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tesla, inc (tsla) ceo elon musk on q1 2019 results - earnings call transcript

by:Xingfa      2019-11-08
Tesla, Inc (NASDAQ:TSLA)
At 5: 30 p. m. on April 24, 2019, ETCompany participant smartin Viecha-2019 Earnings Conference Call
Senior Director of Investor Relations Musk-
Chief Executive Officer. B. Straubel -
Chief technology OfficerZachary Kirkhorn-
Chief Financial Officer chang chanson
General counsel Jerome Gillen-President of the automotive department attending the conference
Adam Jonas-
Morgan Stanley Maynard
Aliyan Jarvis
Wolf Studies Tony saconagi
Piper JaffrayPhilippe Houchois-
Goldman Sachs-Rothschild
OppenheimerJoseph Spak-
Royal Bank of Canada
Ladies and gentlemen, welcome to Tesla Q1 2019 financial results and Q & A webcast.
My name is Shirley and I will be your coordinator today. [
Operation instructions]
As a reminder, the meeting is being recorded.
Sir, I want to transfer the phone to your master now.
Martin Viecha, senior director of investor relations. Mr.
You can continue now.
Thank you, Shirley. Good afternoon.
Welcome to Tesla\'s 2019 Q & A webcast in the first quarter.
I joined Elon Musk today. B.
Straubel, Zachary Kirk Horn, and some other executives.
Our results for the first quarter were announced at about 2. m.
Pacific time in our updated letter posted on the same link as this webcast.
In this conference call, we will discuss our business prospects and propose-
Look at the report.
These comments are based on our predictions and expectations today.
Due to some risks and uncertainties, there may be significant differences in actual events or results, including the risks and uncertainties mentioned in our recent submission to the SEC.
In the process of asking questionsand-
In the answer section of today\'s call, please answer only one question and one follow-up questionup. [
Operation instructions]
But before we start the Q & A, Elon has some opening remarks. Elon?
Thank you, Martin.
On Monday, we held our first ever autonomous investor day, showing off our new investments
Fully autonomous house design
Driving computers and artificial intelligence
Basic Software trained by more than 400,000 Tesla cars.
Today, all Tesla-level vehicles have all the hardware they need to be completely self-contained.
Driving and year-round updates will enable our customers to use Tesla ride-
As we said a few days ago on the days of autonomy, we believe that the annual income is between $10,000 and $30,000, and in some cases, probably more.
We are the only company in the world that produces our own vehicles and batteries and our own cars and batteries
Completely self-contained house chipdriving.
We are in a different position than the rest of the industry.
In 2020, we expect 1 million robo taxis to be on the road and provide the hardware needed to be fully autonomousdriving.
We believe we will have the most profitable automated taxi in the market, perhaps-yes.
Last quarter, our delivery volume in Europe increased significantly, similar to the situation in North America last year, and the number of deliveries to China also increased significantly.
This is a great challenge as far as the challenge is concerned, as we have booked the vehicle and consumer support.
The rapid growth in overseas volumes has strained our logistics business, leading to more than half of our global deliveries taking place in the last 10 days of the first quarter.
This is the most difficult logistics problem I have ever seen, and I have also seen some tricky problems.
So I\'m going to say it again, like half of the vehicles we originally delivered, or half of the deliveries happened on the last 10 days of q1.
Therefore, a large number of vehicle deliveries are transferred to the second quarter, which of course has a negative impact on first-quarter net income.
As we said, we are unable to deliver the vehicle to the customer in a timely manner.
In response, we are balancing our vehicle bills across the region throughout the quarter.
This will make-this will reduce the pressure on Tesla to bring a better delivery experience to our customers and have a very positive impact on our working capital in the middle of this quarter.
In the first quarter, Model 3 was once again the best --
Selling premium cars in the United StatesS.
Nearly 60% higher than runner-up.
It is worth mentioning how absurd this is compared to what was predicted a few years ago.
There\'s hardly the best knowledge to predict, and electric cars will be the best if you go back 5 or 6 years ago --
Selling premium cars in the United StatesS.
We believe we will be the best over time.
Sell premium cars around the world.
In fact, in Norway, in the third month, we recorded the highest sales volume ever.
This is similar in Switzerland.
So, this is really an incredible achievement for the Tesla team.
Since the introduction of the standard range, the standard range class, only 70% of the previous Model 3 is actually non-
High-end cars, people actually pay more for cars than they pay for them.
They never thought about spending so much money on a car, but since they want Model 3 more than ever, they are willing to spend more money on Model 3
Keep in mind that the global expansion of Model 3 has just begun, and this part is much larger in the world than in the United States. S.
We are continuing to make significant improvements to our vehicle lineup, including the renewal of the S-and X-production lines to achieve the culmination of the next generation of power systems.
So, we announced this yesterday, and we are now producing a more balanced power system for Model S and X, as well as an upgrade to the suspension system, in order to have active adaptive damping in the suspension system and be able to charge at a speed of 200, there are other minor changes.
This is a great time if anyone wants to upgrade their Model S or X.
We \'ve also launched a loyalty program where if someone is an existing Tesla owner and they buy a Performance Model S or X, they can get the first upgrade for free.
So this is-yes, as a thank you and appreciation to the existing Tesla customers.
So, they have a long range.
Model S now has a 370-mile voyage.
This is actually in the range of 370 miles, the car trend test drove the car a few days ago, and flew directly from San Francisco to Los Angeles at normal highway speed, they can even go faster, they are also against the wind.
So, it\'s amazing that electric cars can keep driving between the two largest cities in California.
I mean, I never came back when I was driving a petrol truck and I always had to stop at the gas station.
With rare exceptions, this is really better than a petrol car.
Electricity has also increased, accelerated faster, and is better in all aspects.
We were able to increase the size of the battery pack, which proves the power system team and also that we were able to improve the efficiency of the power system by such a large margin.
Therefore, with the recently announced product improvement of Model S and X and the continuous expansion of Model 3 around the world, we expect the order rate to increase significantly throughout the year and be commensurate with our production level.
I am very excited about the future of other products, especially for the full self
As we know, driving will fundamentally change transportation.
Tesla semi-truck type Y, improvements to Powerwall, Powerpack, solar roof version 3 in terms of energy.
There is no doubt that Tesla has the most exciting product roadmap for any consumer goods company in the world.
Finally, I would like to thank our staff for their excellent work and for the support our customers have always had.
Thank you very much, Elon.
I think Zachary would like to make some comments as well.
Zachary KirkhornYes, Thanks, Martin and thanks to Ellen.
Overall, as we reflect on the progress of Q1, this is one of the most complex quarters I can think of in the history of the company, and even by Tesla\'s standards, it is ambitious.
The global expansion of Model 3 was a huge theme for the quarter.
We launched the standard series of Model 3 product transformation from Model S and Model X, elon just talked about and suspended the upgrade, and then we implemented various price adjustments, and strive to have a corresponding impact on the order mix for the delivery of the car.
So I would like to briefly discuss two key topics and then we will be open to Q & A around cash and profitability for this quarter.
First of all, on the cash side, we withdrew from the first quarter for $2.
2 billion cash and cash equivalents. This was a $1.
A decrease of 5 billion from our final cash balance of 2018 was due to two factors.
First, we paid $0. 92 billion in convertible notes in March 1.
Note that for those of you who want to view the cash flow statement, $0. 188 billion of this flows through our operating cash flow.
The balance is $1.
The 5 billion reduction exceeded the interpretation of the impact of expanding the operating capital of overseas Model 3 operations.
The two components we have discussed are that international business will naturally receive additional working capital due to the time of transportation, but the pressure on us to deliver operations also means, not all cars will be delivered, both of which occur in q1.
We do not expect to repeat in the second quarter and we expect our end-of-quarter cash balance to continue to increase.
I will also note that we followed the maximum number of deliveries in the first month of the company\'s history in April.
In terms of working capital, as Elon noted, 50% of our first-quarter delivery took place during the last 10 days of the quarter.
This is because we gave priority to international architecture in the first half of this quarter, and then the United StatesS.
Local construction in the second half.
This led to a binary inflow of Model 3 cars into EMEA and China, with a significant emphasis on delivery business.
In Shanghai and Beijing, we are also facing important issues and working hard to address them, but this has also biased delivery for the last few days and weeks this quarter.
So we are working on this through regional balance and we have implemented this in Model 3 and S and X will be implemented in the next week or two.
The second benefit of this is that it enables us to run stable operations throughout the quarter.
Therefore, we do not have to staff many of the fleet\'s delivery areas and logistics operations.
We expect this to save a lot of money.
In terms of P & L, we paid $0. 188 billion
Time adjustment resulting in net income.
Of these, $0. 12 billion is related to the S and X pricing adjustments we announced on February 28.
This includes potentially increased reserves to return the remaining value guarantee and vehicle repurchase guarantee, as well as adjustments to the inventory value of our used Tesla inventory and service volumes.
Additional costs associated with restructuring and other costs for the first quarter amounted to $67 million.
One thing I would like to point out here in the car business is that car revenues are negatively affected by $0. 501 billion, which is because I have just noticed an increase in reserves for S and X.
If you adjust this, the revenue decline from the fourth quarter to the first quarter is roughly the same as the drop in delivery.
In the range of gross profit margin of the car, the Model 3 gross profit margin dropped slightly, about 20%.
These are caused by two factors.
One is the price adjustment we made in February 28, and the temporary adjustment of the standard series we launched.
We have also successfully implemented a number of cost reductions that offset this impact, and the warehousing and scrapping of Labor content is an example of a double cost reduction
Digital improvements from the fourth quarter to the first quarter.
Despite the introduction of standard range differences, we would like to point out that ASPs in North America are close to $50,000 and most of our orders are from long-
Series bearing of Model 3.
In S and X, the impact on profit margins is more significant.
Two main parts here are the reduction in volume resulting in a reduction in fixed cost absorption, which affects our profit margin and the pricing actions we took in February 28.
Although S and X have been in production for some time, we continue to make operational improvements there, for example, quarterly improvements in labor contentover-quarter.
As we look forward to the future, I agree with Elon about the excitement of our product lineup.
From a financial point of view, what we are effectively doing here is building an incredible knowledge and asset base that we can quickly scale and replicate to different products around the world.
Shanghai is a good example.
As we pointed out in the letter, compared with the Model 3 in the United States, the capital expenditure of Shanghai Giga has brought about 50% capacity. S.
Then, the 50% internal forecast that we are executing is actually better than that.
As we have pointed out, the Y Model is built on the Model 3 platform, so we can use the knowledge there to expand capital efficiency.
In terms of energy, as we pointed out earlier, 2019 is an important year for storage, so many exciting improvements will help to increase profit margins, because we can make better use of some of the assets we plan to invest in this area.
So at the end of my opening remarks here, I personally have never been more excited about the future of the company and I look forward to the discussion.
Thank you very much, Martin Vicary.
Let\'s get some first questions from retail shareholders who have been submitting their questions. com.
So, the first question is, Can Tesla complete its acquisition of Maxwell technology?
What is holding this back?
Do you want to go?
Hi, this is Jonathan Zhang as our consultant.
Now, we have just passed the approval of the SEC.
There is not much to stop it.
We are on track as we are on schedule.
Now, we hope to end in the medium term. May. Elon MuskGreat. Thanks.
Thank you, Martin.
The second question is, is Tesla considering and creating an insurance plan to further simplify the ownership experience and consider the safety of autonomous driving more accurately?
For Tesla, the current insurance market is very unreliable.
The answer is yes, we are working on a Tesla insurance product and we are looking to launch it in about a month.
This will be more convincing than anything else.
Martin vicargray
Thank you very much.
The next question is when most people think Tesla is just a car company, Elon.
Can you talk to the energy side of the company about the specific roadmap? When you see that the energy side of things is really taking off and creating major revenue for the company, what is the roadmap? Elon MuskSure.
The real challenge is the scarcity of batteries.
In terms of additional storage, we basically need
Sales to support full power on vehicle production and Powerpack.
Last year, in order to have enough cells for Model 3, we actually had to convert all the lines in the Gigabit factory to produce cells only for Model 3 instead of Powerpack.
So we basically search for batteries from all over the world to continue with some level of production on Powerpack.
This year, we think we will be able to allocate at least 5% to 10% of the battery output, such as current J. B.
What do you think? J. B.
StraubelYes between 5% and 10%, something similar. Elon MuskYes. So, there are [indiscernible]
In the power wall of the car, this means a considerable number of power walls.
We will then continue to use batteries from various suppliers around the world.
Powerwall Powerpack because I don\'t need to go through the vehicle [indiscernible]
For the use of various cells from other cell providers, it is more adaptable.
So we expect Powerwall and Powerpack to have a very significant percentage increase this year, probably around 300% or a fairly high number. Sorry, sorry.
Yes, 300, confirmed, 300%.
So this is a very large percentage growth rate.
Much faster than the car.
So over time, we expect this growth rate to continue, and over time, the proportion of batteries stored in the Tesla business will grow larger and larger.
We have also found a significant increase in the transformation of solar energy this year, as we end up improving our products to highly attractive products, with higher delivery and installation costs.
So, to completely simplify the process from previous work, we may be able to make more comments on this next week.
Then there are solar roof tiles that we are designing in the third edition.
This is bound to take some time to scale up as we have to believe that the solar roof will last for 30 years as the warranty is about 20 years, 25 years, so the speed of your iteration on the solar roof is bound to be slowed down [indiscernible]
You can accelerate aging on the roof, we want the installation process to be simple and easy to use, this is actually the Tesla Buffalo factory a few weeks ago, I was very impressed with the team, we look forward to a substantial expansion of this in the remainder of this year and next year.
Thank you very much.
The next question comes from Jeffrey, when and where will Tesla\'s semi-production begin?
Jerome Gillen. this is Jerome.
We will start production next year.
We are very happy to drive the truck and I think it has been a very amazing success so far.
Elon MuskThe prototypes all worked very well.
Jerome gillenis is good.
We have been using them all the time.
We load them to the maximum weight and continue to make improvements.
Elon MuskSo, we even use them to provide some Model 3.
It\'s fun, Jerome gillenis.
Yes, we will start production next year.
The location has not yet been determined, but it is clear that we built all the batteries in Renault and drove it.
Martin vicargray
Thank you very much.
Technically Elon Musk Sparks
Yes, Jerome gillensparks.
Northern Nevada
Elon Musk yes in Northern Nevada
Martin ViechaAnd may be the last question in the retail industry, how long should the existing owner who purchased the FSD get the new FSD computer?
Elon MuskI believes that from a functional and functional point of view, if you don\'t have a real FSD upgrade in about 2 to 3 months, I don\'t think it makes sense.
At that time, we will start releasing features that are significantly different from those available on version 2 hardware.
So there is no need to rush to replace your computer.
It\'s like 2 to 3 months before it becomes relevant, and then it will grow significantly fast from then on.
I would make another comment if no one specifically asked this exclusive question.
For the production of type Y cars, we are now trying to decide whether the production of type Y cars should be in California or Nevada, and we expect to make a final decision on this soon.
But at the same time, we ordered all the tools and equipment needed for the Y-type.
So, in any case, we don\'t want this to delay the production of the Y model, but for whether we do the Y model in Jiga or the Y model in Fremont, there is little close connection between Nevada and California, but it\'s two options and we want to be able to make a decision in the coming weeks.
Thank you very much.
Shirley, we can go to the analyst question in the question queue. Question-and-
Thank you.
Our first question came from Ryan Brinkman at JPMorgan Chase.
Thank you, Ryan BrinkmanHi, for answering my question.
Your guidance on 90,000 to 100,000 2Q deliveries is combined with the year-round outlook, which shows that the sequential growth from the first half to the second year is between 35% and 45%.
Can you please talk about what gives you confidence to predict this growth, especially what the order book or booking list may tell you? Elon MuskYes.
We do see strong demand for S, X and 3 vehicles.
The standard series plus Model 3, which includes autopilot, costs $39,500, which is just an incredibly eye-catching car, and is reasonably priced, probably like the top 40% in the U. S. S. and Europe.
So, I think we will see a lot of interest and needs in this regard. We are.
Then with the upgrade of S and X, I think a lot of people are looking forward to the upgrade of S, X, which is really a game --
Change of upgrade.
So I think our demand is on the rise and we expect it to be very important.
We are also out of season for the first quarter because very few people don\'t like buying a car in the winter and we have gotten rid of the threat of the tax credit cliff and for us it\'s over in the USS. on December 31.
These are very positive factors.
We also have a lot of markets with projects or needs, especially Model 3.
So we will say the right thing.
Manual Drive Model 3, expect a lot of demand on the right side
Country by hand.
In general, I am very satisfied with the development of things.
Thank you, Ryan brinkmanok.
Then, my follow-up, sorry, as you said on your previous phone call, you indicated that Y would not be built in Fremont because I think you are saying it is packed.
I heard today that the relationship between California and Nevada is very close.
Is the expected demand for vehicles manufactured in Fremont less than previously thought, or have you managed to find more capacity in Fremont, such as tents or other production methods?
First of all, it is clear that Elon marscowell is the reason for the tent, as I mean, we like the hard tent, so I don\'t like the scout tent, which is good, but this is actually a credit to the Tesla team because they actually looked at how we could do this in Fremont if we had to, and we felt we could add building space on the west side of the building, and use a lot of internal space currently used for storage at the Fremont factory.
So we believe that adding the Y model to Fremont can actually be done with minimal disruption.
Ryan BrinkmanThank you.
Thank you.
Our next question comes from a new street study by Pierre Ferragu.
Pierre ferragui, thank you for your call.
My first question was about Model S and Model X and Elon, and you said you were happy with what you saw-based on what you saw in April, do you think 25,000 units per quarter are the levels of demand that you think the market has recovered, or have we not yet recovered?
More specifically, in the United StatesS.
, The pull in the fourth quarter could hurt a lot of demand for S and X?
Is this the number we still see in recent weeks, or is it the number behind us?
I have a following. up on Q2. Elon MuskYes.
I mean, I think things like this-we expect the annualized demand for S and X to return to 100,000.
As far as I know, this is the best.
We don\'t have a crystal ball, but this is probably our best guess.
Sorry, what\'s the point?
Pierre in Albufeira ancient.
My problem is like running.
The speed of demand you are currently seeing, do you still feel weak demand in the United StatesS.
Because of the pull in the fourth quarter, or do you think the demand has returned to normal?
Elon musski believes we expect demand to grow-we see demand returning to normal in the second quarter.
This may be a little better than normal.
I don\'t have a crystal ball, it\'s hard to say, but my impression right now is that demand is pretty solid and pretty strong, yes.
My second question is short. . .
Sorry, Zach wants to go. . .
Zachary KirkhornYes.
Well, I would like to add, just in terms of production of S and X.
As noted, we did reduce production in the first quarter.
This is part of the transformation we have implemented with the aim of rolling out remote vehicles through improved suspension and we are adding production backups in the second quarter.
Therefore, in terms of general expectations, we will exit Q2 with higher productivity than Q1 on S and X, and then return to more normal production on q3.
It is already increasing.
Pierre Ferragu and my followers
Up was really like 90,000 to 100,000 units in the second quarter and you\'re back in pretty good sales and I\'m surprised you didn\'t-you\'re still looking forward to the loss.
So, if you can take us to see the pain points for the second quarter, you have a profit in a similar amount compared to the fourth and third quarters?
How much is the loss of 2Q 1-
Outside of the cost, how much has the price point dropped in the mix, and how much does the price have to do with something else? Elon MuskSure.
But we think that if we don\'t relax or pull the waves towards us, yes, in the first half of this quarter it\'s almost only for Asia and Europe, and in the second half it\'s almost just for North America.
Actually, depending on the West Coast or the East Coast, we can even offer more cars.
But we think it is important to relax this wave because it is ultimately optimized for a quarter, but it does add a lot of costs and difficulties, not just-it\'s not a good expense for the customer, and the Tesla team has made quite a positive effort.
So if we have to fully optimize profitability in the second quarter, I think we can do that, but, we won\'t be able to relax this wave of crazy deliveries, it also helps our working capital not to have this wave in the quarter.
Then, Zach, do you want to talk about something else?
Zachary KirkhornYes.
No, I think you summed it up very well, Elon.
Two more things I need to add.
First, we did make pricing adjustments to our products in the first quarter, which put pressure on profit margins.
This is part of what we will see in the second quarter.
These teams are working very hard and have made great progress in improving the cost efficiency of the business without sacrificing growth, combined with the efficiency of lifting the tide, this is where we feel that once all of these products are in place, we will be comfortable returning to the third-quarter profit margins.
Thank you, Pierre Ferragu.
Thank you very much.
Let\'s discuss the next question.
The next question comes from Adam Jonas of Morgan Stanley.
Thank you, Adam Jonathan.
The first question, Elon, a few days ago, I asked you how safe the self-driving technology is, and what you said is twice as safe as normal driving,, you seem to be in a very unique position in terms of really collecting a lot of data, and if regulators or insurance agencies are able to demonstrate how safe autonomous driving is, you may get more stringent external validation.
When do we expect Tesla to do this, and investors will feel that verification?
It seems really important for adoption. Thanks.
I have a follow up.
Elon musski believes we will continue to report absolute numbers.
I think a detail point is just to give you these people our Tesla bytes, which may be a bit like a data mining situation and then try to turn it from positive to negative.
So we need to keep reporting.
We did provide some more detailed information to insurance companies to help with pricing.
Obviously, when we launch our own insurance products next month, we will definitely incorporate this information into the insurance rate.
So, we basically have a substantial opportunity for price and arbitrage or information arbitrage, in which we directly understand the risk situation of our customers and based on the car, then if they want to buy Tesla insurance they have to agree not to drive in a crazy way.
Or they can, but their insurance rates are higher.
So we will continue to report these numbers at a wide range of stroke levels, and I think that\'s really important.
I understand Adam Jonathan.
The security issue is Elon Musk. Adam JonasOkay.
Like a follower.
Elon and You hinted a little bit that Tesla\'s share price and quarterly results were too dramatic.
It looks like a huge distraction, at least from the outside.
At the same time, there is so much alternative capital and a lot of strategic capital being deployed step by step in the field where Tesla has a real leadership position.
So, how important is Tesla to be a listed company, Elon?
Elon MuskWell, man, I don\'t want to surprise you, but I would prefer that we are private, but unfortunately I think that ship has sailed, so. . .
What is important?
I mean, do you think the maximum value of the company is open?
Is there only so much you can do? All you need to do is play the hand you were traded on?
Elon marscowell, I think it feels like the price of the stock is set to be a frenzydepressive way.
I think the analogy of Warren Buffett is like a listed company is like someone standing on the edge of your home and then randomly shouting different prices for your house every day.
Or the house. Adam JonasYes.
Elon MuskSo, it can be distracting at times, but I don\'t know what to do.
Adam Jonathan got it. Thanks.
Thank you.
The next question is Maynard Um from Macquarie.
Thank you, Maynard Umm.
In the update letter, you talked about the supplier restrictions that affect production.
Can you talk about what that is? How long do you think this might last?
Then I will follow up.
Elon MuskIn Q2, we don\'t think we have two supplier interruptions, at least a major one we know. Maynard UmOkay.
I think there is concern that although S and X are different models, the Model 3 is devouring them, which doesn\'t sound like you said at all, but I\'m just wondering if you have any evidence to prove this?
It would be helpful to have any ideas.
They are shrinking through different segments. Yes.
Zachary KirkhornAnd also, month. 5% of our trade
The ins of Model 3 are from Model S.
So, it\'s from all the Model 3 deals.
Model S accounts for a very, very small part of ins.
Elon MuskYes, yes.
People\'s model just wants to trade it for another model, or an X.
Okay, Martin vecca. let\'s answer the next question.
Thank you.
The next question is Dan Galves from Wolfe Research.
Thank you all.
A few questions.
First, you mentioned the $50,000 ASP for Model 3 s in North America, can you give us more about the numbers since the price adjustment in February 28?
Are you like this, like the order process?
Sorry, ASP is the current order stream since these price adjustments?
Zachary KirkhornYes, this is Zach
I mean, when we launched the standard range in February 28, what we saw was that there was a repressed
Demand for those products that were released soon after the announcement has increased.
With the passage of time and the stability of the order interest rate, the average ASP has actually increased every week since the order interest rate has stabilized.
The last time ASP was less than $50,000, we thought it was starting to stabilize.
We will see trends in EMEA and China, but what we see in North America is that we have more than 50% orders
Range variance in ASPs [indiscernible].
Very helpful Dan galves
Next, I know someone has asked the order question before, but let me say that.
So, I think it will take a few days for S and X orders to pick up after the upgrade.
But on Model 3, no matter what your assumptions are in 90,000 to 100,000 Q2 delivery, no matter what the assumptions of Model 3 are, does your current order flow support this?
Or, do you need something positive to happen this quarter to achieve this?
I think we will be fine.
Yes, I don\'t think there is anything important to need. Dan GalvesOkay.
Thank you very much, guys.
Thank you.
The next question comes from Tony saconagi and Bernstein.
Thank you. thank you.
Elon, I was wondering if you could talk about the whole financing concept of last year, and you look at it as an almost evil thing, and I think a lot of investors think, if the company does raise money or have a stronger cash base, it may be better served.
Given that you used up about $2 billion worth of cash this quarter, aren\'t you trying to get through a very tight space while trying to grow fast and develop yourself?
To be frank, money may be unrealistic.
So why not raise money?
Why do you think Tesla should not do that? Or wouldn’t do?
Please follow up with me. Elon MuskYes.
I don\'t think financing should be a substitute for making the company operate more effectively.
So in that sense, I think it\'s important to have strong corporate financial discipline to make sure we don\'t have the extra cost, we\'re just frugal in terms of capital.
If we are raising money every time, then we now have the mandatory feature to improve the functioning of our business functions.
So, I think it\'s healthy to eat the Spartan diet for a while.
At this point, I do think it is similar to raising funds.
This is one, but it may be the right time, but yes.
Toni SacconaghiSo, does this mean that investors should expect capital raising in the near medium term?
I hear the power and the constraints you say, but I mean, growth does consume cash, especially in terms of capital --
Intensive business.
If you really believe that you have a first mover advantage, even if that means raising money in the short term, why don\'t you push it as quickly as possible. Elon MuskYes.
First of all, I just want to say that so far, I don\'t think capital has limited our growth, and in fact, the types of these funds have not been limited, if there is a final limit on growth, then before now, capital will face.
But I think it is very important to ensure that we have a solid foundation as the company scales up, that we have proper financial discipline throughout the company and spend money very effectively.
I think we are doing this at this point.
There is more work to be done, and Tesla\'s operating organization today is much more efficient than it was a year ago.
We have made great improvements in all aspects.
So I think the idea of raising money at this point is valuable.
On top of that, we \'ve been trying to improve efficiency over the last 12 to 18 months and how we spend money, which does change the whole trend of the company.
It enables us to speed up some of the cost reductions in the COGS aspect of the product and then also improve the operating costs.
Then, as we look forward to capital investment in the Kyrgyzstan plus sea and Y-type factories and ultimately our European factories, our capital spending capacity has fallen significantly through the work of the team here.
So, I think this is a very productive journey for us.
Technically, we did raise about $0. 5 billion for Shanghai Jiga.
So we want to make sure that we don\'t have to grow at the capital level of the Shanghai plant.
Thank you, Martin.
Now let\'s discuss the next issue.
Thank you.
Our next questions come from Alex Potter and Piper Jaffray.
Alex PotterHi, I was wondering when you said the logistical challenge was clearly a headwind for the quarter.
You talked about trying to balance your delivery in the future.
This basically means that people in Europe and China just have to wait a little longer for delivery and you will try to emphasize more in North America. . .
Elon maskeno, they will actually receive their car sooner.
This just means that it does not produce cars in batches, for example, in the first half of this year, it only produces cars in China and Europe, and in the second half of this year, it is committed to North American cars, we have mixed production cars for customers around the world throughout the quarter. And that this [indiscernible]
We don\'t want to see the same situation as in the first quarter. in the first quarter, basically all cars reach customers around the world at the same time.
We actually delivered half of the entire quarter in the last 10 days of the first quarter. That’s insane.
So, I think we need to relax.
I don\'t think it\'s a good customer experience because we don\'t have enough hands and then we have to redeploy fuel like sales, HR, legal, engineering and everyone just for delivery.
Then we can work properly.
Therefore, it makes sense to plan production based on the needs of the entire quarter. Alex potterok
This makes sense.
Then the second question, I think the company had some time to focus on closing the storefront when it went public.
Quite a bit of noise was made around this point.
Then it looks like some comments are hedging this strategy.
I was just wondering if there was any update.
It would be helpful if you did. Thanks. Elon MuskSure.
I think Tesla is just that I don\'t handle this kind of information very well.
I mean, in extreme cases where there is a misconception, this statement is amplified.
We will definitely continue to own the store and will continue to increase the store if it is located in a place with high foot traffic and in our target market.
So we will actually continue-brainers.
We will close the store where it is difficult to find, the passenger flow of potential buyers is very low, so the cost of people in the store and the store is not supported.
So, I think it\'s just common sense.
Then all online sales mean that even if you walk into the store, we will guide you to order your car on your phone.
So, basically like the information center, you can test drive there and buy some Tesla items.
But all online sales don\'t mean all stores are closed.
It means that when you buy a car, you always use your mobile phone at the store, at home or anywhere.
No online order means all shops are closed.
This is not what it means.
Alex potterok is fine. Thanks.
Thank you.
Our next question comes from Philip Houchois and holding that view.
Yes, thank you for answering the question.
I was just wondering if you could comment on the agreement that you seem to have reached with the FCA that deals with the possibility of selling your CO2 credit to them in Europe, and the potential cash flow that this has for you
When might it start?
If it\'s possible that these things are in your first quarter cash position?
Musmuski believes this is a confidential transaction with the FCA, so we agree that the FCA does not comment publicly, so we have to comply.
Philip houjosen can I ask you a question, back to Adam\'s view of the drama surrounding your misfortune, why don\'t you reduce some of them by disclosing your delivery situation on a monthly basis, or disclose your greenhouse gas income in advance, not just reserves, so that we can have moving details of the stock for some of these situations.
Elon musski thinks it\'s actually going to backfire because people read too much about what\'s going on in a month.
I mean, things get messed up even on quarterly basis.
As a result, the more granularity is provided each month, the few people will come to various unreasonable conclusions.
It\'s like selling to a particular country, for example, overseas is affected when the ship arrives.
So if the ship arrives on the 31st of a month or the first of next month, it will make it look like something dramatic has happened.
But the ship was actually one day late.
So, instead of reducing drama, people will increase drama by reading.
Zachary KirkhornAnd we installed 100% [indiscernible].
Elon Musk filled the ship with 100%, so it ended up looking bulky.
So, like if you calculate the GDP of a country to offset the U. S.
GDP was very low on Sunday, but it was very high on Monday.
This does not mean that nothing has really changed.
Thank you.
The next question comes from David Tambourino of Goldman Sachs.
David tambourine.
Thank you for answering our questions.
First, in terms of customer deposits, it looks basically flat and may drop slightly.
I know this may be a point in time for delivery, which may help with delivery at the end of this quarter.
But given the Y [model], we thought it would increaseindiscernible].
So, our question is, what is the initial order intake for Type Y?
Just combed some of your previous reviews, what is the daily order rate for the rest of the products you see now?
Elon musski believes that we do not want to comment on the granularity of deposits.
Similarly, people read too much about the book.
We\'re not playing with the Y model because we\'re just not in production, so you can\'t really read anything in the Y model order at this point.
David tampenko
So my second question is, if you expect credit to stop gradually in July 1, the price of the next phase will be adjusted further?
We will not comment on future price changes unless you see them publicly.
Martin vikaokai
Let\'s discuss the next question.
Thank you.
Our next question comes from Colin Laschi from Oppenheimer.
Colin laschies, can you comment on whether you would be better off limiting 100,000 vehicles in 2Q? Elon MuskSelf-
You mean restricted?
400,000 of the time, we will not feel at home.
Colin ruskan then, when you see Maxwell technology integration, post close, how quickly do you think you can integrate that technology into battery production?
Could you please comment on the potential for integrating chemical and shape factor changes?
Elon musski means you\'re really asking some very secret sauce questions.
I think yes, I think we might have an investor day, like the days of autonomy later this year or earlier next year, just to look at battery and battery technology and future strategies.
We think it will be very informative, but we do recognize the importance of that.
Thank you very much, Colin Ross Jokai.
Thank you.
The next question comes from Joseph Spak of RBC Capital Markets.
The Joseph SpakFirst question is actually just a clarification of the 25% outlook
Your target is the gross profit margin of GAAP.
Is it in the middle?
Term of office or what goals do you want to achieve by the end of this year?
If so, what would get S and X back to a higher position in the case of a price cut?
Zachary KirkhornYes, this is my favorite [Zach [indiscernible]
So our goal is the end of the year, although internally, we are working to achieve S and X non-
GAAP gross profit margin to achieve this goal faster.
The biggest lever actually has two parts.
One is that when we increase production on S and X production lines, fixed cost absorption will be of great help to us.
But we also have some cost reduction projects that we will implement in a year.
The third one applies to S and X, and also to Model 3, and we see an increase in our ratio of full self.
Driving service is available.
And, considering that the full set of features does not exist, the income associated with this also exists.
With this choice, we have introduced more methods and we will be able to apply more revenue in this regard.
So all these things inside of us have been given to us [indiscernible].
Elon MuskYes, I should mention that the upgraded power systems of S and X are actually launched at a significantly reduced cost, because we basically adopt high capacity, we are the driver unit of Model 3, this is a very efficient magnet motor and product electronics for us for S and X.
Therefore, we can actually reduce the cost while increasing the scope and [indiscernible]of the car.
This is just an example. Joseph Sparks.
The second question is 10-
You already noticed $4.
9 billion obligation to purchase, I think is mainly related to Panasonic Giga 1.
Then Elon, in some of your communications, you have pointed out the production restrictions.
I think the problem is, $4.
9 billion is related to the speed of reaching 35 gW hours?
If you can\'t reach this due to production constraints, will this be adjusted?
This is a spokesman for the company. indiscernible].
So, in 10-
K is basically the entire contract we signed for Panasonic.
This is not something we need to hit.
I mean, buy it tomorrow.
So it will take a few years. Joseph Sparks.
Thank you.
The next question comes from Colin Langen of UBS.
Colin langerette thanks for taking my question, I mean, from the tone of the call, you can\'t see that there are demand issues with some products, but margins seem to be under pressure, when there is a demand problem, the car manufacturers usually stop pricing.
So, what is the logic of this quarter\'s price reduction?
Elon MuskI means that our goal is to make our cars as affordable as possible, which we are very clear from the beginning.
We think it is important to provide a $35,000 Model 3 and then create a larger range of bundles for Model 3, because we actually think that the difference between 220 and 240 is more people realize that it is very important to be in range and inside posher and autopilot.
So we think a product that really understands the sweet spot, and I think the $39,500 Model 3 really captures the sweet spot and increases the consumer\'s response accordingly.
As you can see from the $35,000 Model 3, of course, there is no autopilot, there is software introspection and the like.
It\'s like just calling or going to the store to get more inconveniences.
So, you don\'t need to complete the obstacle course or something.
But we see very few people actually accept our offer of $35,000, but it already exists and will continue to exist.
Next Colin langanas, by the end of this year, you are still targeting the facility ramp in China.
Do you still have confidence in the 3,000 per week?
Do you have a battery supplier? Is this coming to an end?
Elon Musk yes, the progress of the Shanghai Geely factory is very smooth.
Tesla executes our underground team. I get daily e-
Tom sent an email to Tesla from day to day, and he led the Gigabit factory project.
So we obviously discuss or get updates 7 days a week.
So, I mean, I\'m here. mail.
So in terms of implementation, of course, production is growing as fast [indiscernible]item.
It is very important to remember this.
So, we have 99% of what we can make cars.
So with respect to this, it looks like we\'re going to reach mass production by the end of this year, say, producing more than 1,000 cars a week, and possibly 2,000 kilometers from Shanghai Jiga by the end of this year.
This seems to be the case.
If it does not end, it will end soon.
Then we would like to have multiple sales leaflets in Shanghai Jiga.
Martin vicargray
Thank you very much.
Unfortunately, this is the full time of our Q & A today.
Thank you for all your questions and we look forward to talking to you in the next quarter.
Thank you all for attending today\'s meeting.
This is the end of the program.
You can all disconnect and have a great day.
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