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Good morning, good afternoon and good evening wherever you are in the world, welcome to EV News Daily for Friday 26th October 2018. It’s Martyn Lee here and I’ve been through EV story today so you don’t have to.
Thank you to MYEV.com for helping make this show, they’ve built the first marketplace specifically for Electric Vehicles. It’s a totally free marketplace that simplifies the buying and selling process, and help you learn about EVs along the way too.
So this is a podcast with a difference as it’s only on one topic, and that would be Tesla. But in no way do I think I can do a better job that those who regularly produce the best content out there, Ryan McCaffrey’s Ride The Lightning Podcast is there for passion about the cars, Rob Maurer is there for the financials, Now You Know is a lot of fun.
But actually this isn’t a Tesla podcast today. Let me explain, sure it’s about one company, but it’s the story of where we’ve come from, and where we’re going to. I’ve made 276 of these shows so this is a reset, a line in the sand. Regardless of Tesla, this is really about a company making a profit on electric cars by producing them at scale. If you could, I’d say pour yourself a Teslaquila, and enjoy this.
For everyone who has told me electric cars are a fad, and for every milk float joke I’ve had to listen to, I’ll dedicate today’s show to you. For everyone who works at Tesla, any owners of a car or anyone who will own a Tesla one day, this is for you.
Yesterday Tesla changed fundamentally as a company. It is now mass producing pure electric cars and making a profit. Some background, most were expecting the earning call to be scheduled on October 31st or the first week of November. So when Tesla said “hey what are you doing in 10 minutes, we’ve got news” it was surely a sign they had good news. Ok so we got a little more advance notice than that, but not much more!
As the results were announced just after I recorded yesterday’s podcast I’ve had almost a whole day to listen to the call, make notes, filter out what’s really important and just bring you the highlights. Consider this is a greatest hits set of the news. This isn’t going to be like going to see the Rolling Stones and them saying they’re going to do some new songs. Just play us Gimme Shelter and Start Me Up. So here is my greatest hits set of Tesla news…
- Wall street forecasts were for revenue to be $6.3bn, it $6.8bn
- They generated free cash flow of $881m
- GAAP (generally accepted accounting principles) net income of $312 million
- Up from Q2 loss of $612m
- An operating margin of 6.1%
- Q2 (April, May, June) gross margin on the Model 3 was 5%, analysts doubted they could ever hit 15%…it was > 20%
- Production costs are plummeting
- They have $3bn of cash and cash equivalents on hand
My impression of listening to the earning call is that there was no evidence of Tesla crowing about these results or gloating. They rose above the swamp where the negativity lives.
- Elon spoke a lot about safety to begin with, how they are topping the crash test charts because they don’t build cars to game the system and be strong where the tests are done, they are anti-gamers. As in, they crash their own cars, identify the weakest spots, and make them stronger. It’s why their cars are the safest on the road – why some people think they’re over engineered. Todd Maron spoke about the architecture of an EV and all that room up front where a fossil engine would be, basically a giant crumple zone, it makes EVs way safer for occupants and for any cars which collide with a Tesla.
BEING A FAN FAVOURITE
- Elon choked up when he talked about Ryan McCaffrey’s idea of using fans to help the official Tesla staff over a couple of weekends, when handovers were crazy, and how Tesla owners would spend time with new buyers just chatting and answering questions. This should apply to all over EV makers, it’s not something unique to Tesla, whether it’s the Audi e-tron or I-PACE or Mercedes Benz EQC.
NAVIGATE ON AUTOPILOT
- One of the most anticipated features, and frustratingly not here yet, is Nav on Autopilot. Stuart Bowers talked about how you can change lanes without manually initiating that move. Also they expanded on Full Self Driving and why it is off the menu for new cars, it was just too confusing they say. It will require new hardware for older Tesla’s, Andrej Karpathy said the improvement will be dramatic.
- Always a hot topic, JB Straubel said they have other partners they can lean on apart from Panasonic. This is something I forget, and also remember than Tesla Grohmann, the German automation company acquired last year, will help Gigafactory make more improvements. That’s a disadvantage for other makers as Grohmann has a variety of contracts to help make those other legacy auto makers get more efficient, and now they work purely on Tesla.
- Tesla says it delivered 56,065 Model 3s
- “In Q3, we delivered 27,710 Model S and X vehicles to customers. While demand in China remains challenging due to a 40% import duty for Model S and X, China deliveries still remained a material portion of our Q3 deliveries, and we managed to offset the decline there with growth in North America and Europe.”
MODEL 3 IS NORTH AMERICA’S BEST SELLING CAR
- Last quarter they delivered 56,065 Model 3’s. And remember Tesla use the gold-standard of measurement, a car is only counted when it’s on the driveway of the buyer and done their first 0-60mph blast. OK that last bit might not be true! Tesla confirmed that by revenue the Model 3 is the best selling car and by volume it was 5th, which is a special achievement given how much more expensive it is compared to the Camry’s, Civics and Corollas of the world.
- “Labor hours per Model 3 decreased by more than 30% from Q2 to Q3, falling for the first time below the level for Model S and X.”
- Elon has signed off on the first prototype of the Model Y, this is the SUV which is more like the size of the Jaguar I-PACE, as the Model X is a beast of a car. Technically the Model Y will be a crossover SUV. It is targeted for production in 2020. In many way, even though the Model 3 was the most pre-ordered product in the history of manufacturing, the Model Y could be even bigger. That SUV crossover style is way more popular in many countries. We expect to see it sometime in the first quarter of 2019. As mad as it sounds, because the Model 3 was blow-your-socks-off-successful, the Model Y could be the main event for those market where a German crossover SUV is the default car to buy.
- Elon confirmed left hand drive models are coming to Europe and other territories soon. Production starts January, with deliveries in Feb & Mar.
- Are all the other vehicle makers listening? February. They will be here in February. I know you want to wait until 2020 because of EU Emission Rules, and you’ve got to rinse that investment in your fossil factories, but…February!
- They confirmed parts of the Model 3 production will begin in China next year. They have acquired the 210 acres of land and most recently I was messaged with pictures of work already being started to prepare it for building works. They aren’t hanging about. Of course this could just be assembly of cars, but it still counts. The investment is expected to be $2bn, they said everything they’ve learned will lead to greater efficiencies, and hey they’ve got $3.5bn cash on tap for investments and paying down debt. In China they should building 250,000 vehicles a year.
- “”In order to significantly increase the affordability of Model 3, we have decided to accelerate our manufacturing timeline in China. We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing. Production in China will be designated only for local customers.”
- Something which seems obvious to you and I, they are building cars not just for todya, but loaded with cameras so that they’re ready for future full automation. And from October 2016 onwards, car built since then being used for ride hailing and ride sharing. Watch our Uber, watch out Lyft.
- Elon said: “”The company-owned fleet will just be where there aren’t enough customer cars to be loaned out. So if we find a particular metro where there aren’t enough customers who are loaning cars to the shared fleet then that’s where we will supplement with a Tesla own fleet. So that’s why it sorts of a combination of Uber and Airbnb. And then we charge something probably comparable to yeah [Apple App store] or I don’t know we charge 30% or something in order for somebody to add the cars to fleet. I think that’s like a pretty sensible way to go.””
RIGHT HAND DRIVE
- Not on the call, but since then, “Elon Musk said on Thursday the electric carmaker’s new Model 3 will be available in Australia and the UK around the middle of next year.” The company said it would start taking orders in Europe and China for the Model 3 before the end of the year, in left hand drive form.
- Sandy Munro, who takes apart cars to the last nut and bolt and sells the reports to other car makers is mightily impressed.
AND STILL THEY DON’T GET IT
Via Zach at CleanTechnca…
“We question if this is not as good as it gets from a near-term upside surprise for shares,” Goldman Sachs said while recommending “sell” for Tesla.
Ryan Brinkman of J.P. Morgan writes while recommending “sell” for Tesla, “we remain Underweight, both on valuation and concern the new stronger trajectory to earnings and cash may prove less sustainable than the market is likely to presume, including given several headwinds.”
Colin Langan of UBS: “While TSLA claims it will be profitable and cash flow positive going forward, we do not see that as likely with declining prices. TSLA also claims to have no plans for a capital raise; however our view on a Q4 or 2019 capital raise is unchanged as Tesla will need to invest to expand Fremont roduction, build a China factory, ramp Model Y and expand infrastructure.”
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