For anyone unable to listen in to the call, I am going to try and capture the contents of the call and Q & A.
Elon and Deepak are on the call.
replay available later today.
Jamie Albertine Spiegel
Going back to last Q2 margin visibility. Given the expanision of margins, what kind of outlook is there in the 4Q
Elon: We expect to track to 25% gross margin excluding ZEV credits in the Q4 except for force majeure.
And we'll deliver more cars.
We are really still production constrained, not demand constrained.
Elon: We aren't doing anything to amplify demand. We are trying to figure out how to ramp up production faster, while improving the product.
Follow-up: What does your feel on the current line capacity look like compared to three months ago?
Elon: The main constraint is the CELLS. I eluded to that previously. We've addressed that and other non-cell constraints.
We announced the Panasonic deal for a much improved volume. Cells are the biggest item and it gets most of our attention.
Q: Craig Erwin, Wedbush - Philosophical question: Cost of your drivetrain is more or less at parity with ICE vehicles. When you look at the GEN III, do you still want to price at a premium? Benefit from ROI for cheaper fuel in the tank? Discount vs. conventional competition?
A: Elon $35K price point is still the goal. IT's effectively buying an ICE car for $28K or EU for $22K. We are getting better at our lease rates. I think our residual value is going to be VERY good. I think long term, like Solar City, leasing is the path to go for electric cars since it brings the cost of transportation immediate.
A: Gas cars require lots of maintenence. Leasing you don't need to worry about battery life. Leasing will be the main way to buy our car.
Q: Over the intermediate term, can you discuss the bredth of projects. Is this consistent?
A: In 2014 we will expand the model S deliveries to Asia and broadly to EU and other parts of the world. Intl expansion and volume production expansion and the Model X. Building out a next generation production line for the S and the X.
Next year we'll be doing the styling of the GEN III. It's going to take us a while to build out capacity for GEN III. If we are going to produce 500K vehicles a year, we're going to need cell capacity = to current cell capacity worldwide.
Q: How do you see the ramp and how you'd look for the stagger in the supply agreements to work?
A: People shouldn't look at x # of cells over 4 years. I think that we'll need other agreements with Panasonic and maybe with others. Panasonic is our Primary partner. GEN III will need incremental battery production capacity. There is going to need to be a giga factory built.
Q Dan Galves Deutch Bank - current level of demand. Customer deposits went up in Q3. Can you quantify how many orders you took in Q2 v Q3? How is US demand? Where is EU?
A: US Demand has continued to increase. We had to starve US demand to feed EU. We constrained deliveries to the US. We could sustain 20K cars a year in North America. Maybe more than that. It doesn't make sense to amplify demand. It just makes people unhappy. In EU, we are where we were in the US in January 2013. On the order of 10K units/year. But we aren't driving demand higher. We are laying the groundwork for huge demand increase. We can get demand in the EU to North American demand levels.
Q: Where do you see production per week for the next few quarters? Cars on ships?
A: As deliveries to EU increase, in-transit increases. Same for Asia. 60% of our sales will be going outside the US including gulf states, South Africa.
In terms of that being a capital issue, we can get low cost funding for inventory in transit. These cars are going to "customers" it's not speculative. We are shipping their car.
Q: Beijing announced further license plate issuance. 20K units are reserved for EVs increasing to 70K in 2017. Will TSLA vehicles qualify and what do you need to do?
A: Sure. We are a pure EV so I'm sure we'll qualify. We've done a soft opening of our store in Beijing. We are aiming for February. We've passed all China homologations and approvals from authorities to ship the car. First cars on the boat in January, if all things going according to plan.
A: We want to lay the groundwork for service centers etc in China. We're not even trying in China yet. Just word of mouth at this point. (Deepak jumped in to agree)
Q: Andrea James Doherty & CO - You have a great track record with insourcing. Would you build your own battery cell plant?
A: We aren't quite ready to make an announcement but we are exploring a lot of different options. If i had to guess we'd likely use partners. Factory would be in NA, but we are exploring other options.
A: Cell production is the single biggest constraint. I think we can ensure that everything else is faster than cell constraint.
Raw materials are not the constraint. There's lots of lithium out there. Nickel, Cobalt, Aluminum and then lithium is just 2% of pack mass.
Battery factory is BIG news...
Q: Elaine Quai = Does the panasonic agreement require a new factory?
A: I think as far as next year is concerned, they've got it covered. High confidence that they can deliver on their commitment.
Q: Still on late 2014 for X?
A: A few units at the end of next year, high level will be Q2 2015. Volumes comparable to Model S and maintaining Model S production.
Battery factory is BIG news... agree!
Q: What is the agreement with Daimler?
A: B Class. In high volume. Most compelling affordable electric car on the market. It doesn't make sense if we are cell constrained to find ways to get rid of cells.
Q: What you've learned from logistics shipping to EU, have you got that ironed out?
A: Yes. Initially, there were a fair number of challenges. We are ramping up our investment in our Tilberg plant, and making it more efficient.
There are also challenges with the electrical system and grid. Every country has their nuances, which consumers experience with the plethora of plugs.
Norway is highest sale per capita. Fair amount of effort to charge in Norway.
Deepak: We delivered over 1000 cars in 2 months. This is a significant achievement.
Q: Rumor is you are shipping to Holland for tax purposes?
A: There are some credits that might expire like in the NL, so if there is a danger of a credit expiring, then the right thing to do is accelerate deliveries. They extended the credit so now that won't be an issue. Now we are in "Normal" delivery mode.
Q: What about the new battery factory?
A: This isn't the right time to talk about our plans for gigafactory. One needs to be built and we are looking at several locations. This will be a "green factory" zero emissions, no toxic elements coming out of the factory. Old pack come in one end and come out with new packs.
This is going to be a giant facility. Something comparable to all lithium ion production in the world, in one factory.
Adam Jonas MS - Q3 or Q4 from true-ups from suppliers who've been gouging?
Deepak A: no such luck. There are no one time benefits from suppliers.
Q: What is the wait time for delivery in EU and China?
A: 6 weeks from manufacture to get to the customer. NL gets the car for final assembly. 3-4 months is the wait right now. If you order in China right now, you'll take delivery mid to late Q2. Order soon since that wait time may be accelerating. The longer you wait the longer you WILL have to wait?
Q: Road trip?
A: Looks like we'll do that trip during spring break due to kids schedules. Going cross country during the shortest days of the year doesn't make sense for the kids.
The gigafactory battery sales will dwarf Tesla's auto sales by a large amount in the coming years... this is very significant news. Part 6 of the trilogy...
A: The car sheared off 17 feet of wall and then crashed into the tree.
Q: Do you think we could be hitting a point where early adopters are done and deamnd is leveling?
A: NO. There is a huge potential for growth in NA.
Deepak - Huge increase in reservations in NA, but we just changed our delivery mix to increase worldwide deliveries.
Does that mean the wait time is lengthening in the U.S. as well?
Q: How should we think of free cash flow?
Deepak A: We prefer 2014 guidance during the next call, but we will generate a huge amount of cash through sales. Depends on how much we accelerate development. WE will give a granular sense of this in the next quarter.
Elon A: Steady modest improvements in accumulating cash, relative to the rest of the auto industry. If we can generate cash while ongoing growth rate, that seems like a good outcome.