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Tesla Motors (TSLA)

Q2 2011 Earnings Call

August 3, 2011 5:30 pm ET

Executives

Jeff Evanson - VP, IR

Elon Musk - Chairman, CEO and CPA

Deepak Ahuja - CFO

Analysts

Himanshu Patel - JPMorgan

Andrea James - Dougherty & Company

Patrick Archambault - Goldman Sachs

Dan Galves - Deutsche Bank

Carter Driscoll - Capstone Investment

Eric Leeper - Pacific Crest

Ravi Shanker - Morgan Stanley

John Licata - Blue Phoenix

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Tesla Motors second quarter 2011 financial results Q&A conference call. (Operator Instructions) And now, I'll turn the call over to Jeff Evanson

Jeff Evanson

Good afternoon, everyone. Welcome to Tesla Motors' second quarter 2011 financial results and Q&A session. I'm joined here today by Elon Musk, Chairman, Chief Product Architect and CEO; and Deepak Ahuja, our Chief Financial Officer.

We announced our financial results for the second quarter shortly after 1:00 pm Pacific Time today. The shareholder letter and the Q2 financial results and the webcast of this Q&A session are all available at the company's Investor Relations website at ir.teslamotors.com.

We've made some effort in this letter to answer some of your questions upfront. But starting our new practice this quarter, this call will consist of some brief remarks by Elon, followed by time for your questions and our answers. We will conduct the Q&A live. So please log in now if you wish to ask a question.

During the course of this call, we may discuss our business outlook and make other forward-looking statements. Such statements are only predictions based on management's current expectations. Actual events or results could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent Form S-1 Registration Statement filed on June 2, 2011, with the SEC.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update these forward-looking statements.

And now, let me pass the call to Elon.

Elon Musk

Thanks, Jeff. If you've been listening in on the calls on prior quarters, you've usually been pretty circumspect in our turn about the quarter results, but in this case I think that that just won't be accurate. This was the best quarter in Tesla's history. It was just phenomenal across the board and we saw a tremendous demand for Roadster, for Model S, well over 5,000 products, almost all of next year's production of Model S.

And we've also signed the $100 million deal with Toyota. We're actually in discussions with them for a deal that is in order of 90 or larger than that. The retail strategy is going gangbusters, two new stores that have a new approach. The stores have had 200,000 visitors in its opening. Yes, it's been tremendous across the board and with looks great momentum going into the third quarter.

So we're super-excited. We try to express as much as this as possible ahead of time, so to give people the maximum amount of time to ask questions. So with that, let's go to questions.

Question-and-Answer Session

Operator

Our first question is from Himanshu Patel of JPMorgan.

Himanshu Patel - JPMorgan

A couple of questions, I noticed the margins on the development services business side had gone down to 52%, and looks like that about maybe 20 points or so below, where it was in the recent quarter. And then margins on the automotive revenue were actually a few points higher than where they were. Can you just give a little bit of color behind, how we should think about those two forecast going forward?

Deepak Ahuja

The margin on our development services contract will fluctuate from quarter-to-quarter, because there is difference in the revenue recognition, which is associated with the milestones that we deliver on that program versus the cost that we incur. This is very consistent with what we have been seeing in the last several quarters about our development services margin.

I think the automotive margin is a much better measure of our operational capabilities. As you correctly pointed out, sequentially our automotive margin has improved from 20% in Q1 to 22%, as we have continued to improve the ASPs and the roadster and our ongoing cost reductions that we've achieved.

Elon Musk

And certainly, it bodes very well for Model S, a target of at least 25% margins in the Model S.

Himanshu Patel - JPMorgan

And then Elon, I guess a bigger question on Toyota. You alluded to some additional business beyond the $100 million contract with Toyota. I'm curious, do you have a view at this stage on how Toyota is internally viewing, just the broader EV portfolio. Or do they have parallel development efforts internally with their own engineers right now for electric vehicles that are, I guess, in some way sort of competing with what you guys are doing? Do you sense that they're kind of gravitating more towards using someone like a Tesla more exclusively?

Elon Musk

It's difficult to answer the question with a high degree of accuracy. But certainly if one looks at the objective actions they've taken, the recent $100 million deal and the fact that we're in discussions for deal that is in order of 90 or higher than that, you cannot foretell exactly what will happen there. But certainly if I was to judge from tone and behavior, it's extremely positive.

Read the rest of this transcript for free on seekingalpha.com