Key Takeaways from Tesla’s Q2 2019 Earnings Call

  • Model S is MotorTrend’s Car of the Year – “Most Coveted Award”
  • By end of year expected to be producing Model 3 in volume at Gigafactory Shanghai for the Chinese market
  • Preparations for Model Y have begun, expected to be easier to ramp for production (3/4 of all parts shared with 3)
  • Manufacturing cost to be about the same for Model 3 and Y
  • Tesla is doubling all cumulative production every year, expanding at an exponential rate
  • Time to wait for parts and collision repair significantly improved, with in-house collision repair improving customer happiness
  • Tesla is at the point of self-funding, will be pre-cash flow positive in future quarters with the exception of quarters where the company launches new products
  • Expect to be around break-even this quarter, profitable next quarter
  • Deliveries: expected 360,000-400,000 for this quarter
  • Q2: record production and deliveries, gross margin improvements, strong pre-cash flows, raised $2.4 billion in net proceeds, ended quarter with
  • $5 billion in cash and cash equivalents
  • Automotive growth margin only reduced slightly with price changes
  • Average sale price for Model 3 is $50,000 with an improved gross profit per car
  • Autonomous driving suite to continue to develop over next six months, with more Full Self-Driving features expected
  • Takeaways from the Q&A:

  • Tesla is lowering car costs to ensure more people can afford to buy them, despite the strong value. Elon refers to the Standard Range Plus as the base Model 3, by saying it costs $1,000 more with the expiration of the tax credit. “Making Tesla more affordable is part of the Tesla mission.”
  • Expected Model 3 gross margin will continue to grow over time.
  • Uptake rate and revenue recognition for Full Self-Driving will continue over time, as price increases to $7,000 in mid-August
  • Tesla opening service centers as fast as they can, with 25 new centers open this quarter
  • Shipping parts same day to ensure people don’t have to wait, with more service improvements on the way
  • #1 service visit is an explanation on how to use Autopilot
  • Tesla will source cars from Fremont until they have an operational Gigafactory in Europe
  • Global demand for Model 3: 15,000 units/week
  • Q3/Q4 next year to be “incredible”
  • Some “cannibalization” of Model S/X due to Model 3, overhaul for S/X not coming but the newer models (refreshed this past quarter) are significantly better
  • Most of the fleet has not purchased Full Self-Driving yet, with significant potential for the Tesla fleet to upgrade as features are rolled out
  • 30% gross margin likely in about a year, with significant cost reductions on Model 3 each week
  • Tesla’s priorities in the future are Model 3 and Model Y, not Model S and Model X
  • Expected 2 million units from 3/Y per year, with S/X at 80-100k units “from volume standpoint not all that important in long term”
  • Full Self-Driving expected to be offered everywhere except the European Union due to regulatory committees and approvals that need to be changed

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