Tesla, Inc.

Ladies and gentlemen, and thank you for your patience. You've joined the Tesla Q2 2019 Financial Results and Q&A webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Should you require any additional assistance during the call, please press star, then zero on your touchtone telephone. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Senior Director of Investor Relations, Martin Bieka. Sir, you may begin.

Thank you, Lateef, and good afternoon, everyone. And welcome to Tesla's second quarter 2019 Q&A webcast. I'm joined today by Elon Musk, JB Straubel, Zachary Kirkhorn, and a number of other executives. Our Q&A results were announced at about 1.45 p.m. Pacific time in the update letter we published at 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 yourselves to one question and one follow-up. Please press star 1 now if you would like to join the question queue. But before we jump into Q&A, Elon has some opening remarks. Elon?

Thank you. So last quarter we delivered more than 95,000 vehicles, which is a record for Tesla. Put that in perspective, it's nearly an 80% increase in deliveries compared to the second quarter of last year. I think it's sometimes hard for people to appreciate when you have a large manufactured item with a complex global supply chain just how difficult that is. I'm incredibly proud of the Tesla team for being able to do that. I think this level of growth is possibly unprecedented. It might be the fastest that any large complex manufactured item has grown in history. So just really great work by the Tesla team to achieve that outcome. And we expect growth to continue into the future for several years to come at the 50% to 100% level. So I just generally think that that is not well appreciated, how difficult it is to grow at that rate. Achieving a record number of deliveries is an important milestone and shows the rapid progress we've made in managing a global logistics and delivery operation at high volume. And as I said, all this was achieved thanks to the tremendous hard work of the entire Tesla team. Model 3 was once again the best-selling premium vehicle in the U.S., outselling all of its gas-powered equivalents combined. In Europe, Model 3 is approaching sales levels of its established premium competitors, and it was awarded a five-star rating from the Euro NCAP earlier this month. This is in addition to Model 3 receiving an overall five-star rating in the U.S. from NHTSA, including earning five stars in every category and subcategory, and achieving the lowest probability of injury of any vehicle ever tested. Motor Trend also recently selected Model S as the best vehicle they have ever tested in their 70-year history across all other cars. So Motor Trend, which is arguably the leading authority in evaluating vehicles, the Motor Trend Car of the Year is the most coveted award. It's pretty incredible that they would say that Model S, in their entire 70-year history, is the best vehicle they have ever evaluated. This is despite Tesla not buying any advertising in Motor Trend. And I think it speaks to their trend listing integrity. That's something special. And since the vehicle that they evaluated, we've actually made tremendous advancements in both Model S and Model X, including our recent update of a new suspension with active damping capability and an all-new drivetrain that's capable of a 370-mile range in the Model S and a 325-mile range in the Model X. We've also issued numerous software updates and improvements that have made Model S and Model X faster, safer, and added dozens of new features. Just like Model 3, Model S and X have the hardware needed for future full self-driving capability. As we look ahead to the rest of the year and into 2020, we remain focused on launching new vehicle and energy programs, further expanding our manufacturing operations, and continuing to improve customer service. We remain focused on international expansion because local production is essential to being cost competitive. By the end of this year, we expect to be producing Model 3s in volume out of Gigafactory Shanghai. And as you can see from the photos in our quarterly letter, equipment installation there is progressing well. We also have to finalize location for our European Gigafactory before the end of the year. Here in Fremont, preparations for Model Y production have already begun. Since Model Y has high component overlap with Model 3, it should be, and we expect it to be, a lot easier to ramp. something on the order of three-quarters of all the parts are common between Model 3 and Model Y. And we expect manufacturing costs for Model Y, despite additional content, to be approximately the same as Model 3. This quarter, we opened 25 new service locations and added more than 100 mobile service vehicles to our fleet. And although our fleet's total Tesla fleet size has doubled the past 12 months which is like again just like kind of a crazy thing to consider that tesla is uh you know almost doubling all cumulative production every year this is a this is a totally mad thing um to to make as many cars in a year as as we made in our entire history um and to have that be an ongoing trend i think It is difficult for people to really feel an exponential. We didn't evolve to feel an exponential. We can feel a linear, but we could only understand an exponential at a cognitive level. But Tesla is expanding at an exponential rate. In fact, if you look at the Tesla cumulative deliveries, chart, like your cumulative deliveries, it's about the cleanest exponential graph I've ever seen. So obviously, if that trend continues, the results, I think, are going to be pretty amazing. And I think that will continue. So we've been able to improve service considerably. And you can imagine that, obviously, if we're doubling our fleet every year, managing service is quite difficult. Because service scales not just with new production, but as the total fleet scales, service needs to scale. And we want to scale service in a way that's sensible from a cost standpoint, but it's really quite a difficult challenge to scale. Nonetheless, We've made massive improvements in service, especially in parts waiting. It's time to wait for parts and in collision repair. And we've insourced a great deal of the collision repair activities, which has had, I think, quite a good effect on customer happiness. And this will continue in the months to come. So a very important milestone. We believe Tesla is now at the point of being self-funding and we expect a free cash flow positive in future quarters, with the possible temporary exceptions around the launch and ramp of a new product. From a profitability standpoint, we expect to be probably around break-even this quarter and profitable next quarter. So that's... I feel pretty confident about that. And then in terms of deliveries, we expect deliveries to be between 360 and 400,000. We expect production to be a slightly higher number than that and demand to be a slightly higher number than that. So people often confuse deliveries, production, and orders. for Tesla, and they're actually three different numbers. So, yeah. You obviously cannot deliver more than you make, so typically we'll make more than we deliver. And then, demand generation activities kind of move in kind of like a, you know, to get together with production. Like, it doesn't make sense to put a lot of effort into demand generation if production can't meet the demand. What tends to happen is that we'll solve the production issues, then it's like, okay, we need to increase demand, address demand, then increase production, then increase demand. People get caught up in these details a lot, but if you look at the actual results Like I said, look at cumulative deliveries over time for Tesla, cleanest exponential we've ever seen. Extrapolate that curve. So there's a tremendous amount to be excited about at Tesla, and we'll have more share in the coming weeks and months. Zach, is there anything you'd like to say about our results?