionforJason,canyousharewithusmaybewhatatotalcapitalcostestimatemightlooklikefortheModel3program,nowthatyou'vegotahandleonwhatyou'revolume'sgoingtobe,orwhatyouwanttoproduceto?

JasonWheeler (CFO):

Yes,acouplethingsthere.We'veprovidedsomebreadcrumbs,likeweupdatedourCapExguidanceto,wehadguidedat$1.5billionlastquarter,andwethinkit'llprobablybe50%higherthanthatfor2016into2017.

Andinto2017we'renotgoingtotalkaboutthatrightnow,buttheotherthingtopayattentiontoisourCapExforthisquarterwas$216millionwhichwasa47%decreaseoverQ4.

Alittlebitofthatiswhatwetalkedaboutlastquarter,wherealotofthebiginvestmentsforModelXhadalreadybeenmade,butalsowe'rejustreallyfocusing,asElonhassaid,oncapitalefficiencyandmakingsurethatweareinvestinginthehighestandbestusesofcash.AndIthinkthoseprinciplesarewhat'sgoingtoguidetheModel3program.


That'sagoodstartingpointtoworkwithforus,weappreciatetheupdateforthisyear.Maybethewaytotakethequestionistokindofunderstandwhenthepeakspendingperiodsaregoingtobe?Ifyou'relaunchingthroughmiddleofnextyear,isitagoodideatomaybeextendtheamountofcapitalyouseespendinginthebalance[ofrecorders]throughthesecondhalfofnextyear,andthenclearlywiththelaunch,thattapersoff,isthatarightwaytothinkaboutit?

Secondtothat,IwouldprobablyaskthesamequestionjustontheR&Dfront,whendidthosecostsspikeinthetimeframeofthatprogram?

JasonWheeler (CFO):

Sure,Ithinkyou'rethinkingaboutittherightway,thewayyou'velaiditout.YoucanuseModelXandModelSintherampofcapitalforthoseprogramsasawaytothinkaboutModel3.

OntheR&Dpieceofit,thatisabigdriverbehindourupdatingofourrangeto20%to25%OpExin2016,sowe'llstarttoseealittlebitofthatinthesecondhalfofthisyear,andthencertainlysomemoreintothefirsthalfof2017.


Gotit.IfIcansqueezeinonelastone,justonthesourcing,isthischangingyourstrategyofworkingwithsuppliers?You'vedonealotin-houseforallyourproductssofar,butobviouslythisisaverydifferentkindofvolumenumberyou'retalkingabout,soareyouthinkingaboutchangingthelevelofverticalintegration,andhowdoesthatworkintosortoftheongoingcapitalrequirementsforthisprogram?


No,Ithinkwe'reactuallygoingtoincreasetheamountofverticalintegrationthatwehave.Ithinkit'sveryimportantforustohavetheabilitytoproducealmostanypartonthecaratwill,becauseitalleviatesriskwithsuppliers,where,goingbacktoif2%ofsuppliersaren'tready,wecan'tmakethecar.

Havingtheabilityinternallytoadaptandmakethat2%ofpartsinternallyreallymassivelyreducesrisksassociatedwiththeproductionramp.ThatIthinkisaveryimportantthing.




Nowifwegettoasteadystate,andmaybewetalktoasupplierandtheycandoaveryefficientjobofmakingthatpart,wehavenoproblemtransitioningfrominsourcetooutsource.

Ourgoalisnottoinsourceforthesakeofinsourcing,butIwouldratherseeinsourceifwethinkthatithasmeaningfulimprovementonscheduleorcostorquality.

Oneofthechallengeswefaceisthatforalotofthesupplychain(theyarebeingmatched)tothetimeframeofthebigOEMs,andTeslajustmovesalotfasterthanthebigOEMs.Andsoifthey're[beingmatched]tolikeasix-yeardevelopmentcycle,andweareonatwo-orthree-yeardevelopmentcycle,itjustdoesn'tconnectproperly.Somesupplierscanhandlethatandsomecan't.


Itcertainlyseemstolimitsomeofthepeopleyoucouldworkwith.Thanksfortheclarification.

Operator :

BrianJohnson,Barclays.

BrianJohnson (Analyst-BarclaysCapital):

Yes,goodevening,afternoon.Iwanttotalkalittlebitaboutsomeofthemilestonesyouseeintermsofthisaccelerateddevelopmentinthelaunchof,thescaleupoftheModel3?Firstitlookedlikeintheproxythatthealphaprototypewascompletedasofwhenitwasfiledafewweeksago,soafewquestions.One,whendoyouexpectthebetaprototypetobeachieved?Whendoyouthinkyou'llhavefirmspecsforbothyourinternalpartsoperationsandforyourexternalsuppliers?

Andthenintermsofthecapital,doyousee,twootherquestions,whenwouldyouseeraisingcapital,ifatall,tomeetthis?Andthenfinallygiventhevolumeoftrade-offdecisionsyou'retalkingaboutmakingbetweenmanufacturingdesignengineering,doyouseeanyroleforaCOOtype,similartowhatyouhaveatSpaceX,toaccomplishthistimeline?


Okay,that'slike17questionsinone.


Youcansendustheprojectplan.


Fromanengineeringstandpoint,we'realmostcompletewiththedesignofModel3.Andinfacttheprototypethatwasdrivingatthe[motor]eventendofMarchwasactuallyusingtheproductiondrivetrain.

SoIthinkwefeelprettygoodaboutengineeringcompletionofthelastitems,probablywithinsixtoeightweeks,thereabouts.Sowe'recompletingfinalreleasefor[tooling]nolaterthantheendofJune.

Thatleavesroughlyninemonthsforthetoolstobemanufactured,whichIthinkisanachievabletimeframe,Iguessforsomesuppliersanachievabletimeframe.Youcanhaveahumanbabyinninemonths,andyoucanprettymuchmakeatoolinninemonths.Sothat'sourexpectation.

SothenyouwanttohavepartsorproductiontoolingstartinginAprilnextyear.Sowe'vegotthreemonthsofvalidationforanominalstartofvolumeproductioninJuly.




Again,it'sanominalstartandit'sadatethatweinternallytakeseriouslyandthatsuppliersneedtotakeseriously,butitisonewhereinevitablytherewillbesomesmallnumberofitemsthatcauseslippage,suchthattheactualdateofreachingvolumeproductionissomenumberofmonthsafterthat.

Thisissimplyinthenatureofthings.It'sunavoidable.Andifyoucouldtellmewhatthosepartswouldbe,wewouldbeabletotakeactionnow.It'seasierwhatthesethingsareinhindsight,notinadvance,andsometimestherearethingsyoudon'texpecttobeaproblem.

Teslaisalarge,complexbusiness.Idon'twanttocommenttoospecificallyon(indiscernible).


Okay.DoesthisimplyasimilaracceleratedschedulefortheGigafactory,whichalwaysseemedtiedtothe2020halfmillionunitgoal?


Itdoes.JB,doyouhavesomethingonthat?

JBStraubel(CTO):

Aswe'vediscussedpreviously,thisisasmallpartofwhytheGigafactorywas,weacceleratedsomeofourplansthereandwe'restillontracktohavefirstcellproductionstartingattheendofthisyear,sothatwe'llbeabletorampuptomatchtheModel3scheduleaswell.


Again,IwanttoemphasizesomecommentsthatImadeearlierintheearningscallwhichisTeslaisreallyhell-bentonbeingtheworld'sbestinmanufacturing.ThisisabigdealandIthinkit'stherightthingtodo.

Becausewhatwe'retryingtodoisgetasmanyelectriccarsontheroadaspossible,andwhat'sthelimitingfactor?Wellit'sproduction.

Howcanwescaleandscaleefficiently?Andsoweneedtofigureouthowtobetheworld'sbestinmanufacturing,that'swhatwe'regoingtobehell-bentondoing.


Okay,thanks.

Operator :

AdamJonas.

AdamJonas (Analyst-MorganStanley):

Elon,onourmathyourcombinedfleetofModelSandXaredrivingmorethan3millionmilesaday,soinjustonedayyourcarsdoabout2XthedistancethatGoogle'sdoneintheentirehistoryoftheirself-drivingcarproject.

Nowwhileyourcarsaren'texactlysensor-encrustedChristmastreeswithtensofthousanddollarsofequipmentlikearetrofittedGooglecar,it'sstillalotofmiles,andI'mjustwonderingifyoucouldexplaintotheinvestmentcommunitywhatkindofadvantagethisgivesTeslaintheraceforsustainabletransportinaccident-freedriving,insomecommercialfinancialtermsifyoucould?Thanks.Orevenengineeringterms.





Ithinkyou'veprettymuchaskedthequestionandansweredit.Dataiseverything,really,whenyou'retryingtosolvetheautonomoustransportproblem,andhavingmillionsofmilesperdayofdataaccumulating,andthenasthefleetgrows,thatgrowsproportionatetothefleetisincrediblyhelpful.

Particularlyaswegotolong-termfullyautonomousdriving,thatthat'sgoingtorequirequitealotofregulatoryoversight,andIthinkinorderforregulatorstobecomfortableapprovingthat,they'regoingtowanttoseeaverylargeamountofdata,maybebillionsofmilesshowingthatthecarisunequivocallysafeinautonomousmode,comparedtomanualmode,inawiderangeofcircumstances,incountriesallaroundtheworld,withdifferentrulesoftheroad,andwaysofbehavior.

It'llhavetobesomethingstatisticallysignificant,likebillionsofmiles.


Okay,wellthatleadstomyfollow-up,whichisoncehighvolumesofstatisticaldataforyourautonomousmilesarecollectedandanalyzed,IhavethisimageifyouandsomeCEOsofotherautocompanies,andCEOsofothersoftwareandtechhardwarefirmstestifyinginCongressabouttheurgentneedtoreplacethesedangerouspurelyhuman-drivencarsontheroadwithavailable,affordable,andproven,evenL2,L3technology,orsemi-autonomous,that'sreadyforintroduction,todramaticallyimprovetheepidemicoftrafficfatalities.It'slikeanationalpublichealthandsafetypriority.

AmIcrazy,Elon,aboutthattypeofroleforpeopleinyourpositiontoplay,armedwiththedataempirically?AndifI'mnotcrazy,thenhowsoondoyouthinkitwouldtakefortechfirmslikeyoutohaveasufficientquantityandqualityofdatatobeabletomakesuchascientificallyprovencase?Thanks.


Teslawillargueforautonomousdriving,butwe'renotgoingtoargueagainstmanualdriving.AndIbelievepeopleshouldhavethefreedomtochoosetodowhattheywanttodo,andyes,sometimesthosethingsaredangerous.

Butfreedomisimportant,andifpeoplewanttodrive,evenifit'sdangerous,theyshouldbeallowedtodriveinmyview.Butthentheautonomoussafetysystemsshouldbeinthere,suchthatevenifyou'reinmanualmode,thecarwillstillaidyouinavoidinganaccident.


Okay,great,thanks.

Operator :

JoeStack.

JoeStack(Analyst-RBCCapitalMarkets):

Thanks,goodafternooneveryone.AlsowantedtofocusontheadjustintheGigafactoryplans.Ibelieveoriginallyyouindicatedabout15gigawatthoursperyearwereearmarkedforEnergy,andwithModel3demandclearlyrobustandlikelymorerobustthanyouoriginallyplanned,I'mwonderingifthatmovessomeofthoseTeslaEnergyambitionstothebackburner,doesitacceleratetheneedforasecondGigafactory,ormaybeperhapsyoufoundawaytosqueezemoreoutoftheexistingone?

JBStraubel(CTO):




Ithinkthesimplestansweriswehavealotmorecapacityatthatsitethantheinitial35and15gigawatthoursthatwediscussed.

That'spartofwhywe'vesoaggressivelymadesurewehaveextralandandextraspacearoundthesite,sothatwecancontinuetoexpand.Andwewon'tneedtorobfromTeslaEnergyplansinordertomeettheModel3schedule.Wedefinitelyhaveawaytosolveboth.


Andareyouwillingtoprovideanupdatetothoseinitialtargets?


Notyet.MaybeinoneortwoearningcallsfromnowIthinkwe'llbeabletoshedmorelightonthat.Butyes,asJBwassaying,we'regoingtomakesureTeslaEnergyisnotconstrainedbyvehicleneeds.ThegrowthrateofTeslaEnergyis,ona[indiscernible]basis,goingtobefargreaterthanthegrowthrateincars.


Thankyou.

Operator :

RyanBrinkman.

RyanBrinkman (Analyst-JPMorgan):

Great,thanksfortakingmyquestion.WecanallnowseewiththeModel3pre-ordersthatyouareentirelycorrectthatthereistonsofdemandforthecar,justlikeyou'vebeensayingallalong.

SoIthinkaboutamonthagowhenyoustartedtweetingthosepre-orders,theinvestorandpartssupplierconfidenceinyourabilitytoramptohalfmillionunitsrightfullyskyrocketed.

Withthatsaid,fromasupplyperspective,sometimesyouhaddifficultyinachievingdeliverytargetsbecauseofissuesandsmoothlyincreasingcapacityandassembly,andyou'veshownastrongpreferenceforemphasizingqualityoverquantity.

Soisthereanythingthat'schangedonthesupplysideoftheequationthatshouldalsobeconfidence(fulfilling,building),maybelessonslearnedfromthelaunchofXorsomeotherfactorthatshouldgiveconfidenceinyourabilitytobeata200,000to400,000unitannualrunrateofModel3productionapproximately14monthsfromnow?


Again,IwanttoemphasizethattheJuly1dateisnotadatethatwillactuallybemet.Itisanimpossibledate.However,itisadateweneedtoholdourselvestointernally,andweneedtoholdsuppliersto.Butitisanimpossibledatebecausethe6,000,7,000uniquecomponentsintheModel3,andthatwouldassumethatallofthemarriveontime.

Justlikeacollegetermpaper,they'realwayslatetermpapers,butyoustillhavetohaveadeadline,anditneedstobereal,onewithconsequencesifadeadlineisnotmet.

Butitabsolutelywillnot,theprobabilityofitoccurringisincrediblylow,ofactuallyachievingonJuly1,butnonethelessitisadatewehavetotakeseriously.




Iexplainedthatatsomeriskofthisbeingmisinterpreted,buthopefullyyouwouldappreciatethatI'mtryingtoexplainhowitneedstoworkandhastoworkthatway.There'snootherwaytodoit.

AndthethingsthathelpusgettherearedesigningModel3formanufacturing,withmanufacturing,engineering,andproduction,andsupplychainallinaverycloseloop,andmakingsurethatwedesignedthecartobeeasytomake.

Thatweiteratewithsuppliersandaskthemhow,ifwe'regivingthemadesignthat'seasytomakeoronethat'shardtomakeorhowdowereducerisk,improveit,andmakeiteasiertobuild.

ThisisreallyfundamentallydifferentfromSandX.TheSwasthefirstcarwereallydesignedourselves.Anditwasallaboutjusttryingtomakethecartoworkinthefirstplace.XwasbasicallybuiltoffoftheSplatform,butthenevenmorecomplicated,sounfortunately,evenhardertomake.

TheModel3isthefirstcarTeslaiscreatingthatisdesignedtobeeasytomake.Thisisreallyafundamentaldifference.

AndthenImentionedalsoincreasingthescopeofourin-houseabilities,sothatifthere'sasupplierthatisn'tabletodeliverontime,wecanscramblefastandproducethatcomponentin-house.

RyanBrinkman (Analyst-JPMorgan):

Okay,that'shelpful.Thankyou.

Operator :

JohnMurphy.

JohnMurphy(Analyst-BankofAmerica):

Goodafternoon,afirstquestiononthecapitalneeds.Itlookslikethere'salittleover$400millionleftontheABLandgiventhepre-ordersorthereservationsfortheModel3,itseemslikeyou'llhaveatleastanother$400millionflowingininthesecondquarter.Sojustcurious,asyoulookatthatkindofcashpotentialorliquidityandpotentialinflow,doyoureallythinkyouneedtodoacapitalraisethisyear,orcouldyougetbywiththosesourcesofcash?


Idon'tthinkwewanttorelytoomuchoncustomerreservationmoneyasopposedtocapital.Maybethereisabufferorsomethingbutnotasaprimarysourceofcapital.Soit'sgoingtomakesenseforustoraisesomeamountofmoney,somecombinationofequityanddebt,andtomakesurethecompanyhasagoodbufferofcashonhand.Ithinkit'simportantforde-riskingthecompany.

JasonWheeler (CFO):

ThisisJason,theonlythingI'daddtothatis,wediddraw$430millionontheABLthisquarter.Alotofthatwaswehadalargeamountofcashintransitattheendofthequarter,ourdeliverieswerealittlebitback-endloaded,andasthosecarsweredeliveredinearlyApril,wewereabletopayasignificantportionofthatback.


Yes,IthinkmostpeoplearefamiliarwiththeAssetBackedLine,butit'simportanttosaywhyisthatdifferentfromgeneraldebt?

Unlikeotherautomotivecompanies,Tesladoesn'tshiptodealers.Weshiptocustomers.Sowebuildthe




carstoorder.Thecariscompleteandit'sgoingtoaknowncustomer.

Soreallytheonlyriskassociatedwiththatisifliketheshipsinksorsomething,orthetruckthat'scarryingthecarscrashes.

ButtheABLis,theAssetBackedLineisbasicallyfinishedgoodsintransittoknowncustomers.It'snotlikegeneralcorporatedebt.It'sIthinkmoreappropriatelythoughtofasaslightincreaseincostofgoodssold.


Okay,that'shelpful.AndthenifIcanaskjustonefollow-upfromanotherquestion,asyoulookattherampwithsuppliers,isthereanyrecoursetosuppliersthatdon'tmeetthatstarterproductionnextyear,oranypointoftheproductionschedule,orisitreallyjustyoucancelthebusinessandmoveontoanothersupplier?


We'llbeaskingforfirmcommitmentsfromsupplierstomeetthattimeframe.

AndI'mmeetingpersonallywiththeteamfromthatsupplierwhoisgoingtoexecuteonthetask,soIhavenotjustthecommitmentoftheCEOorgeneralmanagerofthatsupplier,buttheactualteamthatwillexecuteontheproduct,andwewanttoconfirmthatwefeelconfidentintheactualteam,andbasicallywe'reaskingfortheATeamfromtheAsupplier,andacommitmentfromthatATeamthattheyintendtoworkharderthantheyeverhaveonanyotherprogram.

Andifthey'rewillingtodothat,thenweworktogether.Otherwise,not.


Andrecourseiftheymisstargets?


Yes.AlongthewaywewillbeassessingprogressandourconfidencelevelthatsupplierswillmeettheJuly1target.Ifitlooksliketheywillnot,we'llhaveaconversationwiththem.Ifourcomfortleveldropsbelowacertainlevel,theywillnotbeasuppliertoTesla.


Great,thankyou.

Operator :

RodLache.

RodLache (Analyst-DeutscheBank):

Heyeverybody,acoupleofquestions.One,distributionandfranchiselawsintheUShavealwaysseemedlikethereareinitiativesthataregoingtoneedtobedealtwithatsomepoint.Doesthistrajectoryforcetheissue,oristhissomethingyoucanaccommodateevenwiththedistributionconstraints?


Firstofall,it'sworthemphasizingthatthewholedealershipthingonlyappliesintheUS.Wedon'tcarry




thatissueanywhereelseintheworld.

What'shappeningisdealersareusinga(indiscernible)legislationthatwasoriginallyputinforajustpurpose,whichistoprotectthemfrompredatorypracticesfromthefranchisor,andthenusingitforanunjustpurposewhichistopreventdirectdistribution.Webelievethatinthelong-termjusticewillprevail.


Okay.Butisthereaviewthatyoucanactuallyachievethisevenundertheconstraintsthatexisttoday,oristhatsomethingthatyoudoneedtoaddressinordertoachievethisplan?


Webelievethatthatisnotaconstraintonourabilitytoachievetheplan.


Okay.Thesecondquestionis,I'massumingthatconcurrentlywiththisplanthere'skindofalonger-termplanforgrowth,andthatthere'sgoingtobeaFremontNumber2,andIthinkyoualludedtofurtherexpansionofGigafactory.

Canyougiveusasenseofwhatyou'reaspiringtointermsofthetrajectorybytheendofthedecadeasyou'vedonebefore,andJason,Iknowyoudidn'twanttogetintodetailsonprojectspending,butitwouldbehelpfuljusttopassalongsomethoughtsonwhatneedstogointothecompanyintermsofinvestmentinordertogetthatsortofthingout.

Isitreasonabletoassumethatthenewlevelofspendingthatwe'reseeingrightnowissomethingthatweshouldassumeasbeingasustainedlevelgoingforward?

JasonWheeler (CFO):

Sure.Idon'twanttogointothedetailsofwhatwethinkthetotalcapitalcostisgoingtobefortheModel3program,butcertainlyaswecontinuetoramp,there'sgoingtobemorecapitalrequirementsofthecompany.That'sjustafact.IdeallyI'dliketofundasmuchofthataspossiblewithcashflowfromoperations,sothatisreallythefocusthatwehaveintheshort-term.


It'sfairtosaythere'sprobablya2020targetforvolumeisclosertoamillionvehiclesin2020,orsomethinglikethat.


Okay.Great,thankyou.

Operator :

CharlieAnderson,Dougherty.

Charlie Anderson (Analyst-Dougherty&Company):

Thanksfortakingmyquestion,justatwo-parterontheModel3reservationholders.IimagineformanyofthemthiswastheirfirstinteractionwithTesla,andmaybethefirsttimetheywenttoastore.AndIwonderasyou'velookedatthatbaseifthereisanypotentialtoupselltoanSorXintheinterimwhiletheywaitfortheircar,ifyouhaveaprogramsorplantoaddressthat?




Andthensecondarily,Iwascuriousifyouhaveanycoloronthegeographicsplitofthereservationholders?Thanks.

JonMcNeill(PresidentofGlobalSales&Service):

ThisisJon.Intermsofyourfirstquestiononwhetherornotthereservationholders,thiswastheirfirstinteractionwithTesla,justabout93%ofthereservationholders,thisistheirfirstinteractionwithTesla.Soit'sasuper,supermajorityofanewclientbaseorcustomerbaseforTeslaandit'sexciting.

Itwasexcitingwherewewalkedthelines,withpeoplewaitinginlineatthestores,andtheywereexcitedtobecomepartoftheTeslacommunityandfamily.

Andthedemographicsoftheowners,we'renotgoingtosaymuchaboutthat,buttheyareabitdifferentasyoucanimaginethantheModelSandtheModelXownerstodate.AnditpresentsanexcitingnewmarketforTeslaaswell.

AnditshouldbenotedthesefolksarenotinterestedjustonlyinTeslaMotors,butalsoTeslaEnergy,becausethepricepointoftheTeslaPowerwallisanaccessiblepricepointformanyofthesefolks,andsothey'reexpressinginterestinboth.

IntermsofSandXasabridgetoModel3,wearetalkingthroughandthinkingthroughthat,becauseasElonmentionedearlier,thequickestpathtoreceivingaModel3isbeingaTeslaowner.We'veagreedthatTeslaownersarereceivingpriorityintermsofproduction.

AndsoyoucanrunthemathIjustmentioned.It's93%arenewtoTeslaand7%ofthereservationholdersareTeslaowners.Andthefastestwaytogetaproductionvehicleevenin2017isthroughTeslaownership,andsowe'refindingthatthere'sagoodconversionrateoffolksthatarecomingintotestdriveanSoranX,whoareModel3reservationholders,andaremotivatedtobeTeslaownersnow,sothattheycanreceivetheirModel3earlier.


Animportantpointworthmentioning,wewerefairlyworriedaboutwhatwouldhappenwiththeModel3announcement.Woulditcauselikesomeabigdropin,say,ModelSsales?Itseemstohavehadtheoppositeeffect.ItseemsasthoughSdemandhasincreased.

JonMcNeill(PresidentofGlobalSales&Service):

Ithasincreased.IthinkyousawtheSdemandnumberinthefirstquarterwas45%upyear-over-year,andthatdemandcontinues.

Charlie Anderson (Analyst-Dougherty&Company):

Thankssomuch.

Operator :

EmmanuelRosner.

EmmanuelRosner (Analyst-CLSA):

Hi,goodafternoon.Iwantedtoaskyouguysaboutanyearlythoughtsontheneedformanufacturingextension?Obviouslyifyouaredoing500,000unitsby2018,Ithinkthat'stheoriginalcapacityoftheFremontplant,sodoyouneedtostartthinkingaboutanadditionalplant,andinthatcontext,anythoughtsontheglobalexpansionyouwerementioning,obviouslyverystrongincreaseinModelSorders




inAsia,forexample.Anythingyoucouldsharewithusatthispoint?


Ourplansforinternationalexpansionandestablishmentofnewplantsarespeculative.Wehaven'tmadeanyfirmdecisions.

ButsomeofthethingsarejustsortofcommonsensethatmanufacturingcarsinCaliforniaandthenshippingthemallaroundtheworldisnotaveryefficientthingtodo,particularlyasyougotomoreaffordablevehicles.

Soatsomepointit'sgoingtomakesensetohaveaplantinEuropeandaplantinChinaandprobablyplantsinotherpartsoftheworld.Sothat'skindofthenaturalthingyou'dexpecttodo.Itwouldn'tmakesensetoshipcarsfromCaliforniatoEuropeorCaliforniatoAsiainthosevolumes.It'snotanefficientwaytogo.

AndparticularlyaswesaturateonFremontvolumeintermsofsatisfyingdemandinNorthAmerica,justtosatisfydemandinNorthAmerica,forourfutureproductlineupwe'regoingtoneedmorethanoneplantinNorthAmerica,justtosatisfyNorthAmericademand.


Right,sowhenwethinkabouttheseextracapitalneedsthatyou'realludingto,inadditiontoobviouslythecostoftheModel3development,areyoualso[campaigning]aspartofthattoraisethemoneyforanextrafactorytotheextentthatjustbeyond2018youwouldalreadyneedsomeextracapacity?


Idon'tthinkwe'llberaisingmoneyfornewfactoriesbeforeweaddvolumeproductionfortheModel3.AndthenasJasonwassayingearlier,we'lltrytofindasmuchofthisaspossiblefromoperatingcashflow.


Gotit,thankyou.

Operator :

BenCallow,RobertW.Baird.

BenCallow(Analyst-RobertW.Baird&Co):

Thanksalot,Ihave18questions.ThefirstoneIhave,ModelXproduction,whereareweatrightthere,becausewe'vegotalltheseconsumerreportsissues,andIthinkthat'salittlebackdatedbutcanyoutalktousaboutthe[state]productionofthat?

NumbertwoontheGigafactoryandthebatterysizefortheModel3,Ithinkeveryone'sdividingby80kilowatthoursor75kilowatthourstothenumberofcars,andhowdowethinkaboutactuallytheModel3batterysizeandwhattheGigafactorycouldsupport?

AndthenthethirdquestioniswhyisBobLutzandJimChanos,theykeeponsayingsuchnegativethingsaboutyouguys.WhatdoyouhavetodotogetthedissenterstoactuallybelieveinTeslaalittlebit?Thankyou.


Ifeelconfidentthatwearegoingtohitthe2,000vehicleaweektargetbytheendofthisquarter,of




whichontheorderof40%areX.That'sourinternalplanandwhatweexpecttomeet.

There'snoquestiontheXisaverydifficultcartomanufacture.IthinkunquestionablythemostdifficultcartomanufactureintheworldandBobLutzwouldagreewiththat.Ithinkhesaidsomethingtotheeffectthathethoughtitwasn'tmanufacturable,orsomethinglikethat.

It'scertainlymanufacturable,it'sjustahardthingto[indiscernible]for.

Sowehavesomeinternalmilestonesthatwe'veachievedthatI'mprettyexcitedabout.Fridayat3amweachievedourfirstflawlessproductionoftheModelX,wherewewentthroughthewholeproductionprocessandhadzeroissues.Thatwasagreatmilestone.

(MultipleSpeakers)

Celebratingwiththeteamat3amFridaywasgreat.

Nowwe'restartingtogetseveralinarowthatareflawlessand…

(MultipleSpeakers)

--veryquickly,and(we)feelprettygoodaboutthetrajectoryofthatfact.

Asforconvincingallthenaysayers,thatwillbasicallybenever.There'salwaysgoingtobenaysayers.

(MultipleSpeakers)

WhatIfindironicaboutthenaysayersistheverysamepeoplewilltransitionfromsayingitwasimpossibletosayingitwasobvious.

I'mlike,waitasecond.Wasitobviousorimpossible?Itcan'tbeboth.


Gotit.AndtheModel3battery,we'reallanalystshere.Westaredownastraw,dividingby75kilowatthours.IsthattherightthingtodowiththeModel3,orshouldwehavealowernumberlike40kilowattsor45?

Andthenyou'vegottheguywiththeVoltmakingthatcar,sayingthatit'sgoingtobeaheadofyouguysandsellforcheaperthanyou,andsohowdoIthinkaboutGMbeingabletomakeacarcheaperthanyou,versusmakingamarginonaTeslawithalowerbatterycost?Ifthatmakessense.


We'renotgoingtogetintorealspecificsonbatterypacksize,butIthinkit'sfairtosaytheaveragebatterysizeforthe3willbelessthan75-kilowatthours.


I'msorry,whatwasthat?


Theaverageenergycontentofa3packisstillgoingtobelessthan75.Itdoesn'treallyneedtobeanywherenear75toachievetherangeof215miles.Wedon'twanttogetintothenitty-gritty,it'sprobablyunwise.

JBStraubel(CTO):




Youprobablydon'tneedtofixateonthe35gigawatthours.We'replanningtheGigafactorytomeettheproductionneedsoftheenergythatweknowthecarswillneed.Sothere'snotaprobleminscalingthatasweneedto,soobviouslyinternally,weknowthemathandweknowwhatweneedtodoandwe'reontracktodoit.


Iguessmy18thquestionis,I'mnotacarguy,soIhaveyouguyshaving40,000unitsoftheModel3in2017.Fromyourcommentary,itseemslikeIneedtoraisemynumbers,buthowdoIthinkaboutthatrampupfromzeroto500,000over,let'spushitfrom2018on?Doesitgofromzeroto500,000overtwoyearsoroneyearorhowdowethinkaboutthat?


Obviouslyifwe'resayingthatTeslawillhavetotalvehicleproductionontheorderof500,000carsin2018,[can't]bemorethantwoyearstogetthere.

ProductionrampslooklikeanS-curve.It'sextremelydifficulttopredictwithprecisiontheearlypartoftheS-curve.IntheearlypartoftheS-curve,itstartsoffveryslowandthenitincreasesexponentially,movestoalinear,andthenmovestoalogarithmic.Soit'sreally…

(MultipleSpeakers)

…incrediblydifficulttopredictexactlywhattheshapeofthatS-curveis.

Andthat'swherethingsgettricky,becauseyouendupputtingquarterlyresultskindof(bracketing)somewhereonthatS-curve,anddependingonwhereyouareinthatS-curve,itcanactuallylooklikeabigdifference,butactuallyitcouldbeashiftofa[BackgroundNoise]becauseoftheexponentialnaturethebeginningoftheS-curve.


My19thquestion,canyoumake(15%,50%)grossmarginonit,or20%grossmargin,orhowdoyouthinkaboutmarginonit,becausepeoplethinkyoucan'tmakeit(BackgroundNoise)profitably.


We'rehighlyconfidentthatitcanbemadeprofitably,anddesignformanufacturingandeconomiesofscalearethekeystoachievingthatoutcome.

GMisnotaimingforanythingnearthevolumesthatweare.Anddespitebeingabigcompany,theireconomiesofscalearegoingtobedrivenbywhateverelementsareuniqueintheirEV,andweknowforafactthattheywillnotgettheeconomiesofscalethatwewillbeatforModel3.


Great,thankyou.

Operator :

DanaHall.

DanaHall(Analyst-BloombergNews):

Hi.Whatisthemixin2018ofthe500,000cars?It'scombinedS,X,and3.Shouldwethinkofitaslike300,0003,orwhat'sthemixofthosethreevehicles?





Idon'tthinkwe'vegotanamazingcrystalballtofigureoutexactlywhatit'sgoingtobe.Ifeelconfidentaboutthetoplinenumber,butthemixinternally,itisdifficulttofigurethatout.Maybeit'ssomethinglike100,000to150,000SandX,andthenmaybe300,000to400,000of3,Idon'tknow.It'sreallyhardtosay.


Hardtosay?Okay.Andthenifyoutrytoattracttopmanufacturingtalentasyoubegintoramp,haveyougivenanythoughttotryingtohireaCOO?I'mjustthinkingaboutyourpersonallifebetweenTeslaandSpaceXandsleepinginasleepingbagandworking90hoursaweekbetweentwocompanies.SpaceXhasagreatCOOandhashadonesincethecompany,foryears,butTeslaneverhas.


ThescopeofTesla'spresentactivityisbroaderthanSpaceX.SpaceXismoreofapuretechnologycompanyanddoesnothavethesales,service,andfleetmanagementandcustomerfinancingandallthatsortofstuffthatTeslahas.

ObviouslyJonMcNeillhasthatroleatTesla.Myfocusisprimarilyontechnology,design,andmanufacturing.SoIthinkwecertainlycanexpecttherewillbeannouncementsinthefutureaboutsomegreatexecutivesjoiningtheranks.


Great,thankyou.

Operator :

PhilLeBeau.

PhilLeBeau (Analyst-CNBC):

HiElon,Ihaveaquestion,itwasabout10minutesago,youmadereferenceto1millionvehiclesin2020.Isthataproductiontarget,aproductiongoal,orahypothetical?I'mjustlookingforsomeclarificationthere.


That'smybestguess.Ifwe'rehalfamillionin2018androughly50%-ishgrowthfromthere,thenit'sprobablyaroundamillionin2020.


Anddoyouhaveanestimateastohowmanyproductionplantsyouwillneedinordertomakethathappen?


Ithinkitisactuallyfeasible,maybenotadvisable,butfeasibletodoitwithjustFremontandtheGigafactory.WeactuallybelievethattheFremontandtheGigafactorycouldscaletoamillionvehicles.Whetherthat'sactuallywiseisaseparatequestion.

AsIsaidearlier,it'sgoingtomakesensetodolocalizedproductionatleastonacontinentbasis,otherwiseyourlogisticscostsendupbeingquiteextreme.Yourlogisticscostsstartbecomingabiggerandbiggerpercentageoftotalvehiclecosts.




That'sreallywhymanufacturersbuildtheircarsforalocalmarket.Theybuildcarsforamarketinthatmarketbecauselogisticscostsassociatedwithshippingoneandahalftotwotonvehiclesaremassivelythegreaterthan,say,shippingalittleconsumerelectronicsdevice.


Great,thankyou.

Operator :

AlexSage.

AlexSage (Analyst-Reuters):

Hi,canyouhearme?Elon,yousaythatyou'recallingouttothebestmindsofmanufacturingtojoinTesla,butatthesametimeGoogleandApplearegivingoutthesamecall.IwonderwhatyouwouldsaytothesepeopletohavethemjoinTeslaovertheseothercompanies?

ThesecondquestioniswhetheryouhadanytakeawaysintermsofyoursuppliersintermsofthisHoerbigerexperience,andhowyoucanholdthesesuppliers'feettothefireonsomeofthesemorecomplicatedtasksthatthey'reaskedtofulfill?


Inresponsetoyourfirstquestion,I'mnotsureyou'reappreciating--AppleandGoogledonotmanufacturethingsthemselves.


Right,buttheyarehiringmanufacturingpeople.


Todowhat?


That'sagoodquestion,buttheyarehiringmanufacturingpeople,peoplewithmanufacturingexperience.


Teslabelievesstronglyinmakingthings.Theydonot.That'sfine.It'saphilosophicaldifference.

Webelievethatmanufacturingtechnologyisitselfsubjectto[transmatter]innovation,andinfactwebelievethatthere'smorepotentialforinnovationinmanufacturing,thanthereisinthedesignofthecarbyalongshot.

Nowthisisjustaphilosophicaldifference.Perhapswearewrong.Butwebelieveinmanufacturingandwebelievethatacompanythatvaluesmanufacturingashighlyaswedoisgoingtoattractthebestmindsinmanufacturing.


Okay.





Ithinkthat'sallthetimewehave.


Thesupplierquestion?


Idon'tunderstandwhoyouarereferringto.


Hoerbiger?


Notfamiliarwiththatname.

We'recertainlygoingtodoourbesttoensurethatwehavehighconfidenceinthesuppliersontheModel3program.Thosethatdidn'tperformverywellon,say,priorprogramsareunlikelytobeselectedfortheModel3program.

Operator :

AtthistimeIwouldliketoturnitbacktoMr.JeffEvansonforanyclosingremarks.


Thankyoueveryoneforjoiningustoday.We'lltalktoyouinaquarter.Byebye.


Allright,thankyou.

Operator :

Thisconcludestoday'sconference.Youmaynowalldisconnectandhaveawonderfulday.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.

tesla motors (tsla) earnings report: q1 2016 conference ...welcome to the tesla motors first quarter...

Documents