Q4 2019 Earnings Call
At this time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
Good question. During this session you will need to press star one on your telephone. Please be advised of today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker Mr. Martin <unk> Senior director of Investor Relations. Please go ahead Sir.
Thank you Shirley and good afternoon, everyone and welcome to Deathless fourth quarter 2019, Q1, a webcast.
I'm joined today by Elon Musk, it's like a record corn and a number of other executives are Q4 results were now at about one PM Pacific time in the update deck, we published at the same linked as this webcast.
During the 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 FCC.
During the question answered portion of today's call. Please limit yourself to one question and one follow up.
Please press star one now if you'd like to join the question Q, but before we jump into Q anyway, you don't have some opening remarks you want.
Thanks.
The Q4 was another strong quarter for the company.
Liberty's reached over 112000 vehicles in the single quarter.
It's hard to think of a similar product with such strong demand that it can generate more than $20 billion revenue with zero advertising spend.
That's.
We do set up from time to monitor it gets its often of look but to have.
The highest demand.
Electric vehicle in the world with no advertising spend I think quite remarkable and speaks to the the.
The national apart from the fact that the product itself is compelling enough to generate that demand without.
Got a bunch of advertising.
At a pretty went back to your producing at a rate roughly the same as the new factory did and its record Europe 2006.
And obviously, we'd expect to.
To exceed that.
Significantly this year.
This greater production was cheap because before even started to produce the model why out of Fremont. So there's lot of potential to go beyond that number.
Well, the Shanghai factory I'd like say congratulations gains the team in Shanghai on luxury models, we last quarter and shooting the push deliveries earlier this year.
Really excited and optimistic about the potential for the Shanghai factory I think it's it's going to be an incredible asset.
To the company.
Every we also broke ground on the model why.
Factory and Shanghai so the.
Lot of good progress there.
Regarding model why it was only 10 months ago that we're building model why prototype and now in January this year, we started producing a lot of white and limited volumes already.
This is thanks to a great effort of our engineering.
To the company.
Every we also broke ground on the model white.
Factory and Shanghai so the.
At a good progress there.
Regarding model why it was only 10 months ago that we are building model why prototype and now in January this year, we started producing model white and limited volumes already.
This is thanks to a great effort of our engineering team ever matched achieved by far the highest energy efficiency of any electric SCB ever produced at 4.1 miles per kilowatt hour.
[noise], which means model why all wheel drive got EPA rating of 315 miles.
This improvement is reflected on the Configurator as of today [laughter] says this is above.
What we previously stated by is pretty significant margin.
Just the with great acceleration in top speed, it's really just.
Incredible specs or route.
For the cyber truck a few let's go we revealed the obviously were revealed the cyber truck.
That was that went viral.
And we try to build a product that product that is superior in every way without any preconceptions of how such part should look so good.
Really just.
From a standpoint of.
What's the most bat asked futuristic.
Our personnel carrier that.
Kicks out of any pickup truck basically that's the goal.
And does.
Yeah.
We want it looks like something that just came out of a site by maybe set from the future.
And that has been incredible I've never seen.
Actually such leveled.
Level demand at this.
There was anything like it basically.
I think we will make us about as many as we can sell for.
Many years.
So there was tells me as you can make its going to be.
Pretty nuts so.
Yeah, I think actually that.
The product is better than people realize even.
But they don't even have enough information to realize just the authors of it it's just great.
So.
And then stepping back in 2018.
From a financial standpoint, we were free cash flow freight was breakeven, but in 2019, we managed to generate more than a billion dollars free cash flow, while building a factory in Shanghai, and WRECO type and wealth moving parts of motor wind production.
So.
I think to fresh to have this level of free cash flow, while making the.
Massive investments and capacity, while developing new products, while improving the core engineering is a testament to the.
Thank you Carl performance of the terms of team and I'm, just so proud to work with such a great team.
I'd like to thank the whole test team for their ongoing work on on a cost control.
As was what does have has allowed us to get too.
Compelling financial numbers certified Korean company, an incredible pace.
Hello, and good question when I think it what we have in front of US. The next couple of years, you've got lot of wine Gigabyte Len.
Semi solar grassroot cyber truck.
Very exciting improvements in fact Vetri technology.
For the full self driving.
Got the Nexgen roadster.
Probably get a bunch of approach will will cover to.
It's hard to think of another company that has more exciting product and technology roadmap.
So.
Super fired up about where test will be the next to it 10 years.
Yes.
If you look back 10 years from today to 2010.
We will produce.
Approximately a thousand times more cars and 2020 than we produced and 2010.
The thousands.
And we have also so fast.
And so retrofit and.
Power will powerpack.
The things too so.
Where we were being 10 years.
Very exciting to consider the prospect.
Thank you very much you line is I guess I'm opening remarks as well yeah. Thanks Martin.
This past year was truly transmit transformational for Tesla and I want to thank everyone has been a part of making this happen.
2019, a few key points I'd like to highlight.
On demand while these mentioned that's a few times, it's worth highlighting once again over the course of the year, we've transitioned entirely from generating model three orders from a reservation backlog to generating new inorganic demand.
Also seen a stabilization of model three asps, even increasing slightly in Q4, and we've seen an increase in asps of SNS. After the launch of the long range versions in Q2.
With respect to capacity expansion, we greatly learn from the development in launch of model three in Fremont in Reno as a result, we've been able to bring new production capacity onboard faster and with less cost.
This is evidenced by the launch of model three in Shanghai as well as model line Fremont programs that were both launched in under one year.
Financially, we've demonstrated multiple quarters of strong cash generation and able to higher volumes improvements to capital efficiency progress on working capital management and continued improvement in our product and operational costs.
And were able to achieve positive GAAP net income in both Q3 and Q4 for many of the same reasons that enabled strong cash generation.
We've also made progress on recurring and software based revenue with the implementation of premium connectivity in the beginning of upgrades available for purchase via the Tussler mobile App.
Finally on stock based compensation increased sequentially by 82 million driven almost entirely by an expense related to the next tranche of the CEO Grant.
This is the result is our improved expected financial performance of the company, which the CEO stock Grant is tied to.
As we look ahead to 2020. This again will be an important here for the company.
Our task ahead is to execute on that the next phase of growth, while managing cash flows to support that growth.
On model, while we expect first deliveries and limited quantities later this quarter and will ramp over subsequent quarters.
As mentioned previously we are forecasting higher gross margins on model like content to the model three.
This year for the Shanghai built model three we expect to achieve run rate production and delivery rates.
In addition, we expect to have completed the majority of plan supply chain localization at the factory or in the region.
This is one of the most important components to achieve lower production costs for the site.
We're also seeing strong order rates for the locally built model three and remain focused on continuing the production ramp and managing costs.
We also anticipate significant progress on factory construction of the Shanghai in Berlin built not a lie which will result in continued increases in capital spending.
On operating expenses I expect an increase over the course at the year to support our growing product pipeline and international footprint. However, opex growth should increase at a lower rate than topline revenue.
Overall, we believe this will set us up for our strongest annual financial performance, yet with sufficient forecasted cash flows to support investments related to our growth and further strengthening of our balance sheet.
For Q1, please keep in mind that the industry is always impacted by seasonality.
Additionally, we on the process of renting two major products model three in Shanghai and vinyl line, Fremont, which I expect will temporarily weigh on our margins.
We're also in the early stages of understanding if and to what extent maybe temporarily impacted by the Corona virus.
At this point, we're expecting a one to one and a half week delay in the ramp of Shanghai built model three due to a government required factory shutdown.
This may slightly impact profitability for the quarter, but as limited as the profit contribution from model three Shanghai remains in the early stages.
We also closely monitoring whether there will be interruptions in the supply chain for cars built in Fremont. So far we're not aware of anything material, but it's important to caveat that this is an evolving story.
However, we have more than sufficient cash to continue our expansion plans well further strengthening the balance sheet.
Thank you again for your support and we will tend to question.
Thank you we are going to take the first questions from.
Retail investors compiled by state technologies.
So the first retail Investor question is that since solar is required for all new home construction in the California do you have any substantial orders for solar glass roofs from any of the launch, California Homebuilders have you can share what's the 2020 targets for the number of solar glass roof installations in California.
Well I think we do Ics we are seeing.
For for multi promises from a small base exponential.
Growth in demand and output for solar will put solar glass roof.
So it's difficult to predict what I will be this year, except of the demand is very strong.
And we are we're working also not just.
Through through tells a source, but also through you homebuilders and through just roofing and industry in general.
With those either in North America on the order of 4 million new rigs per year. So we see a lot of interest.
And.
So it's just a question of.
Refining b.
The installation process.
Getting.
Lots of crews trade to do the installation.
But over time I would expect a significant percentage of.
New routes to beat.
So the two years solid glass in one form or another.
It's really going to be your choice or do you want a roof that is.
Alive with power or or dead without and I think people want a library.
That generates power.
And looks good and last long time minutes.
Just a future we want so.
We'll be a significant product, but because it is you and quite revolutionary product.
And.
There's a lot of your challenges to overcome.
But there will be overcome and this will be a major product line of Tesla.
And the Buffalo factories doing a great. So yes.
Thank you second question from retail shareholders is some will be a release the Tesla while building network before full autonomy and change in terms of personal insurance to allow owners to be drivers on the network you. So when gold has happened my these wanted to our might want to target, California airports first.
Also good place to add Superchargers.
Sorry.
One question and one yes, it's a bit of a bundle yeah.
Well I think it's probably will make sense too.
Hi.
It to enable car sharing in advance of the.
Sort of drag robertex easily.
Because the cautionary and can be done before of course of driving is approved by regulators.
So, it's probably something that we would enable before.
The full sort of Robertex, if weve isn't able.
And.
I felt like there were some other questions bundled in their superchargers with airports Oh sure. Yes, it probably will have sutro's airports, but if youre surcharges wherever we see that there's a need for superchargers.
And then on the insurance part of the question. It is our intent to allow people to put their cars into ridesharing or the FSD network using teflon Sharon.
Currently the case, but by the time that this is available it's our intent to get that many.
Yes. Thank you.
The next question from retail investors is.
How many California owners are constantly insured with Tesla insurance, what's the target for test lunch runs in 2020.
When will you start significant significantly leveraged the data you have from the fleet.
The lower the cost of your coverage.
Well, we get premium discount of certain for friends.
Yeah, I think ahead.
Yeah. So total insurance is currently available in California.
A couple of things that we're working on this front. The first is to expand it to other locations and we are preparing the regulatory processes preparing our processes to go through the regulatory process season. This location.
We're also working on.
The processes to continue to adjust our rates in California, which also have to go through regulatory processes as insurance is quite heavily regulated and that's where we're spending our time focusing on test for insurance right now there's a significant amount of innovation as we've discussed before in this space exactly getting to the intent of what the question here.
Using our technology to reduce rates and this will be rolled in overtime.
For the last part of the question was will there be a discount for using autopilots with our cars Oh, yes, yes, yes.
Okay.
Yes, the rate card for California, Teflon insurance already considered the safety features associated with autopilot right, but I think I think it would make sense for us too.
Loop on.
Higher use water powerplay reduces the insurance costs.
To close the property of injury.
So I think it trips is going to be I think quite a major product Tesla overtime.
The amount of plenty of people spend on Cardtronics is is like are remarkably big percentage or the cost of.
Car.
Thank you can we say modeled three.
Right now for $400 month.
But a typical.
Order in California, where repaying.
So two to 100 and $200 a month in insurance.
So we're talking about something which is maybe a quarter or two half of the cost of the lease of the car is insurance.
And.
Hello that insurance costs is just because cup interest companies don't have good information about the drivers.
And that that business good way to provide feedback were.
It's a very.
Core feedback mechanism.
As with insurance rates versus the actual weight of the cars being driven whereas we can do that in real time.
It's a fundamental information.
Advantage that insurance companies desktop.
Thank you.
The next question is you set expectations that you would be feature complete on up as the body into 2019 can you. Please provide an update on when will we see this with end users.
Where are you being retrofitting be as the computer to older models.
Well I mean, it to be precise I said I was hoping it will be complete with both FSB by the end of last year.
We were pretty close.
You know, it's looking like we might be future completes.
A few months.
The procedure will be just seems like it has some chance of.
Going from your home to work would say worked with with noted benches.
So thats it doesn't mean, the futures are working well, but it means the hassle.
Above zero chance.
So I think that's looking like maybe it's going to be calamos for now.
And.
What isn't obvious regarding.
What a patent pool self driving is just how much.
Work has been going into improving but the foundational elements of autonomy.
The.
The core Autopilots Tesla or thought software and an AI team is just it's very very strong and making great progress.
And.
We're we're really only beginning to take full advantage the autopilot hardware the FSD hardware.
So.
I think it's.
The beef to be the apparent progress as seen by.
Consumers will seem to be extremely rapid but.
Actually.
What's really going on by it seems like said it just gives him having a foundational software be very strong heavier really strong foundation.
And then really fundamental thing is willing to video training. So in terms of labeling labeling with.
Video.
At all or late cameras simultaneously.
This is it.
Really.
In terms of labeling efficiency arguably like a three order of magnitude improvement in labeling efficiency.
For those who know about this.
Extremely fundamental.
So that that's written great progress on that.
Thank you and the loss retail Investor question comes from Campbell.
Things, most retail investors seem to understand plus lot better than analysts and our.
Rushing larger part of their own personal wealth on Tesla doesn't make sense to take mostly questions on these earnings goals from also biopsy.
Even have to take questions.
I answered questions from analysts.
Well I guess, we if we don't have tried I do think thats a lot the retail investors actually have.
Deeper and more accurate insights then.
Many of the big institutional investors and Thats, what made that better insights as many analysts.
Right.
You know, it's it seems like it if people really looked at some of the smart.
Retail investor.
Analysts, but we're not.
What some of this what smaller retail investors predicted about future.
Tessa.
That would you'd probably get the highest accuracy at a remarkable insight from some of those predictions.
Okay.
So now let's switch to institutional shareholder questions.
The number one question is you have spoken previously about Shanghai and kick up being 65% lower capex per unit of capacity.
Have you learned to do anything better or different from an offer opex perspective.
Yes, what kind of impact might we expect on the long term gross margin.
Sorry go ahead.
The Shanghai factory is then it quite remarkable cost experience across all line items.
Of Cogs for the model three though we have talked a lot about the capex penis capacity being lower.
And you can basically run down entire list of Cogs between labor cost.
A material costs due to localization that's opening up suppliers that would not have made economic sense on the states.
Localizing the supply chain flows into.
Inbound logistics and outbound logistics costs as well so we're not shipping comes from California over to China.
And then that has a corresponding savings on alert and important related costs.
And there's a slide in the shareholder letter that shows the layout comparison between our from not facility.
Here in California, and also the model to factory in China, and the simplification in terms of the flow it is pretty evident from that layout.
And that Cascades itself into all sorts of savings to the operations of the facility.
And so if you had all of this up.
Internal estimates are pretty significant reduction in in the cost of model for me in China relative to freemont.
I think it's also important to keep in mind that the cost of the standard plus in that we're selling out of shanghai's off a lower than that.
The similar car coming out of freemont.
Apart from price perspective.
And so.
And I've said this on previous earnings calls I think it's fair to expect margin coming out of the Shanghai facility to match the same margin for the vehicle in pretty much. Yeah. This is a pretty big fundamental efficiency gain that Tesla has a bite just making cars, especially affordable cars.
Three in Hawaii.
At least on the continent, where the customers are.
You know it kind of makes sense, its but what we're doing well happened during the past was weak pretty silly.
And making cars it in California, and then should bring them halfway around the world to.
Asia and Europe .
And this created.
A lot of cost because you've got to ship those cars. So the good luck look finished goods sitting on the order or waiting at the port are going through customs tariffs.
Transport its a.
And then the factory complexity in in California is very high because you've got different regulatory requirements and in China.
North American and Europe sort of three different types of cars that rebuilt.
It's very complex.
And just having a factory in China.
Factory in in California.
Factoring type patricof record factory in Europe .
<unk>.
Just that alone is a massive improvement in our fundamental operating efficiency.
I thought I think it's made before I appreciate it.
And also on working capital, yes, absolutely or are you seeing opex character.
Let me check.
Okay. The next question from institutional investors is given the recent running to share price why not raise capital now and substantially accelerate the growth in production I feel the gigafactory its investment in supercharge and customer service.
Well, we're actually spending money as quickly as we can spend it.
Sensibly, so if there's any sensible way to spend money, we're spending it there was no artificial hold back on expenditures.
Anything that I see that is.
What looks like us.
It's got good value for money the answer is yes immediately.
So.
But where we're spending money I think officially and we're not artificially limiting our prop progress.
And then despite all that we are still generating positive cash so.
In light of that it doesn't make sense too we are to.
Raise money, because we expect to generate cash despite.
This was growth level.
I can think of it here I completely agree with that.
I think some of our learnings.
During the model three launch period, where we want to quickly and with too much complexity and it held back our ability to continue to scale and part of the journey that we've done on in 2019 to unwind a series of on intent on intentional add processes that kind of accumulated in the company.
Overtime, and so thats kind of what contributes a reduction in opex over the years, we get smarter about that.
And and now we've laid us good foundation on I think.
And I agree with you on that were not holding back on the gross.
Moving to products to vehicle products launching right now.
And in that will consume much of the bandwidth as a company to stabilize doesn't move the question yeah.
Then looking into next year, we having more products launching right. After I mean, yeah.
Right and so we want to be smarter about how we spend money and growing away that's sustainable so we don't.
All the time to the mistakes I think we need.
You and a half or sounds, though yes, absolutely.
I get the next question, we've already answered regarding autopilot timelines. So the following question would be.
Can we please talk about cost control and Opex is a sustainability in terms of growth versus gross profit growth.
How did we achieved the recent opex trends and how should we think about opex needs as we grow both vehicles and geographic workloads.
Yeah I commented briefly on this in my opening remarks.
We did see an increase in operating expenses from Q2 to Q4, even excluding a portion of that attributed to stock based compensation.
And when you double click into that gross it's supporting.
Model why program and also Shanghai program as well.
So.
I think we as a company.
Now at the point, where we've learned a lot on cost efficiency is I've, just mentioned and Weve unwound, a number of the processes that went on and then they place, including automating the things that need to the automated and we'll continue on that journey I think we had a point in our office will start to tick up at least if you look annually from 2019 to 2020 system.
For our international footprint and then the growth of the company.
Our job is to grow that significantly slower than the pace of growth in revenue to improve the operating leverage which we're very very focused on.
Okay and last question from investors is the sales of model S and X have stayed flat for similar quarters. The main reason is that they still use eighteensix 50 batteries.
When we will ESA mixed use 20, 170 batteries manufacturing capacity of 86 50 may be used for battery storage systems instead.
Sure well actually the core chemistry inside the 86 50 sale has improved many times over the years, so switched to form factor as opposed to core technology.
So it's yeah, I think we're pretty happy with where.
The.
They were the energy contract to sell in the big via the improvements.
And.
Efficiency of vehicle.
The.
Yes.
We're rapidly approaching.
400 mile range for the model S. For example.
So versus what we Love report model S is 404 has important leverage.
Drews anything on that.
No other than to say that.
Dating 650 lines running through the for the long time and.
In a world where supply is fueling growth like part of the feel of growth I don't see a reason to turn that sells playoffs.
Yeah.
Actually the model S and X or actually have more range than we're currently standing on the web site.
We just havent gotten round to updating the.
Yes, the EPA, so sort of my number.
But the actual range of the more or less next or above what the websites as there are.
Yes.
Yeah.
Sure.
You have existing cars that better so that being made.
Definitely then at least for so many of them behind that.
I think were.
Yeah, it must be in somewhere that threeeighty support like that.
Yeah.
Thank you very much on sheree, let's go to the Q on a on the phone.
Thank you again, ladies and gentlemen ask a question. Please press star one and we ask that you. Please limit yourself to one question and one follow up.
Next question comes from Adam Jonas with Morgan Stanley .
Hi, everybody and actually agreed that the retail questions were excellent actually.
So ilan do you see potential for Tesla vehicles to be fitted with user terminals that are compatible with the starlink constellation in the near or medium term future.
Will.
It's.
It's certainly something it could be happening in coming years. If there is no plans through at this year.
The focus of Starlink is really for.
Hi, bandwidth, we'll wait and see.
Connectivity for.
Homes and businesses.
I guess aircraft and boats and that kind of thing.
But the antenna for that type of clothing and see thing is that about the size of meter pizza, which you can put our car, but I think.
As more bandwidth than you were really need.
Hi Tech for your Bywater, just sticking on the car.
Yeah, It will it work phase range.
Well, maybe just a follow up.
For my follow up.
How would assuming that we get the antenna form factor and cost down to a point where that could be integrated into the roof car. For example, can cost effectively and aerodynamically et cetera, how would compatibility with the starlink.
Architecture theoretically improve the tough what customer experience with the capability the network.
I think it actually most possible. We're just use of cellular connectivity just use fiveg recommendation, certainly and like any cities or something like that.
But if you're out the countryside and is not good solid productivity than they could connect with the stalling antenna.
And.
You wouldn't need you know you don't need like have like gigabit level or.
Level connectivity project.
2030 megawatts product line.
You have much more antenna.
So yeah, I guess it could be good for you make shows conductivity and.
Outsiders made major cities that cutting.
But I mean that's.
Yeah sort of its a relatively of twos.
Olympic about it very much goes.
Thank you must be over the next question. Thank you. Our next question comes from Dan Gallagher with Wolfe Research.
Hey, good afternoon. Thanks.
So hoping you could give us some guidance on what capex is going to be this year and kinda as I look to model out the business long term.
<unk>.
<unk>.
Yeah.
I don't see what ill tell you I think we want to say what our capex is going to be this year. Yeah. This early.
Except to say that like I said earlier, we're we're we're spending money as fast as we can spend money and sensible ways. So there's definitely artificially limited.
We will spend up.
A lot of money, it's here for sure.
It's at the challenge comes in like fighting efficient ways to actually quite a capital.
But that's.
The harder part then that's sort of deciding on a capex number really yeah, and I think we'll always find ways to become more capex efficient argument exactly oh, okay.
Yes, we are.
Sure challenge that seems to always become more efficient until we see reduction PERC epic per unit in term capex.
Absolutely.
Metric.
Yeah, it's a good yeah.
But.
That there's so much as has or whether the core technologies improving radically.
That maybe you would actually notice as an end customer.
Also as one of them, where you've noticed somebody you wouldn't bet. It's just there are these things that.
How big effect on the efficiency of the company.
Like our total applications team that kind of both the Tesla until operating system.
And.
There's no sort of core automation of the company.
That makes a big difference to our productivity.
But you wouldn't necessarily you'll see it.
Effectively in.
And healthier financials, but you any definitely noticed that has added customers.
Okay got it maybe I could follow up.
I mean, you're you're kind of operating cash flow EBITDA is annualizing at <unk>, four and a half billion.
Right now you know as I look out to the future.
I'm kind of gassing not.
Good fun somewhere around 200 to 250000 units up capacity, a year, which would be maybe a 30% CAGR over five years. I mean is that is that something that's feasible for you guys too.
To execute on.
On a consistent basis.
Level of capacity building that large.
Yeah.
I think we're having for more than 70%, yeah, yeah, I think than that.
I'm not sure them at that you've done, but I think our internal plans on the faster.
And.
Just back on your first question, we will have additional detail on capex in the 10-K.
But back to the growth rate I mean, one thing to keep in mind is that.
The Shanghai facility, we do have a loan facility.
In place to support that right. So that helps and then as on production volumes increase that generates more cash from the business as well that allows us to can you need to fund additional factory.
So I wouldn't necessarily view it as limited as described.
Yes, I think.
Two years ago, I said it.
Yes, I think.
When it was but two years ago I said in my estimate where is that tells a word.
Grow at an average competitor alright.
Trader in excess of 50% I buy so hope that belief.
Thank you, let's go to the next question.
Our next question comes from Gene Munster with live ventures.
Okay.
Yes, noon and congratulations on the progress first question related to Sabre. Chuck you mentioned, you'll sell as many as you can make can you remind me how many you think you can make and any thoughts on the cost of production.
For making that let's say we're truck.
Yes, we don't comment on the on those detailed numbers et cetera.
The demand is just far more than we could recently make in space.
Three or four years something like that so.
The thing we're going to be really focused on is.
Increasing.
Battery.
Production capacity, because the best very fundamental because if you don't improve battery production capacity then you end up just shifting.
Unit volume for one part to another and you haven't actually produced more electric vehicles. So.
That's probably reason why we have not for example, really accelerated production of that tells us that might because it does use a lot of cells and unless we've got a.
Lot of battery cells available then that say like.
Accelerate production of the tell the semi would would doesn't necessarily mean, making pure model three or model white cars.
So we got to.
Really make sure we we get.
Very steep ramp and.
Got battery production and continue to improve the cost per kilowatt hour batteries business.
This is very fundamental.
And extremely difficult.
So the.
As it were going to that kind of a battery day I'm just kind of explain more about this.
Our.
I think probably is going to make sense do that after the end of this quarter, because I think it's going to be it kind of an intense end of quarter as it was last quarter.
So.
You know tentatively sort of in the April timeframe, we'll do do a battery day.
And and kind of go through what the.
Challenges are.
How do you how do you get from here too.
Couple of thousand gigawatt hours, a year or something.
Great I'll look forward to that battery day you on you also mentioned in your prepared comments about other products and they come up in the only vehicle not announced for Master planned part two is a high passenger density vehicle.
Any light that you can give us regarding that project.
Yeah.
Going back to I, just said that the we've got to improve the total Patrick capacity.
Otherwise, we added complexity, but we do not improve the number of vehicles on the road.
So.
Well, we do you know some sort of high capacity vehicle at some point probably.
But.
We need to make sure we got batteries.
It too.
Great cars that we already that already are awfully.
And it just generally true I see some some a bank.
Sort of sense, what comments by arc invest.
Pointing out that really people do prefer to drive in their cars mostly by themselves.
And like the average.
I mean the average.
Number occupants in a car I think is like 1.2.
And maybe what I was wondering maybe it'll go to 1.4.
Maybe.
But I'm sure that even even goes there so.
Yeah, well it makes sense just for us to do sort of a many man or.
It was.
Sort of spread to like that at some point, probably but like I said, we've got to solve those battery.
It's really got to scale battery production too crazy level that people cannot even fathom today, that's the real Paul.
Thank you let's go over the next question. Please.
Your next question comes from John Thank you go with Evercore ISI.
Hey, guys. Thanks for taking my call.
I want to talk about the the differences between the model three in the model wide beyond the sort of 10% rule of thumb just around cargo in size are there other features that they're going to differentiate the two models.
And then as far as a follow on to that you've talked in the past about how model S sales group.
With the introduction of model X. So are you planning on setting up your production facilities to align with that thesis that essentially model three sales will expand alongside the introduction of model one.
We're not we're not quite sure what's going to happen.
But it is true that model X.
Production model X actually increased wireless sales.
Yes, you would come in that look at the model X they'd like.
Okay for further sedan and we're worried that.
That ECS sales were of course as sales drop it actually crudes increase.
So yes.
From credit for less than what we're not too worried about demand we're.
Worried about production.
This is make sure we get that production ramp going and reach volume production as possible with the model line.
And it's hard for too there's it's always hard predict what that Mitch that that yes. The you know the special part of the S curve of production.
But production pretty much choice pauses ESCO of all it's kinda like a herky jerky S curve.
And you can see.
To predict what is going to be like getting because flow at its use predict question. If you like at the end, but that intermediate Fortunately as per curve is critical to predict so that's.
Also mathematics hard work and and just reacting fast to issues that arise.
So.
Yeah, I think we're risk.
Got to go as best we can with Lorawan ambitious great product.
I think there are some things that will differentiator, but not.
Yes, Im sorry, where turbines cool.
And I think so when they do what people do a tear down of the bottle why I think there will be impressed about sort of things basically.
And just to add to that.
I think it's important to keep the model line launch in context of Synnex 18 to 24 month.
Well, we're working on here between Berlin in Shanghai in Fremont is to have three enlai locally produced in a location yeah Intel.
Model three is expanding that's not a lions expanding maybe ups and downs varies factories as we get to the journey of having these products on all the major continent yeah.
Also the rule of thumb of 10%. It I think you need to see it when you see the car you realize that it's not.
Just a 10% different car.
It's it's it's not just that there's more change happening like to the customers perspective as well.
Alright, Thanks Bye.
Thank you looked over the next question please.
Your next question comes from Colin Rusch with Oppenheimer.
Thanks, So much guys can you speak to the pricing strategy in light of the China price reductions as well as the mission to increase TV adoption is there a target for gross profit or operating profit on a per vehicle basis that we should be thinking about or how should we really frame that first off.
Yes, I mean.
We were trying to make the cars as affordable as possible as fast as possible.
While maintaining reasonable what level of stopping at least a little bit profitable and growing like crazy and having good free cash flow and accumulating cash balance.
Anything right now I think that's that's fair Yeah, Inc.
Our order rates supports the pricing that we have right now we're working very hard to reduce cost and.
And expand production because it made me feel from the did it's pretty clear that there's lot of interest in our products and.
So as we're working on and to increase production increases lvs availability of the products with time.
And that price reduction in China kind of the first step towards this global localization more accessible price and will continue to work on cost reductions in China as we do in Fremont and grow production.
Yes, the thing that's really going to probably just have a profound effect on financials is like is high volume and high margin obviously.
But high margin part comes from autonomy.
So do fueled by the wholesale driving package or not it ended up by a worldwide or only in certain places.
For example, our autonomy is not as good and trying to answer is in the U.S.. So pure people very swaps and fueled by the FSC package are trying it but as we as we fix that they will see a much higher percentage of people buying.
And as we get closer to full so driving.
That's just going to come more more compelling.
That's for financials have my best to real Mindblowing situation as high volume.
Hi margin because of autonomy.
Okay, and then just shorter term this significant discussion in the industry around moving to higher voltage on the powertrain and then some challenges around the supply chains preparedness to support that separate from the battery packs since we'll talk about that in a couple of months can you speak to the areas of focus on powertrain.
Technology, driven cost reduction over the next 12 to 24 months, how we should be thinking about.
Well I'll contrast, pretty damn good I mean, its way better than anything else other by country mile. You know it's worth noting for example at the.
The model S has like 100 kilowatt hour pack, but.
Hey, Dan has a 100 real would like 95 kilowatt our pack the model S is steadily approaching 400 miles range to take Ken has 200 miles branch.
So.
We must be using that energy pretty efficiently in the powertrain is a big part of that.
I would just say the focus is on costs on the powertrain.
FEMA technology innovations, it's how do we how do we continue to drive the cost down Yeah, and you know that's true.
Voltages, maybe one angle, but there's certainly others that just enable more parent entity and lower cost.
Upside proud trade is like my lawyer.
Yeah.
Coming out later this year into the air probably that's our goal.
Our trade out in a year.
And then it's going to be like this is like alien technology.
It's insane.
Tom up I I think I think we could do yeah, I mean honestly I thought was no way.
Let's kick <expletive> engineering team.
It's tough to.
A little about hardware engineering.
Great. Let's go to the next question please.
Next question comes from Emmanuel Rosner with Deutsche Bank.
Hi, good evening everybody.
Assuming in your slide deck, you had the comments around.
Average selling price being stable or thereabouts in 2020 can you maybe walk through some of the puts and takes how you see should help desk.
Patrick involved obviously you had the model why which probably would have initial higher pricing and then the China model trees at lower price. So I guess what are the puts and takes for what you see it sort of like state really SDN 20 Twond.
Uh huh.
And in the probably better and better.
Yes.
Thank you.
Oh, yes.
What I would call about it.
Prices and stuff.
Yeah.
We'll adjust according to what the demand looks like right now is pretty good maybe that'll change your nose.
Yeah I.
Turning to let you described to just there so I mean relative to the current model three.
China model to pricing slightly lower.
And our model I pricings public on the website. So you can see then it's only slightly higher than than my model three is not a 39.
I have a mix of those three products and that's how does it of course, if you will see.
I think it's probably fair at the moment to assume the mix of the assays fairly stable in terms of Nancy you have or some together.
Yeah, I mean, it portability of our card and try to improve radically because of.
No.
Very.
Tariffs, mostly going away purchase tax exemption.
Local cost supply.
Having to spend bunch money to transported over the ocean.
So that the affordability is nine day for content.
Thank you let's go to them next question. Please.
Thank you. Our next question comes from Dan Lady with Credit Suisse.
Hi.
Good evening. Thank you for taking the questions just one follow up on the question on capital raise.
Given the cheaper cost of capital and this is a real competitive advantage for others.
I wouldn't it make sense to raise capital to either pay down debt her to pursue acquisitions, especially bolt ons that could help you accelerate capabilities and.
Autonomous or battery technology.
All right nobody acquisitions, we'd love to hear about them.
[laughter].
Yeah, sure sounds great which require.
Hi, how well I it given the importance of autonomous I imagine that this is an area that you would want to accelerate if you view it as a as a crucial competitive advantage.
We're not aware of any one that we'd want to acquire.
Okay and debt debt pay down.
Polluting the company to pay down debt doesn't sound like waiver.
Okay, I think the broader <unk>, it's been a couple of versions in the question over the course of the call <unk> I think what we're saying we're probably is that as we look forward on a cash generation from the business relative to what our claims are.
We are not constrained yeah, we're going to pay down the debt. Just you know as time goes by would pay down have happened.
Well, you dolls, where the debt last quarter. So, we'll just keep steadily paying it down.
And yeah.
So.
Yes.
Yeah, I don't think really more say on that front.
Okay. Thank you look over the next question. Please. Thank you. Our next question comes from P. Airfare go with New Street research.
[noise] Hey, thank you so picking my question.
I wanted to come back online.
Are you going if I just got so you kind of you show you should have 800000.
So we shouldn't capacity T cells gosh. It was that's geometries documented exiting the assets.
And then the shop.
Yeah actually storage business. It means you probably north of 60, Gigawatts, especially question you question you Sue.
If you just standing now how do you get there.
And then it gets like your competitor Who's who would like you can pitch, we you seem to be struggling to June .
<unk> grew.
We capacity.
So you can just take us through what you're doing differently. Why you didn't you can do that you teach like nobody has done.
Well, Yeah, I guess, you know a lot of people sort of eight part of us for not like you know the open for both cars and both capacity and it's like now to turn it turns out actually even the pros have trouble with it you know it's pretty hard.
So yeah.
But the fact is we've already demonstrated massive growth and so production capacity out of the Gigafactory, Nevada.
And do you have to go from the sells to the modules to the pack. So it's hard to sell capacity, but also module and impact capacity.
So we've just gotten pretty good at that.
And we worked well with the key partners like kind of Sonicone.
I'm sorry relationship has been excellent.
There's been a great partner with us for for many years.
We've added some additional partners out as a smaller scale or with LG and Cabo and.
Yeah.
More talk about this in detail in battery day, except probably you know probably April .
Very compelling.
Strategy.
I mean, we are super deep on sell through Verde and sell sell through Vetri curve, So modal battery.
Or is everything went out thanks.
I guess had said it all were Super duty me, it's it's a great [laughter] rabbit hole, Robert all goes down pretty far.
Seven digitally.
Yeah, but its own is weak.
Patrick reduction.
Man, who we know a battery Steve.
I think I can see that.
It sounds great [laughter], the only thing and I would add as you know we do have a decade plus of experience of not just like what itself should be but how to integrate into the product and that's really yes, absolutely how to manage the cell and module battery and through the for weather conditions and.
For environmental or charge regimes, and while we were really.
You know about batteries.
Yes.
The next level.
Right.
Okay. Thanks, Yeah.
Quick.
They put up for you guys. The rights I can you give us a sense of the type of the ramp of Shanghai.
Youre going to in Q4.
Yeah, Yeah, we were negative gross margin on the products that we've built from Q4.
But the team in China, I think kind of great job managing cost during the launch and so there was a slight drag associated with it but not terribly significant.
Okay, and let's go through the last question. Please.
Thank you on last question will come from Joseph El show with JMP Securities.
Further to the conversation around does sell technologies wondering if you can comment on what the plans are for the Maxwell technology that you acquired.
As a capacitor or dry sale or what have you. Thanks.
Well like I said, we're going to talk about this battery day, which is probably April .
And then a lot of these questions will be answered I think it's going to be a very compelling story that we have to present.
He has got actually book People's minds.
Was my mind and I am.
I know its.
So.
So were pretty cool.
Maxwell's Maxwell that that Ultracap technology is kind of part of the part of the plan.
It's an important piece of the possible yes.
I think like some of this this is sort of retail investors or.
Finished put together several piece of the puzzle.
They seem to have the most insight.
I still have to read the Baltimore. Thank you.
You're welcome.
Thank you very much for everyone for all of your good questions and we will speak to in another three months. Thank you. Thank you. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.