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Tesla, Inc (TSLA)

Q1 2019 Earnings Conference Call

April 24, 2019 17:30 ET

Company Participants

Martin Viecha - Senior Director, Investor Relations

Elon Musk - Chief Executive Officer

J.B. Straubel - Chief Technology Officer

Zachary Kirkhorn - Chief Financial Officer

Jonathan Chang - General Counsel

Jerome Guillen – President, Automotive Division

Conference Call Participants

Ryan Brinkman - JPMorgan

Pierre Ferragu - New Street Research

Adam Jonas - Morgan Stanley

Maynard Um - Macquarie

Dan Galves - Wolfe Research

Toni Sacconaghi - Bernstein

Alex Potter - Piper Jaffray

Philippe Houchois - Jefferies

David Tambourino - Goldman Sachs

Colin Rusch - Oppenheimer

Joseph Spak - RBC Capital Markets

Colin Langan - UBS



Good day, ladies and gentlemen and welcome to the Tesla Q1 2019 Financial Results and Q&A webcast. My name is Sherry and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Martin Viecha, Senior Director of Investor Relations. Mr. Viecha, you may now proceed.

Martin Viecha

Thank you, Sherry and good afternoon everyone. Welcome to Tesla’s first quarter 2019 Q&A webcast. I am joined today by Elon Musk, J.B. Straubel, Zachary Kirkhorn and a number of other executives. Our Q1 results were announced at about 2 p.m. Pacific Time in the updated letter we published at the same link as this webcast.

During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today’s call, please limit yourself to one question and one follow-up. [Operator Instructions] But before we jump into Q&A, Elon has some opening remarks. Elon?

Elon Musk

Thanks, Martin. On Monday, we hosted our first ever Autonomy Investor Day showcasing our new in-house design full self-driving computer and our AI-based software trained by more than 400,000 Tesla vehicles. All Tesla class vehicles today have all the hardware necessary for full self-driving and over the year updates will enable our customers to use the Tesla ride-hailing network fleet and generate income, which as we said on Autonomy Day a few days ago we think is somewhere between $10,000 and $30,000 a year, in some cases, perhaps more.

We are the only company in the world producing our own vehicles and batteries as well as our own in-house chip for full self-driving. We are in a position unlike anyone else in the industry. And in 2020, we expect to have 1 million robo taxis on the road with the hardware necessary for full self-driving. We believe we will have the most profitable autonomous taxi on the market and perhaps – yes. Last quarter, we experienced a massive increase in delivery volume in Europe, similar to what North America experienced last year as well as the massive increase in delivery volume too to China. As far as challenges go, this was a good one to have, because we booked vehicles and consumers support them. This rapid increase in overseas volume strained our logistics operation and resulted in over half of our global deliveries occurring in the final 10 days of Q1. This was the most difficult logistics problem I have ever seen and I have seen some tough ones.

So I will say it again, like we initially delivered the half of all vehicles produced or half of all deliveries occurred in literally the final 10 days of Q1. As a result, a large number of vehicles – vehicle deliveries shifted into Q2, which of course, Q1 net income to be negatively impacted. As we said, we could not get the vehicles to customers specifically in time. The response to this, we are in the process of regionally balancing our vehicle bills throughout the quarter. This will make the – this will put much less strain on Tesla, results in a much better delivery experience for customers and have a very positive effect on our working capital in the middle of the quarter.

In Q1, Model 3 was yet again the best-selling premium car in the U.S., outselling the runner up by almost 60%. It’s worth just dwelling on that for a moment, just how absurd this is compared to predictions that were made several years ago. There are literally – best knowledge zero predictions that this would happen if you go back just even 5 or 6 years ago, an electric car would be the best-selling premium car in the U.S. And we believe over time we will be the best-selling premium car throughout the world. And in fact, in Norway, in March, we set a record for the highest sales of any car period ever. And that would be something similar in Switzerland as well. So, this is really an incredible achievement by the Tesla team.

Since the introduction of standard range, standard range class, only 70% of previous Model 3 have actually been non-premium vehicles, where people actually pay more for a car than they have ever paid for a car. They never anticipated paying this much for a car, but because they want the Model 3 more than they ever wanted a vehicle, they are willing to pay more to get a Model 3. And keep in mind, global expansion for the Model 3 has just begun and this segment is vastly larger internationally than it is in the U.S. We are continuing to make significant improvements to our vehicle lineup, including updating the Model S and X production line to culminate the next generation of powertrains. So, we announced this yesterday and we are now in production with the significantly more balanced powertrains for the Model S and X as well as an upgrade to the suspension system to have active adaptive damping in the suspension system and to enable charging at 200 kilowatts, which is – and there are number of other small changes. If anyone is thinking about upgrading their Model S or X, this is a great time to do it. And we also introduced a loyalty program, where if somebody is an existing Tesla owner and they buy a performance Model S or X, they get their first upgrade for free. So this is – yes, as a thank you and an appreciation to existing Tesla customers.

Read the rest of this transcript on seekingalpha.com