Published on October 24th, 2018 | by Kyle Field0
Liveblog: Tesla’s Q3 2018 Earnings Call
October 24th, 2018 by Kyle Field
CleanTechnica is on Tesla’s Q3 2018 earnings call starting at 3:30pm Pacific on October 24th, 2018. You can livestream or listen to the recording here and we will be live blogging the action as it happens. From the quarterly letter, we already know that Tesla has turned a profit, riding on the sharp uptick in Model 3 production and delivery numbers in the third quarter.
Refresh the page throughout the call to see the latest updates.
Chart by Søren Jessing
Elon opened the call with his usual round of opening remarks. He’s clearly stoked on the work the team at Tesla did in Q3, which led to their profitability. He noted that it was a ‘historic’ quarter for the company.
Elon: We expect to sell even more Model 3s in Q4 than Q3. In Q1 2019, we intend to bring Model 3 to Europe.
Elon: The Model 3 is, “the car with the lowest probability of injury of any car the US Government has ever tested.”
Elon: “We really try to go the extra mile with vehicle safety.” He said that most manufacturers game the system when it comes to safety and build their vehicles to do well in the tests instead of just building them to be as safe as possible. The tests don’t even show how safe Tesla’s cars are since Tesla ‘anti-games the system’ to make them as safe as possible.
Tesla’s lead vehicle safety engineer, who has been with the company 10 years, talks safety. Safety is their #1 priority. EV architecture offers a fundamental safety benefit over conventional vehicles.
“Architecturally, we have Newton on our side. And having Newton on your side is the way to go.”
The safety also applies to pedestrians.
Zach Shahan: This is not the first time Tesla has used the beginning of a momentous presentation to focus on safety. Seems to indeed be their #1 priority.
Safety: They focus on the weakest part of the car, and try to improve that.
Kyle Field: CleanTechnica published our own EV safety report, which shares why EVs are safer. To learn more, head over here.
“Safety is boring, but not at Tesla”
Next up: Autopilot: Software, AI, Hardware.
Navigate on Autopilot is built on Tesla’s long built neural networks.
Kyle Field: Navigate on Autopilot was supposed to be included in Tesla’s firmware v9.0, but was held in the 11th hour. It is already being used by members of Tesla’s Early Access program.
“A company’s customers cared about the company so much that they actually volunteered to help the company succeed. You just don’t see that anywhere.”
FSD still available as an off-menu item.
Andrej Karpathy (Director of AI at Tesla) is talking now. The team is incredibly excited about the upgraded computer for Autopilot.
Kyle Field: Me too!
They are working to make their networks bigger to improve accuracy. You simply have to have better/bigger hardware for that.
This surely dwarfs the hardware in any “comparable” cars.
Elon: Tesla sees the future as very focused around vehicle sharing.
Tesla’s new service will be a combination of Uber/Lyft and Airbnb.
People will be sharing their cars like they share their homes on Airbnb today.
Tesla is the only company that has cars capable of full autonomy, and thus has a big leg up in this sharing future.
OSHA completed investigation into whether Tesla was under-reporting injuries, and the investigation found nothing wrong and that Tesla is doing things as it should.
A year ago, the injury rate at Tesla was already a fraction of what GM & Toyota’s was when the NUMMI factory was theirs.
Switching to questions now, after ~20 minutes of introduction.
Question: Is demand outpacing supply of battery cells and what’s your plan for self-supply in Sparks and in China?
JB: We have not had a situation where demand is outpacing supply yet. There have been some issues on the Energy side, where they outsource battery supply. Panasonic continues to work to ensure sufficient battery supply.
In the last several weeks, we have started up another cell production line with Panasonic. We’ll have another online by the end of the year and another cell production coming online next year.
20GWh global supply of lithium batteries. Tesla produced just over 20GWh by itself, so just over half of all lithium batteries.
Question: Are there plans to self-supply battery cells in China?
Short term, probably not. Long term, certainly.
Deepak Ahuja (Tesla CFO): “We are going through this phase where we’re now stabilizing production and the team can now focus on cost optimization.”
Question: How did you decide to offer the Limited Edition Mid-Range (LEMR) version of the Tesla Model 3?
Elon: We wanted to make a lower cost version of the car available to customers.
Model 3 coming to Europe in Q1 2019 for sure and to APAC in 2019 Q1 or Q2.
Question: What is global demand for Model 3?
Elon: On the order of 500,000-1,000,000 vehicles per year, globally. The BMW 3 Series is ~500K but Model 3 is better.
Tesla will try to build higher volume cars for its customers at least on the continent where they will be sold and used.
Question: Do you have a better idea of what capex is required to get Fremont to full production?
Elon: we are not prepared to speak to that, but it will be much less than what it took us to get to 500,000 cars per year. Long term, we expect 7,000-10,000 Model 3s per week from Fremont.
When you have an exponential growth curve like we do, a small shift in calendar time one way or the other can look like a huge miss.
Question: Can you comment to the expectations are of the Model 3 mix in Europe as the market for mid-sized luxury cars there is roughly twice that of the US?
Tesla expects high demand for AWD options in Europe due to the geography and weather in the region.
We will have to just start selling the car there to see what the demand will actually be.
Question: Are you slowing down the company growth rate just to achieve profitability? (paraphrase)
Elon: The answer is no. “I recently approved the production prototype of Model Y. We also continue to make progress on Semi and the new Roadster. The car I’m personally the most excited about is the Tesla Pickup Truck. That’s going to be some next level stuff there.”
Question: Is your long term plan to allow companies to write applications to use the car for a specific application?
Elon: We try to do things that maximize usefulness so if third parties find a way to do that, maybe. I do know that Tesla will operate its own ride hailing service like Uber and Lyft. We will also have a way for customers to add or remove their car to the fleet. There will be a Tesla-owned fleet and a customer-owned fleet.
Adam Jonas from Morgan Stanley asked about what Tesla is looking like in a new Chairman. Elon declined to answer as it is not related to earnings.
Question: Are there any patterns in trade-ins that Tesla is noticing?
Elon: for most people, it is the most expensive car they’ve ever bought.
Deepak: The price gap is far beyond the rebates. Customers are willing to pay a significant amount more to drive a Tesla.
The top reason to refer your friend is to keep him safe.
Question: Do you think of the third quarter as a milestone where Tesla becomes financially self-funding and not in need of outside capital?
Elon: We do not plan to raise outside equity or debt. That may change in the future. The current operating plan is to pay off our debts and reduce the overall debt load of the company.
We’re making on the order of $75 million in products every day. So every day of inventory we hold on hand is $75 million that we can’t use. Having local factories is extremely important in the overall capital efficiency of the entire system. We’re trying to get to a time of manufacturing completion to delivery of 7 days, globally.
Deepak: Reduce raw material inventory through better in-house management and supply chain.
Elon: It sort of profoundly changes the financial effectiveness of Tesla.
Elon: If all Tesla did was shorten the time between the vehicle is manufactured and when the customer gets it, it would outperform all other companies.
Kyle Field: Wall Street is responding well to a profitable Tesla, resulting in a surge in the stock in after-hours trading:
Question: Where would a $35k Model 3 be in terms of gross margins today and where does that need to be before you want to offer that broadly to consumers?
Elon: It is a rapidly changing situation. There is no question that we need to get to the point where we can sell a $35k car.
Question: What is the current cost of batteries and what does that look like moving forward?
Elon: It’s safe to say that we’re much better than everybody else.
Elon: Long term, I would expect Service to be a significant line item. Right now, we’re under warranty with most cars but as that transitions to more non-warranty cars, we expect that to become more profitable.
Deepak: For many car companies, Service is a significant line item. We are at the learning stage of our business.
Question: What does demand for the Model 3 look like with the Standard Range version is offered next year?
Elon: As we’re able to offer lower cost versions of each car, we expect that to sustain demand in the US. We’re not holding back the lower cost version of the car intentionally. That’s how we came up with the Limited Edition Mid-Range car last week. If we could do the smaller pack now, we absolutely would. Customers will probably see cars with the smaller range battery pack in February or March or something on that order.
Elon: The Model 3 has the highest efficiency in terms of miles per kilowatt-hour of any all-wheel drive EV out there. Combine that with us having the lowest cost per kilowatt-hour for our batteries and that is a pretty significant competitive advantage.
Elon: We really encouraged our competitors to make a big investment. They’re really in the position they’re in because they wouldn’t take our help.
Elon: They can use our Supercharger network, just make an adapter for it. The fact is that we made the investment in the Gigafactories and other companies didn’t. We made the investment in efficient drivetrains and other companies didn’t.
The earnings call can also be heard on the YouTube channel of CleanTechnica’s Chanan Bos: