Q1 2020 Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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And that's the question during the session you want me 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 not only thing in the conference over to your Speaker Mr. Martin be at the senior director for Investor Relations. Please go ahead Sir.
I think you sure and good afternoon, everyone well a couple of personal first quarter Twentytwenty Q1, a webcast.
I'm joined today by even more like a record corn at a number of other executives.
Q1 results were announced at about one PM Pacific time in the update deck, we published at the same way because this webcast.
During the school will discuss our business I'll look at 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 asked a portion of today's call. Please limit yourself to one question on one follow up.
Please press Star one now if you would like to join the question Q.
Before we jump into Q any you won't have some opening remarks well. Thank you. So Q1 ended up being a strong quarter. Despite management many challenges and the final few weeks.
This was the first time, we've achieved positive GAAP net income.
In a seasonally weak first quarter even.
Even with all the challenges we achieved a 20% automotive gross margin, excluding regulatory credits well wrapping two major products.
Well, we've learnt from us is that.
Well actually looked a lot here.
For all after the multi ramp from three years ago.
Our new products get faster and become profitable sooner in Q1 reduced well model wise in the first quarter and model three is a pretty much in the first two quarters.
Thus far and bottle why ramp has been even faster than the <unk> Shanghai ramp in Q1.
Surprisingly as always we are ahead of schedule, but we were ahead of already.
First pricing.
Lot of why was profitable ready and its book first quarter production, something we haven't achieved with any product in the past.
Regarding autopilot released and new software update for traffic lights and stop sides.
Too early access uses in March and to all years customers.
But with full circle, sorry package just last week.
Our cost will not automatically stuff at each stops idle topic license will drive it gets a confirmation to proceed.
I should say I should say that cars executed with much more than us, but we are you only.
Exposing functionality that we feel.
The quite good about right, where we feel that it is.
We safety improvement.
Okay.
We are we're collecting data from over a million intersections every month at this point, but this number will grow exponentially as more people got the update and it's more people start driving again soon we will be collecting data from over a billion intersections per month.
Well the Bose.
Right all of those confirmation so trading under old that's essentially the the driver when driving and taking action is effectively labeling or the labeling reality as they drive and mission drill at better and better.
This is an advantage that no one else house.
Okay, and we're quite literally orders of magnitude more than everyone else combined.
Mike This is difficult to fully appreciate.
That's the reason that say, it's very difficult to have a search engine that competes with Google because everyone is trading Google overtime with is with the with her searches. So what we knew searches something and you click on a link you're trading Google every time, you do that is very difficult for any any new search engine to compete on that basis.
So.
What's the although its combination so trading under illness.
Because we'll be able to drive through an intersection of out of confirmation as well as to make tons and.
We're really feel were I feel extremely comfortable extremely confident that.
We possible to do a drive from your home to your office. It most of the time with no interventions by every year.
So this.
This is.
We can almost do this.
Already with B.
Leading edge Alpha both.
That's kind of driving a car.
So let's see on.
Another technology front fronts.
We increased the range of model, that's an ex yard game.
It's time to 391 miles for model S and 351 miles from bottlenecks.
It should be said, but actually the model, though the real model as range.
As is 400 miles.
But when we took the last EPA test. Unfortunately, AK left the card or open and the keys in the car. So the car and they did this overnight and so the call actually.
What went into waiting for driver mode, and lost 2% of its range and as a result had a threed actually won a test.
As soon as the EPA it reopens protesting who will review a test and we are extremely confident but we will achieve at 400 mile of greater range with the model S, but to be clear the Melissa.
For the past two months.
The true range the model S to two modes and has been 400 miles.
And of course, we're not stopping there will always continue pushing for improved range over time and improving improving handling acceleration.
Well, a little detail can make a telcel special.
For Muddle, why we introduced a revolutionary two piece.
And to what it casting.
That's a real I'm going to making a single piece casting later this year.
Essentially the rear third of the body is cast of the single piece, which is.
No no cost here of the size of complexity as has been done before.
In fact, there isn't it even anything that is.
There is on the on par with the two piece casting for them away. So.
We're really pushing a blip on the pickle structural engineering and manufacturing a very excited about this this approach as it allows us to reduce the ways the cost and Adam and improve.
And the age it's better in every way essentially.
We also from what do I also introduced a revolutionary new heat pump.
Which allows the caught a have a higher range. So the model I has remarkable range.
You know on par with infection or slightly better than I guess, the level three and despite being a bigger car that ways more and because as you probably as a key contributor to that.
Hi, this is especially excellent.
Low temperature driving.
So.
And on the feedback we're getting from customers who have received the level like thus far has been universally positive.
We're confident this plus product will be best selling product ever.
So uh huh.
In conclusion.
[music].
And then just to look at looking for I guess because forward looking statements [laughter]. We we are absolutely continue hearing.
Our model why capacity expansion at full speed at both gigabyte tend to get your Shanghai.
And I'm sure in Fremont when that will let us.
Continue.
Looks less production and trying to and in Europe will bring the cost down they can't parts, even more competitive overtime.
Well it many other companies are cutting back on investment we are doing the opposite.
We are absolutely titles the metal.
On new products and expanding the company.
And we're really can afford to being in.
I'm trying to next year, a truly global manufacturer with major factories and.
North America, China, and Europe added capacity of well over a million units here.
So there's a transfer output for two and we've had.
Can't wait to tell you what's going to happen.
Thank you.
Thank you and out to Zacks opening remarks.
Thanks, Matt and thanks Ilan.
I'm very proud of the accomplishments of the test my team this past quarter.
A few things to highlight and add to let you lines attention.
We successfully launched ramp and demonstrated profitability at the model lie.
I mentioned significantly ahead of schedule.
This is our second large scale product launch since model three in 2017 and its evidence to the progress you've made on cost control and rent efficiency.
It's hard to understate the significance of demonstrating profitability of this program in its first quarter of production.
Our Shanghai model three margins improve dramatically since Q4 last year nearing equivalents of model three is built in Fremont.
This is despite not yet running at full capacity, while also managing to the production shut down in early February.
Also announced a long range and performance variant of the model three her heart, Redknapp, which will positively impact ASP in China.
On order rates, we did not experience much has an impact related to the expiration of government incentives at the end of Q4.
In fact, we exited the quarter with our highest ever backlog yet again.
Aided by these accomplishments you're able to achieve our first ever Q on profit.
Automotive gross margin, excluding the impact of regulatory credits remain strong for all products. Despite charges taken in Q1 associated with production downtime.
We continue to make progress on opex efficiency as well as their service and other margins.
Our energy business was impacted as well by shutdown activities in Q1 limiting deployment.
We also experienced expected launch inefficiencies associated with a third version of the solar roof, which impacted overall profitability.
As I've noted before we expect regulatory credit sales, which are credits we sell to other carmakers to generally increase with time.
Can be seen by the increase from Q1 relative to Q4 and note that most of the credit revenue did not contribute to cash in Q1, and it's reflected in the accounts receivable on the balance sheet.
Our free cash flows were impacted by the temporary and by the temporary increase in end of quarter inventory for all our products, resulting from the abrupt suspension of production and delivery operations.
Now these are interruptions not occurred we were pacing towards a record quarter, if deliveries and strong free cash flows.
Have you had mentioned it is extremely important that we remain on track to achieve our long term plans and technology Road map.
You are taking the near term actions required to continue this investment.
Not a light in Shanghai in Berlin are proceeding as planned and we're making progress on improving capacity from out of line Fremont and model Threed in Shanghai.
In the near term, our Shanghai factory remains operational contributing an increasing level of cash flows and profitability to the company.
In Fremont, we're working towards restarting production as soon if that's possible.
We're also continuing to deliver cars that we were unable to deliver at the end of the first quarter.
Vehicle inventory balance increased by 14000 units at the end of Q1, which was a headwind to free cash flows in Q1, but it's helpful. In Q2.
Not that one is the most important aspects of model line Fremont and model three in Shanghai is the dramatically improved cash conversion cycle by locally producing and delivering vehicles.
Well sales and delivery operations have paused in many areas of the world. We're still receiving many online orders despite inability for customers to expensive product parent ordering.
However, unavoidably extended shutdown in Fremont will have an impact on our near term financial performance and we will need to work through how quickly will be able to rent production to prior levels.
More broadly we remain focused on ensuring a cash flows I managed appropriately working capital management in particular raw material inventory is the single most important lever and managing our cashless. During this time the test the team has done a great job here.
We've also taken action to eliminate or reduce non critical expenses and optional investment.
While continuing to drive efficiencies throughout the business.
Overall, we've modeled at many scenarios into 2021 and remain comfortable that we have sufficient liquidity to proceed for late within most important long term investments.
Hi, it's important to note that Tussling remains an extremely agile into name at company and this is aided by the substantial work we've done over the last year to improve our cost efficiency and productivity.
And we have the ability to quickly adjusted spending and planning as required.
Thank you again for it to the Tesla team for.
Success in Q1, and we all turned to question.
Thank you very much so we'll take the first questions from institutional investors compiled by say technologies.
The first question from institutional Investor is.
Most of the owners have yet to purchase or experience FSD beside most vehicles I think all the necessary hardware what levers could you pull to accelerate adoption and deepen your data advantage. For example would you consider offering efficacy as a premium subscription.
Oh, I think we will offer full so to having as as a subscription service, but it will be.
Hi towards the end of this year.
Oh, it I should say it will still makes sense as <unk>.
To to buy FSD as an option as.
In our view by FSD is isn't investment.
Yeah, the future and we're confident that is investment that will pay off to the consumer to better for the consumer.
In my opinion.
My guess is if steel option, if something people will not regret doing.
I agree and financially rolling the upfront purchase have your that have the FSD option until alone in the vehicle or at least.
And we'll be at least expensive Atlanta monthly basis to own plushy preserved the option value increased value with time, yes, but we do understand that some customers.
I have ownership or at least a vehicle did not purchase that option upfront and so this will enable those customers.
Sped up the cost of ownership of that 50 or subscription at the time.
Absolutely I should later like at a high level.
Our overall goal is to maximize the area because of customer happiness that historical ever think that you know that's the kind of thing, though company should try to do.
And if that's what results in long term value creation and look at low LTV guest loyalty. So our goal is always to do the best thing for the customers and and we're confident that but.
Yes.
We are behave like that that they customers in turn will fall.
They haven't stairway to us.
Thank you.
Second question from investors is.
China recently announced changes through its NTT subsidy program that disqualifies, a slow vehicles from benefiting from the subsidies to what extent is there room for Tesla to lower manufacturing costs in China and possible savings to buyer. So they can qualifying for the subsidy.
Yes so.
We are making rapid progress on lowering the production cost in China.
And.
Actually excited to announce on this call back we will be reducing the price of the standard range model three.
So basically tomorrow, China time, so the day after tomorrow, California time, but tomorrow try to site and nothing but they'll be a price blow the sub sea load or were you feel confident but thats will still be a vehicle that delivers.
Gross margin.
Yes, and on the manufacturing cost portion of the question.
On the cost of vehicles produced in Shanghai in Q1 is already lower than the cost to produce amount of three in Fremont.
And there's still significant opportunity left to take cost out so fixed cost absorption from higher production volumes, which are occurring in Q2 little current through the rest of year.
We're not fully localized on the supply chain, yet and so while a lot of the supply chain is localize is now complete and there's additional opportunities there.
And so we'll continue to bring the price down and expand margin cost down and expand margin even with this reduction in price that you I mentioned on the standard mange version of vehicle.
Thank you. The next question is and the grow once said that great companies are improved by crises.
In which way has the slight improved or <unk> or is expected to improve coming out of cobot 19.
Well it where it has caused us to look closely at our cost structure and to be more efficient as a company.
That's.
Yeah, what always has to do that in a crisis.
And.
It is thinking about a coal beliefs and what do we want to do and we take a conclusion that.
Right right, where it was actually to continue to expand rapidly continue to invest.
In the future in new technologies, even though it is risky.
And we'll talk to some are key to investors and they support that approach as well.
So.
[music].
I think that those skus clearly an uncertain.
The future had its but have a bumpy road, but I.
I think the belongs home.
Prospects are extremely good.
Hi, guys, where.
And with that Ilan.
Prioritization on the key projects well enable us to execute more efficiently and faster on them, which I think it's great.
The other one than I would add is it's always been our vision at Tesla.
Improved customer experience and and make that as digital as possible yeah.
Delivery, so touchless delivery mobile service I touched on a sales has been something that we've been very focused on and made a lot of progress on Yep Patel, who is the only part of that you can hear literally orders and.
Less than five minutes on your phone you can order a car and have it limits your doorstep.
With all the paperwork everything done.
That's it effortless and many customers do that and they're doing it yes in fact, a big part of it it's just.
Communicate to people at this is something you can do because normally buying a car is quite a bit.
For most people they would rather go to the dentist and buying new car.
You know.
[laughter].
Actually my Dennis is great [laughter], if it was really like quite an arduous thing.
<unk>.
When the.
Typical retail so expressed by in your car is.
More Paypals people, then then having a root canal then.
I have to say well and for Tesla. It is completely as easy as ordering something from Apple App store ordering something on Amazon and understood the car.
Yeah.
Great Thats Vyvanse is if you're really went fast I think you could order car probably 90 seconds.
HM.
Thank you.
A question from institutional Investor is can you give us a brief review of the battery day, but generally hot highlighting steps dislikes taking to improve so the energy density and timeline for introduction.
Yeah actually were just.
We want to preempt a battery day.
[noise] what are they want to leave the.
Exciting news for for that they but there will be up a lot of exciting used to tell.
And I think it would be what are the most exciting days and until those history.
And we're just trying to get right, having said that we think probably the right Tony will be the.
You properly with third week of May.
I'm not giving up some data, but we think that probably that's right timing.
And depending upon what we're allowed to do it will either be in California, Texas.
Okay.
The last question from institutional investors.
Could you please update on progress towards development in companies that commerce at least the commercialization of full self driving how much revenue have you recognized so far.
So.
It's a couple of things on the financials for full self trial.
And so currently in North America sold for $7000. That's an option, we take roughly half of that as revenue and the other half as it goes into deferred revenue.
That's associated with features that will be released with time.
Third revenue balance is continuing to grow a little bit over $600 million.
And so as we released features let's time at the end of every quarter and take a look at what features have been released associated value and then we can release that from the deferred revenue into our financials for that quarter.
And then cars going forward.
That's a features release, we can recognize that revenue. So we reduced the amount of to for only can recognize that revenue within period.
<unk> I mean this is one of what we think will be one at the most powerful gross margin leverage from the time as the features we just rolled out.
Absolutely, but there's also a trust about untapped potential and.
But the the fleet out there that could upgrades to turn on autopilot basic autopilot awful self driving and that's something we will enable there just as a simple enough purchase or as we talked about earlier just.
Towards end of year as a subscription so.
The that's that's just a a lot of untapped potential there.
But that's not in the deferred revenue line, obviously, but is certainly a great deal of deferred potential that we think is a large portion of which is like you likely reach fruition.
Thank you and now let's go to questions from the retail investors a question number one.
Well has mentioned a 50% compound annual growth target for Tesla in the past is this still in line with teslas ambitions for the next hockey than years. This was a b 4 million vehicles in 2025 in more than 20 million vehicles in 2030 is 40% or more realistic targets.
Well, it's always difficult to predict what the macro situation is going to be.
<unk>.
Very few people would have predicted.
Uh huh.
As expected.
Yes, roundhouse that covered and came up with but sort of came about an hour.
So.
I think in in the absence of.
Something.
Some some massive force majeure event like quite massive.
I think 50%.
Because the the likely number.
[music].
It's possible that is 40% I will be.
Very shocked if it's less than 40%.
Even with.
Force Majeure short of what will three.
Okay.
The next question from retail investors when will you announced the next gig how many give us. The you are planned for the next five years.
I think we will announce the nexgate got possibly as soon as.
A month.
What would make remain optus as soon as next month.
This is not friction that you're saying.
That's if that could happen.
Well, let me be within.
Three months.
And possibly one month.
That would be in the U.S.
So.
As for how many will be in five years I'm not I don't know.
Right now what that number would be.
[music].
I guess.
Several more than there are today, but I'm not sure what exactly in five years, but.
So number more than today.
I'll also add to that.
I guess have gotten bigger yes and.
Arguably restart wrinkle Terra yeah.
And with multiple products as well and tell you know the absolute number of gigafactory seem they ultimately build might be less that each one is larger.
And that tender I believe that significant efficiencies by having as much as possible and similar product lines under the same room.
And as much vertical integration as possible all in one facility.
Yeah.
Thank you.
Next question is can you give us an update on solar roof ramp how many are you currently able to install per week.
What is your installations for weeks targets for the end of 2021.
We were actually gaining access momentum with for solar roof.
For covered but I covered essentially shut us down.
Both from the voted to insult antibody to get permits, but the permit offices were closed.
As we were we shall from place to live in place so.
Obviously cannot hit stolen the if you can't get permits and you can't physically do it whether it be impossible. So.
But I think long term trend pool, so roof is extremely good.
And I'm confident that lets say within the next.
Yeah.
You're maybe even by end of year, we should be installing at a rate of a thousand we.
Yes, that's what in the in the middle of winter or something like <unk>, taking seasonality.
I like for support seasonality, we it's hard to install and groups that are covered and snow and ice.
But like you.
Say spring.
I think it's good installing which is the hard part we actually have.
Demonstrated the ability to hit a thousand a week.
First of all rate for the solar classroom already so that's not.
That's not a problem.
It's it's building up the install teams are holding up the third party channel installed as the roofing industry installers.
And ER and I can certainly we want to have at least 1000 8000, so roof and install teams with.
And taking a week or perhaps bullish that are we to do an install which gets you a thousand a week roof installations, we see demand is not as good production is good.
So it's really all about the install.
And then and likes it also bullying the interest trading.
Right.
A diverse.
Group of Oh.
Companies in roofing industry. It's also installed solar is that I think we'll scale lost to scale.
Yes, so far beyond that doesn't away.
We're also seeing a lot of interest outside of North America.
So do you expect us to be a product is international and actually seeing a tremendous amount of interest from China on this or so.
Recall that this this will be a very significant part for the company over time.
Thank you.
Next question is can you elaborate on purposeless plan to enter the residential and commercial HVAC markets.
Can you provide some basics of how youre system will work will be considered the heat pump water heater market as well.
Well as I said on Twitter I'm personally extremely excited to build a kick ass.
HVAC system that also has.
You know sort of hospital grade particle filtration, because we have filtration filters out.
Viruses bacteria.
Pollen.
Phone Guy.
And.
Also neutralizes sort of capital alkaline gases.
That is that is quiet.
Missions.
And these are all things we've achieved in cost of the way back I'd Love your realized but that model S. Next so the only carsten will but have a hospital operating room grade, but hyper focus Bolton, they're very big so.
You can get to an.
Article count that as insanely low with.
With our cars and all three and why have like Mirv 16, or 15 capable filters, yeah. So which is it's not like model three in wire arc donor slack there are no sloshes multilaterals away they way better than any other car specimen knowledge.
Not quite as good as possible operating room, but there are extremely good.
Way better than any other normal car.
And we're continuing to improve the filters on three and why.
I guess this the these actually have a big effect on how you're going to normal just day to day living is reducing.
Article count.
And you have the spectrum allergies and those things so it's really their quality is incredibly important.
Yes.
During the non covered situations crew important so.
There are taking the oldest things that we've lost and applying to homemade track as would be I personally is back would be just very exciting and.
I like your gross you've got sure condensing water like what why don't we also have a few water source.
If you have water you, possibly could then he'd the water and have a.
For water heater as well.
Is it as the heat source, if you needed instead of that sellers when that ours is really cold yeah, or the other way around so assumptions activity how their product so.
We just have to.
So until we wrote tendency to bottom whether we can chew on the card front so.
We were going to make sure we realized a.
And the fired here.
For your products.
Cyber trucks am I wrote your words or.
And the gigafactory diverse across the world.
And as buoyant model why Autopilots.
Solar roof and new technology.
Yeah exactly power will power are packed megapacks, we are seeing tremendous demand for stationary storage.
More than more than we can supply.
At least leased for 2020.
Yes.
Thank you and the last question from the retail as well Thats, let's not acquiring utilities like the horns, they'll power reserve and most lending instead of selling them battery storage does it make sense for Tesla to buy peaker plants and convert them.
Well, we haven't really thought about that yet.
So it's not out of the question but.
Oh.
Our greatest will [laughter].
Excuse me to medical [laughter] I saw the question <unk>, our overarching goal is to help accelerate the elements of sustainable energy and.
And at the three elements of that or sustainable cogeneration, we've got a store the power.
Stationary storage and then you've got a house.
A quick transportation so.
And.
We don't have like six specific marketshare goals or anything like that it's just to agree that we can accelerate that pencil sustainable energy, we think thats a fundamental good for the world and we want to do that as fast as possible, but it's not like that market share growth.
Got you don't have itself. It's just you know fast as happens or was it better off a little bit.
Thank you very much and I think now we can move to analysts questions.
Thank you My first question will come from Adam Jonas with Morgan Stanley. Please go ahead.
Thanks, everybody how about once a safe and healthy I got one question, one follow up and I point out I I've had a root canal before and I would agree ilan.
As less painful to buying a car [laughter] I mean, it really it's yes exactly.
It's a it's a big problem actually at the Big <unk>.
Yes, you every conversation.
Back first for you any real time update on company liquidity at the end of April some some companies have you know given the circumstances.
Going out other way to give a little color on that just wanted to get your shot at that I got <unk>.
Yeah. It's a fair question I don't have any additional color to provide so 8.1 billion in cash and cash equivalents at the end of Q1 or managing it very closely.
As I mentioned in my opening remarks, we do have an increase in inventory of vehicles.
That we are unable to deliver at the end of Q1, so we're making progress delivering that.
Yeah. It's a fair question I don't have any additional color to provide so 8.1 billion in cash and cash equivalents at the end of Q1 or managing it very closely.
As I mentioned in my opening remarks, we do have an increasing inventory of vehicles.
That we are unable to deliver at the end of Q1, So we're making progress delivering that through April which is helpful for liquidity.
And.
As we've been looking at liquidity then looking at this over the next 18 months and its ups and downs to the not to the liquidity.
Currently now as we're not producing we still have panels from Q1 that we're paying off but then in a couple of months well could only be through that and then well have the gap intangibles. Since you don't have any parts coming in that does go up and down a little bit, but you know in looking at the long term horizon, which is how we're managing it right now we feel pretty calm.
Trouble with Citi positioning the company.
Yeah, Yeah, especially if they were.
We are a bit worried about I'm not able to resume production.
In the Bay area and that should be identified as a serious risk.
The data that we really have to call factors right now when in Shanghai, and whatever area and very produces the vast majority of our cars.
All of that snacks.
And most of the three and all of the way so.
The the extension of the shelf replace or frankly I'd call. It.
Forcibly imprisoning people in their homes.
Against all the constitutional lights with my pave the way.
[noise] breaking People's freedoms in ways that are hard water and wrong.
Why people came to America opus country, what the clock excuse me.
Triple.
Operating system outreach.
So uh huh.
But it will of course, great home not just this has little bit steady companies.
And well terrible weather the storm there are many small companies that will launch.
And all of peoples.
Everything if you will work for the whole I forget is going to is being destroyed in real time.
We're going to have many suppliers and our or has that expires benefit super hard times, especially small ones.
And.
It's causing a lot of strive to a lot of people.
Yes.
Well you want on that point, you mentioned people that gave their lives to build the country. My fault for you on this has been a lot of comparisons are drawn to the.
State of the U.S. economy that early 19 thirties on Roosevelt began a series of new deals and infrastructure project.
Or post World War, two when Eisenhower watch that you a highway Acton and JFK launched the Apollo program, which you could say was influenced by the Cold War clearly.
And you benefited from in our space program benefited from what would be your message to U.S. lawmakers on this call as we.
In addition to get your opinions on shelter in place, but thinking longer term your message to U.S. lawmakers coming out of the crisis, specifically around infrastructure and that's a chance to kind of.
You know work with tax payers to support sustainable transport renewable energy I'm wondering if you see this you know as a chance to.
Make make the crisis and all the loss and lives lost not being Ben Thanks.
I think it's high time, we invested in infrastructure. This country, we have a lot of.
Crumbling highways and bridges and.
And frankly.
When I visit China, I see their infrastructure as being much better than house, it's great.
[music].
Europe is better infrastructure, it's it's it's really quite sad the U.S. infrastructure.
Especially sort of roads and highways is where it is today.
Our airports made a lot of cases are or an embarrassment.
So.
And it's not just a question of money, especially.
So.
And just talk just a question of money swish of will and as soon as we spent a lot of money on these things, but what are the game quoted for it.
So.
And we grew eight to be picking that was the transportation for the future of the presentation back over the past.
If this was.
1920, do want to be investing and steam engines or internal combustion engines.
Obviously.
Steve engines so.
This is a times thing about the future.
And also to to ask.
'cause it right to infringe upon People's rights as what is what is happening right now.
The bank, but people are going to be very angry about this and are very angry.
Yeah, just somebody should read if somebody wants to say in the house. That's that's great. They should be a lost in the house mission of the compelled to leave but to say that they cannot leave their house and they will be arrested if they do.
This is.
This was a took this is a this is fascist.
This was not Democratic.
This was lot.
For the freedom.
Give people back the Guardian freedom.
Okay, Let's go to the next question please.
Thank you. Our next question comes from Emmanuel Rosner like Deutsche Bank. Please go ahead.
Hi, Good evening question on on model why.
I was hoping you can elaborate a little bit more on the drivers of.
How the gross margin is already positive as such low volume.
How much of it is a function of the criminality would the model three what's the other factors should we think about and what does that mean for the outflow.
For the eventual gross margin them all the way.
Exactly.
Sure.
Couple of thoughts there from lie.
On.
The first is it does carry a higher ASP. So on the revenue side it carries a higher ASP and model three.
And then deliveries that we started with where the higher ASP versions of the cars. So we started with deliveries that performance.
Initially.
So that helps create some of the margin.
And that will come down the time as more variants are released and we have more of a steady state next but it's similar to the ASP trends that we had with model three let me launching that product in Fremont two years ago.
On the cost side and I think you hit on a couple of the buckets. The commonality is huge that's very important.
And in addition to that manufacturing processes aren't very similar to model three as well. So we have experience at that but with monitoring Fremont and then as well in Shanghai.
And it helps to have an existing factory with existing workforce and knowledge here as well for the ecosystem to support in launch the product there.
There remain on a lot of opportunities to take continuing to take cost out of the car and then the number of vehicles that we felt in the first quarter is is quite limited relative to wearable, though it's good would take cost out of the car aspect the park better so its attacks and it's not make parked worse. It's.
And equal can take cost out or car make it was.
We want to say cut costs other car figure out how to make it lighter.
And.
Simpler and and so it's.
What the car just just incrementally improve I suppose incrementally over in cost.
But you know for four or five SEDAR model why we expect.
You know marginal cost that car to be comparable to the model three.
Once we have reached say path.
The 10 or 20000 units or something like that.
An account.
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No.
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Ladies and gentlemen, please standby your conference all resumed momentarily. Thank you.
We will actually.
Speakers your back on line.
Hi, sorry, we got disconnected for some reason.
What was the question again.
[noise], Okay now let's go through the next question. Please. The next question comes from Ben Kallo with Baird. Please go ahead.
Hey, Thank you very much.
So just wondered about the Z so strategy.
And in Reno you have.
Obviously.
I agree.
There but.
By itself I think in Shanghai.
Well, we think in Germany.
So our how are you looking at that going forward.
Then just talk about mission was you know.
Order dish.
The process.
Got it gives the board.
<unk>.
[laughter].
Oh sure from a self perspective, you know.
All the partners we've had historically in in the future. We're just looking for a.
Additive technology and competitive pricing.
I think we'll talk a little bit more about this and battery investor day like how we're approaching all of it.
But but yeah I mean, we don't have like one model where.
Restricting ourselves.
Pursue we're just trying to find what's best for the products on the and and.
In the long right.
And then.
The other question about the board.
So I couldn't we couldn't hear the second part of the question.
Yeah, I was asking about Mr Mizuno better entering the board.
The process behind that what you breaches.
[laughter].
Oh they.
Well, we all need a hero.
[laughter].
And.
Obviously, if the braced for where sort of like Pittsburgh investing at the highest levels in the world.
Got it hits on her work as it at the and pension fund, which is the the largest I wonder.
Anytime in the world.
And.
Generally because there are several years.
Just trying to triple in phase two.
Yeah, how the.
Securities critical security markets work or what he thinks is <unk>.
Good weather areas for reform this.
It just seems like to have a strong philosophical differently about.
How to make the future better.
And.
Okay sure. It shows up you everybody environment.
And then.
Just a very very sensible smart person.
He brings a lot to the board.
And I think.
Just generally recognized as such.
I'm wondering if people.
I guess I guess switching into Panasonic relationship.
Maybe just.
How is that relationship going here.
It's or a read through on free develops.
Thank you.
No I think this is certainly through with the past cycles should.
I mean I have a great relationship with US next year, we remain regular you want to one and it took over time and do.
So that's a relationship is strong.
Uh huh.
The just the you bring more.
A broader global strategic a few switchboard.
Thank you let's go to the next question. Please.
Our next question will come from gene Munster with live ventures. Please go ahead.
Congratulations on the progress you already talked about full autonomy by the ended the year I would love for you to walk through the rollout strategy of that Tesla network App and how that's going to look prior to the robo taxi stage or you're going to gradually takeover human routes with their tireless capable routes overtime or how do you see that playing out.
Okay.
Well, it's pretty much going to play out as as it has put laid out which is will releasable more functionality and before we reach released any functionality. It goes through extensive testing and of course, you run it we ramp up.
Stimulations teamed up.
As a.
Very good.
Simulation of the real world.
So we run a co changes through battery chests and situation then we.
Global through 18, which I'm on actually I'm going to.
On a go across your team.
And we test.
The leases in the real World real we'll find out the difference between real world and the situation, which is which are.
But very funny, because the world is very complex where.
And then we will use it to a small group of private beta testers within the company then too.
Larger beta audience.
Equally if you buy side the company then too early access.
Joseph owners.
And then finally a border lease.
And so it was up there many stages that these things go through so if I was hoping is.
When you're going to wide release into U.S.
There's going to all of those stages and the software that's up at the very early stage. It was much more about Washington.
So.
Let's just go to go through over they regrets safety assessments.
Yeah. So.
Especially we need to.
Okay got it get very good a complex intersections.
Very good a complex turns and intersections.
And then.
It seems like busy.
Malls in a parking lot or.
Office Park or.
<unk>.
Special events in sporting events, I kind of thing when those eventually come back.
You got to be fill those those are extra huh.
Cases.
But.
It's all tracking very well, if you're lucky what of pellets injury team is.
This is just recently extremely talented group.
And.
Oh I'm deeply involved with the team.
So we spoke every week.
And meet every week, when you're kind of as announced medical meetings at school.
So I have a credit deep understanding really on we're headed and.
I feel like we have transmitter momentum.
And we'll have the functionality through pool.
Will surprise anybody out here.
After that functionalities released as to another stuff, which is too.
Okay.
Okay improve the reliability of it once was released to kind of cool surprising with with humans wish the supervised by the driver.
And then if we keep improving reliability to the point where.
It is no like needs to be supervised by the driver and we provide a vast body of data to regulators to show them, but this was the case.
And then presumably the regulators.
I mean on which jurisdiction it is would get approval or fully autonomous cars that can drive with no human onboard.
I see the regulatory approval process that booklets too.
Predict.
Accuracy, because it's not about him.
But.
The rest of that I I feel very good about Laura.
<unk>.
Summarize we want we're going to get.
Owners full autonomy some level of that by the end of the year and then a human in a loop tests on network at some time a is it first half of next year that'd be the old.
[noise] during like what kind of car driver no personal.
I would love with a person initially a person to observe that the with the test the network App would that be really part of the year I'm 2021 that the hope.
As described as a hope I would say that that's probably fair disruption.
Okay, and then you know kind of ticket to its end stage the robo taxi stage any high level thoughts I understand the regulatory is a massive unknown.
But.
So you're going to put a gas on it.
Where would we start willingly 17 robot taxes.
Well.
I think.
I think I think it's quite likely.
In my view.
Got it.
It'd be long on.
Uh huh.
Yeah, that's as you see because of where our head and centers I live behind and others, because when I give you when it when I guess when I give a guess I give the gas, but I think is the.
The the likely mid point not be the point with lots of margin.
If this is normal distribution I give you the fiftyth percentile.
Not be three segments.
You know optimistic or pessimistic and so then that's really means at least outnumbered issues will be wrong it happens to be right.
Yes.
What might be rights, but.
Bye.
Yeah.
He reached a.
A few months in some cases a few years.
I because.
Everything I've never said would come true did come true and they've come through late but.
It did come true.
So.
Hey functionality so much stronger.
But I always come through in years.
So.
Yeah, I think we could see.
Robert Taxis.
It's been operation within that would lead next year.
It did not know markets, but and so.
Thank you and let's go to block question. Please.
And last question will come from P.F., a real <unk>. Please go ahead.
Hey, Thanks for taking my question.
Gross margin first.
Sure.
Thank you all mentioned Q1 so.
Three moving parts that they range from credits of course.
And why ramping even if he should breakeven.
42, <unk> average gross margin down and of course, you had like from being closed shut down the last week of to quantify what do you want to soften makes my question. So.
When I looked at how gross margin is almost sequentially. Excluding these three moving thoughts I felt like you owe to gross margin increased I'd be a like a couple of points.
Sequentially, So I wanted to check reserve.
Alright, thank you.
Sequential market.
Okay.
Oh yeah.
Yeah. So the three things that you mentioned it in a little bit of a hard time here in the full question here, because we're having better network difficulty in the ground I'll do my best here.
Well when we look at margin we do exclude credits as you have so I agree with that.
Model like ramping bringing down overall gross margin I agree with that as well.
It was lower than the overall average.
And that will increase over time.
And shutdown inefficiencies and best Shanghai and.
And clean onto also laid on margin.
And the Shanghai margin blades and below the average as well, even though it's increasing quickly in approaching a lot of room, it's still plenty of it.
So I.
I think that sentiment of your question was if you like to remove that's bacteria.
Let's now a sequential increase in gross margin I haven't specifically calculated that but I think your intuition is right.
We saw.
Strengthen gross margin across the border and then Sharon and in particular Athenax gross margins continue to improve.
Despite slightly lower volumes, there and higher cost monetization. So that's good progress happening on ASCII sign in the cost reduction quite far product. Some production and I think that's also lends itself to the tower.
Gross profit contribution to the company once we get through these happen efficiencies, we get things line up and running again, the increase capacity and we can spread out.
Hi, and continue to execute on cost reductions on our product.
Optimistic about that path going forward.
Thanks, and I had to put up on on energy storage. If you can hear me when.
I think like I called trend.
I think from the very first days I heard you on the cold you've always mentioned that demand for energy storage is always outstripping supply and you have more older than you can.
And so I'm kind of thinking that we'd be there should be an inflection point to that these nice at some point, it's going to be driven by you ABT too much more manufacturing capacity like battery manufacturing capacity and I to highlight.
How are you thinking about that inflection point in terms of timeline.
In terms of timeline I think.
What we've been doing with with both our partners and internally and looking at how to reduce the fundamentally the cost Oh.
Investments in new cell capacity because.
When you look at.
A car.
Vehicle product you know, there's a lot of things in the vehicle decides to cells. When you look at an energy storage project product, it's really just itself and so it really grow the energy storage business, it's all about selling doesn't.
And so that's that's what we've been focused on and and and I think yeah not to give too much away, but that'll be one of the things you're dressing and battery in Investor Day is how we're focused on that and when we when we have that into place. We won it'll be a lot easier to scale that business.
Thank you very much for all your great questions. Unfortunately. This is all the time, we have today and we'll speak to again and three months time. Thank you very much on had a good day.
Ladies and gentlemen, this concludes today's conference call. Thanks for your participation you may now disconnect.
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