Elon Musk has a secret weapon to increase Model S demand

Fri, Feb 13 2015

Tesla Motors has a bit of a reputation for not being as transparent as some would like. So, when the end of the fiscal quarter arrives, there's always a lot of interest in the financial statements the company is obligated to release. But the info and insights don't just flow from its official 8K filing. The automaker also holds a conference call that sees CEO Elon Musk, CTO JB Straubel and Chief Financial Officer Deepak Ahuja taking questions from assorted financial analysts for an hour or so. It's here that we often learn interesting details behind the numbers, as well as hints of what's to come, sandwiched between quotable quotes from Musk.

This week's call, following the release of 2014 fourth quarter financial results, certainly didn't disappoint. When asked by a Barclay's representative how much money Tesla will put towards capital expenditures over the next several years, for example, the irrepressible Musk said the company was "going to spend staggering amounts."

This, of course, makes sense when you consider the massive amount of work the outfit has already bit off and has begun chewing. There's the production preparation for the Model X, a multi-billion dollar battery "gigafactory" under construction, the growing of its store and service center infrastructure along with its Supercharger network, and Model 3 development. Still, the gleeful tone, when discussing the spending of billions of dollars, seems contrary to what one might expect during such a call. But, it's also part of what keeps these teleconferences from being a total snooze fest. That, and the unexpected mention of new products and candid discussion of challenges.

Speaking of challenges, the situation in China was probably the biggest thing on most minds of company followers and was addressed early. Tesla's sales have been surprisingly lackluster there and Musk was quick to admit that, "we didn't execute on China super well last year" relaying how its sales team was actually telling potential customers it might be difficult for them to charge. He balanced out the bad news with the consolation that even if it had of delivered more in the territory, it wouldn't have affected this financial statement much, since the Model S is production-constrained, and any slack in one market is made up by demand in others. He did, though, make it clear that he expects things in the People's Republic to improve and to "be in good shape by the end of the year."

What else did we learn from the call? Lets' make a list, shall we?

Tesla will keep its residual value guarantee program in place. Musk claims it's not really necessary and makes the company's financials a little less shiny, but getting rid of it might be seen as a loss of confidence in its product.
Musk would bet that Tesla will be worth as much as Apple is today – around $700 billion Â– in 10 years. He gets there by assuming it will maintain it current growth rate, "achieve a ten percent profitability number and have a twenty P/E ( price/earnings ratio)."
Tesla won't set up a joint venture in China or sell through dealer groups there in the next couple years and it is seeing orders there trending positive since making management changes and improving the region's maps and other features in the Model S.
Tesla has no plans to raise more money through capital markets in the near term.
Tesla has no plans to raise prices, despite strong demand, beyond what its done already in some markets to offset falling currency values.
Ahuja expects the company will be cash-flow positive by the end of the year, despite significant planned capital expenditures. Musk says it will be profitable under GAAP in 2020, has been non-GAAP profitable the past two years.
The initial vehicles built on the Model 3 platform (in the second half of 2017) will be more conservative than what might come later, in order in make sure timeline doesn't slip.
The all-wheel-drive P85D has been more popular than they'd expected, as has demand for the new, optional seats.
The design of the Tesla stationary battery homes is done and will be revealed within the next month or two, with production starting in about six months. The company is also talking to a lot of utilities about energy storage, though those projects are farther out in the future.
Musk really loves the middle seat in the Model X, calling it a thing of "sculptural beauty" and "the nicest second row seat you've seen in any car ever." According to the CEO, their creation "might have been harder than the (falcon-wing) door."
The Model X will have features that we don't know about yet, but they won't be revealed until deliveries begin.
Musk expects demand to stay strong through this year and sees no need for discounts, paid celebrity endorsements, or ad campaigns. He did say, though, that he has a "secret weapon" to generate further demand that he might "start to deploy later this year" that could be a "good weapon against the dealers."
Musk says there is a new software release coming next month that will "positively affect the entire fleet" which will also actuate some autopilot capability for those cars equipped with the appropriate sensors.

If you happen to have any ideas about what mystery features the upcoming Model X might hold, or what demand-generating secret weapon Musk might have, please share with us in Comments. If you have an hour or so to spare, you can listen to audio from the earnings call by simply scrolling down.

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By Domenick Yoney