CALL BITES: What Tesla executives discussed during Q2 2019 earnings call

The main focus of the post-earnings conference call led by Tesla’s (NASDAQ: TSLA) CEO Elon Musk, after the company’s lackluster second-quarter report, was production and delivery targets, especially for the Model 3 sedan.

Terming the record vehicle deliveries achieved in the second quarter as ‘unprecedented’, Musk said the company will maintain the growth momentum in the coming years, at rates ranging from 50% to 100%. He attributed the strong delivery growth to the effective management of global logistics and delivery operations.

Outlook

According to the CEO, Tesla is on track to start Model 3 production at the Shanghai Gigafactory and to finalize the location for the European Gigafactory, by year-end. Meanwhile, the company aims to be breakeven in the current quarter and profitable next quarter, before becoming free cash flow positive in the future quarters.

Responding to a question, Musk justified the recent reduction in Model 3 prices, saying it was done to strike the right balance between ‘value for money’ and ‘affordability’ and also to absorb the impact of the recent expiry of the tax credit. Despite the decline in the average selling price, consequent to the price-cut, margins will remain unaffected due to the expansion of Model 3’s market share and rollout of the full self-driving option.

As part of its efforts to offer better service to customers, Tesla is planning to increase the rate of service center opening this year, including mobile service.

Global Expansion

To a question by Dan Galves of Wolfe Research, Musk replied that the demand for Model 3 cars to be produced at the Shanghai plant will be about 5,000 units per week, in the long term. Cars meant for the Greater Europe market will initially be sourced from the Fremont plant, until the region’s Gigafactory becomes operational, which is expected by 2021. When it comes to long-term demand for Model 3 globally, Musk has the ambitious target of 15,000 units per week.

Countering the theory that second-quarter results benefited from consumers rushing out to buy Model 3 before the expiration of the federal tax credit, he said the demand is high and will continue to increase sequentially in the next two quarters. It is estimated that sales of Model 3 will touch ‘three quarters of a million units a year’ in the next couple of years, and those of Model Y will be around 1.25 million units per year, totaling about two million units.

Full Self-driving

Musk claimed that Tesla is well-equipped to offer full self-driving in all markets in the long run, except in the European Union due to regulatory issues. Commenting on the upcoming Battery and Powertrain Investor Day, he said an extensive review of cell chemistry, module & pack, architecture and a manufacturing plan will be done.

Related: Tesla Q2 2019 Earnings Conference Call

In an important executive transition, Tesla’s co-founder and chief technology officer JB Straubel has been assigned the role of senior advisor, while Drew Baglino will take over most of Straubel’s responsibilities.

CFO Zachary Kirkhorn said regulatory credits will become a more meaningful part of Tesla’s business as it continues to expand to new geographies.

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