Tesla, Inc.

Good day, ladies and gentlemen, and welcome to the TESLA Q2 2018 Financial Results and Q&A Webcast Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Mr. Martin Vieca. Senior Director of Investor Relations. Mr. Vieca, you may begin.

Thank you very much, Cherie, and good afternoon, everyone. Welcome to Tesla's second quarter 2018 Q&A webcast. I'm joined today by Elon Musk, J.B. Straubel, Deepak Ahuja, Robin Ren, our Head of Sales, Jerome Guillen, our VP of Trucks, and we also have our Autopilot team with us here. Andrej Karpathy, Director of AI, Stuart Bowers, our VP of Engineering, and Pete Bannon, our Director of Silicon Engineering. Our Q2 results were announced at about 1 p.m. Pacific time in the update letter we published as the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow-up. Please press star 1 now if you would like to join the question queue. Before we jump into Q&A, Elon has some opening remarks.

Elon? Hi. Thank you for joining. First of all, I'd like to say we're incredibly proud of the Tesla team for producing 7,000 Model 3, Model S, and Model X vehicles in the last week of June. That was an amazing effort. It's an honor to work with Tesla. such a great team to produce that incredible result. It was mind-blowing. We continue to achieve 5,000 Model 3s per week, 7,000 combined S, X, and 3 multiple weeks in July, ensuring that we're able to do this on a sustained basis. We expect to, in the absence of a force majeure or some very unexpected event, be able to achieve an average of of 5,000 Model 3s or above for Q3 and 2,000 Model SXs or above per week for Q3 as well. So essentially 7,000 cars a week plus on average for Q3. That's an amazing jump from only a year ago we were producing 2,000 vehicles a week. It's really kind of a mind-blowing a leap forward for a manufacturing company. So, yeah, it's incredible work by the team to do that. Many, many late nights, weekends, extreme amounts of effort, and lots of smart ideas. It's amazing. One of the results you're seeing is that the Model 3 market share has surpassed all competitor premium midsize sedans combined. Model 3 market share is now a majority, or in July, was a majority of all pre-incidents. That trend is, we think, likely to continue. So it's not, we do not think it will stop there. I have Rob Morin here, who's our Worldwide Head of Sales, to talk about some of the interesting elements that we're seeing in terms of cars that people are trading in, the sales and demand trends. It's looking really, really positive. We're also getting great feedback on Model 3 from our customers, and we're now delivering the performance dual motor and all-wheel drive versions. And the Model 3 reviews are outstanding. Really couldn't ask for better reviews from some of the toughest critics in the world. And the thing that we're really finding is that the more Model 3s we deliver to the field, it's actually causing viral growth of our sales. So we deliver a Model 3 to somebody. They love it. They tell all their friends. They're actually really our customers or our primary sales force. They love their car and take their friends for a drive. And that's the thing that fundamentally drives our sales. But not everyone has a brand new Model 3, obviously, so we need to get cars out there for test drives. As it is right now, not even all stores in North America have Model 3s for test drives. We prioritize getting cars to customers, but we're soon going to have Model 3s available for test drives in all stores, both the performance version and the rear-wheel drive version. So a lot of people, they will not buy a car until they test drive it, which is not unreasonable. Although on Sunday when I delivered it, we did testing out like direct delivery, which I think is definitely future, direct delivery from factory to customer's home or wherever they are. The guy who bought it had never actually even sat in a Model 3. I was like, wow, okay. And I said, well, how do you feel about the car now? You have it and you reminisce like you love it. It's amazing. So, yeah, it just seems to be really well received. Yeah, so at a production rate of 7,000 cars a week, we believe we can be sustainably profitable from Q3 onwards. We're going to try to raise that the rate of Model 3 production steadily in the coming quarters, and try to get to the 10,000 cars a week number as soon as we can. What we found, as we spent a lot of time debugging wide-range manufacturing issues, that the potential for our existing lines to be able to produce far more cars is much greater than expected. that by simplifying production lines, by speeding them up, by in some cases having things being done manual instead of automatic, and in other cases having it be done automatic instead of manual, we've been able to achieve dramatic improvements to the output of the existing lines, which means that our CapEx going from 5,000 cars a week to 10,000 cars a week is a tiny fraction. CapEx going from 5 to 10 is a tiny fraction of the CapEx needed to go from 0 to 5,000 Model 3s. This is, I think, very good news for capital efficiency of the company. And we're going to try this out. That's going to inform future mass market vehicles that we produce. And from an operating plan standpoint, From Q3 onwards, I really want to emphasize our goal is to be profitable and cash flow positive for every quarter going forward. Now, obviously, if there's a big recession or there's a severe force majeure event that interests our supply chain, that's not always possible. But we're confident that in providing the economy's roughly where it is today, or reasonably good, and there's not a big portion of your event that we, I feel comfortable achieving a gap income positive and cash flow positive quarter every quarter from here on out. As you said, there may be occasional quarters where we pay back a big loan or something, where there may be you know, just because we paid back a big loan. But, you know, absent that, it would be a casual customer. So, once again, I'd like to thank the Tesla team for the incredible work and our customers for their support. Without the great people we have at Tesla and the customers who put their faith in us by buying our product, we would not be here today. And... yeah, I've really never been more excited about the future of Tesla. We've got a super exciting, uh, set of products to bring out in the future. And, uh, yeah, um, it's like, yeah, I mean, I'm sorry to end the story, but I sound a little tired. I've been working like crazy in the body shop lately. Um, but, uh, it's really going great. I'm super excited. It's like, damn good. Some good people. Um, And a number of the executive team here in particular asked the three key leaders of the Tesla autopilot team to be here. So maybe I can go from here to see if autopilot leaders of Tesla could introduce themselves and say a bit about themselves. what you're working on, what you're excited about in the future. Sorry to put you guys on the spot and everything. But I think we're making pretty radical advances in the core software technology and the vision of neural net. And then, very importantly, with the Tesla self-driving chip technology, We've been working on it for three years. It's finally coming to fruition. is going to talk a lot about that. But it's a plug-in replacement for the existing computer and enables an order of magnitude improvement in operations per second or frames per second, is the way you think about it. And we think it's really the key to Tesla full vehicle autonomy. and Alexa resigned to be a really easier place to talk about that. So we're going to start with Stuart, Andre, and then Pete.